Venture capital funding for hi-tech start-ups will continue at record levels next year as investors ignore economic uncertainties.
The latest quarterly survey of all venture capital funding in the US from Pricewaterhouse Coopers shows total investments for the third quarter of calendar 1998 at $3.78 billion, a record. Of this, 78 per cent of funds went to hi-tech firms. Biotechnology companies are included in this category.
"We would speculate that if the public share offering market stays decent then this kind of investment could continue all next year. Four billion dollar plus quarters would be the norm," commented Kirk Walden, research director at Pricewaterhouse Coopers.
He added that this was great news for entrepreneurs, some of whom with this funding will be providing the hot technologies in two to three years' time. The IT industry is now seeing the results of the boom in VC funding for hi-tech that began in 1996, he suggested.
The quarter was a 29 per cent increase on the same period last year. For the full year the total is set to be around $14 billion, compared to $11.5 billion for 1997.
Sadly the same promising news cannot be relayed for Europe, where there are no signs of a relatively lacklustre venture capital market for hi-tech companies improving.
Next month the European Venture Capital Association will unveil figures, but they generally show around one-eighth the level of investment as the US. As Walden notes, Europe still lacks the kind of stock market environment suitable for initial public offerings that give companies the next phase of funding and venture capitalists their return.
In this quarter software and information companies received $1.46 billion while those categorised as communications received $931 million. The subset of Internet related companies received $881 million in the quarter, nearly double the same period in 1997.
In all 1,561 hi-tech companies received funding, of which around two out of 10 typically show a substantial return on the investment. Some, as recent share offers of Internet companies in the have shown, can be very rewarding.
Wall Street analysts have noted that the high values of shares of Internet related companies is partly due to the limited number of them compared to the heavy demand for these fashionable stocks.
Walden said this situation only feeds venture capital funding for this sector: "The market is prepared to absorb more Internet companies."
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