Venture-capital funds see flood of new money

SAN FRANCISCO — Venture capitalists secured $11.2 billion for future investments during the second quarter, marking the industry's biggest flurry of fundraising in more than five years, according to data released Monday.

It represented the largest wave of new money to pour into venture-capital funds in any three-month period since the first quarter of 2001, when financiers raised $16.6 billion.

With the latest surge, venture capitalists have raised $18 billion so far this year, a 41 percent increase from $12.8 billion a year earlier, according to Thomson Financial and the National Venture Capital Association.

Nearly half of the second-quarter fundraising was concentrated in two funds. Oak Investment Partners raised $2.56 billion; New Enterprise Associates was close behind at $2.25 billion.

The remaining $6.4 billion was spread among 48 other funds.

The busy quarter continues a turnaround from doldrums that set in after the dot-com bust in 2000 and 2001.

As the losses from those dark days piled up, venture capitalists went into hibernation. In 2002, for instance, just $3.8 billion was raised during the entire year.

Things have been gradually picking up ever since.

The big question is whether venture capitalists are getting themselves into trouble again by committing to invest more money than the market of entrepreneurial ideas can support.

"We cannot pretend that this isn't an incredible amount of money to invest," said Mark Heeson, president of the National Venture Capital Association.

There may be a very logical reason for the fundraising ramp-up. Since the dot-com bust, it has generally taken startups much longer before they can pique Wall Street's interest in buying an initial public offering of stock, a financing vehicle that generally yields the biggest payoff for venture capitalists.

The extra waiting time for an IPO is making venture capitalists realize they probably will need to pump more money into startups struggling to make ends meet, Heeson said.

That rationale doesn't mean venture capitalists won't get carried away.

Already, some are starting to worry the industry has created a glut of online video sites as they scramble to duplicate the success of the sector's most popular site, YouTube.com.

Although it streams more than 100 million videos per day, even YouTube hasn't proved its huge audience will produce enough profit to justify the $11.5 million invested in the 17-month-old startup so far.

Despite the recent upturn, venture-capital fundraising still looks sedate compared with the boom years of 1999-2001, when about $200 billion flooded the industry. With six months to go this year, venture capitalists have raised $62.8 billion since the beginning of 2004.