US venture capital investments jumped 15 percent in late 2003 as risk-averse investors mostly shunned young startup companies, pushing late stage financing to a 20-year high.
About $4.9 billion was invested in the fourth quarter of 2003 according to the latest Money Tree Survey, a quarterly analysis of venture capital funding compiled by PricewaterhouseCoopers.
This indicates a modest upward trend despite 2003 venture capital funding declining for a third year, dropping 15 percent to $18.2 billion. This is far below the record $105.9 bn invested in 2001.
"This level of venture capital funding seems about right for our industry and is unlikely to rise much more," said John Taylor, vice president of research at the National Venture Capital Association.
Life sciences dominated investments for the second consecutive quarter, displacing software as the top sector, with telecommunications and network sectors lagging far behind. The computer and communications sectors continue to fight for funding following massive over-investments during the dotcom boom years. More than $201 billion was invested by venture capital funds in U.S. companies in a three-year period starting in 1999.
The increase in overall funding has been bolstered by several recent successful initial public offerings (IPOs) and acquisitions, providing venture capital firms with "exit points" to cash out their holdings.
Google, the internet search engine leader, is the most anticipated IPO this year. The company could raise more than $10 billion. Although Google is unlikely to unleash a flood of smaller IPOs in technology sectors because of its unique status, it is expected to attract interest from smaller investors in other tech issues.
Life sciences, which includes biotechnology and medical devices, has become the hottest investment sector, But again, it represents a less risky investment because the business models are well established and understood. Venture capital firms are staying away from startups pioneering uncertain new markets.