SAN FRANCISCO — Venture capitalists emerged from the dot-com debris to finance more fresh ideas late last year, helping to lift quarterly investments in startups for the first time since the Internet bubble burst, according to a study to be released Monday.
Startups across the country received $7.1 billion in venture capital during the fourth quarter, a 2 percent improvement from the third quarter, based on statistics collected for the National Venture Capital Association by PricewaterhouseCoopers and Venture Economics.
It marked the first time venture capital volume climbed from the previous quarter since the industry showered entrepreneurs with $26.3 billion during the three months ended June 2000.
Around the same time, the stock market began to shun the unprofitable dot-coms that venture capitalists had nurtured in previous years, triggering a painful shakeout. The fourth-quarter bounce may signal the early stages of a turnaround, according to venture capital experts.
“We have bottomed out and are clearly on the road to recovery,” said John Taylor, vice president of research for the National Venture Capital Association, the industry’s main trade group.
Despite the fourth-quarter uptick, venture capital investment continued its drastic decline on a year-to-year basis. The fourth-quarter activity represented a 67 percent drop from the $20.9 billion invested during the same period in 2000.
For all of 2001, venture capitalists invested $36.5 billion, a 63 percent decline from a $99.6 billion spree in 2000. The 2000 figure lowers the National Venture Capital Association’s previous estimate of $104 billion for that year.
The revision resulted from the trade group’s decision to use joint data compiled by PricewaterhouseCoopers and Venture Economics, which previously released competing surveys.
As they enter 2002, most venture capitalists believe they will build on the modest momentum of last year’s final quarter.
“I wouldn’t say we are much above the bottom, but at least it doesn’t feel like we are going back down again,” said Gregory Sands, general partner of Sutter Hill Ventures in Palo Alto.
Last year, venture capitalists devoted most of their time and money to trying to salvage the best startups in their portfolios while pulling the plug on the weakest . With much of the dot-com mess behind them, venture capitalists are “starting to look outward again,” said Philip Sanderson, general partner of WaldenVC in San Francisco. As they re-enter the fray, venture capitalists are focusing more on biotechnology.
The $1 billion that venture capitalists invested in biotech startups during the final three months of 2001 represented a quarterly record for the sector.
Biotech accounted for 14 percent of all venture capital investments in the fourth quarter. In contrast, the $867.6 million invested in biotech during the fourth quarter of 2000 accounted for 4 percent of the total volume.
Plenty of venture capital remains to be invested. Venture capitalists started the year with about $50 billion at their disposal, estimated Jesse Reyes, a vice president for Venture Economics.
The surplus is one reason venture capitalists aren’t raising as much money as they were a few years ago. Institutional investors also are trimming their venture capital portfolios. With those forces at work, venture capitalists in the fourth quarter raised $9 billion for future investments, a 65 percent decline from the prior year, according to VentureOne, another industry research firm.