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1/28/2005
02:40 PM
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Silicon Valley Sparks Renewed Interest From VCs

Technology companies are regaining their pre-eminence with venture-capital firms, promising a continuing flow of innovation and enhancements for the IT infrastructure, according to several venture-capital reports last week.

Not only did national IT investment tick upward, but the technology cradle of the Silicon Valley saw a marked improvement. Instead of continuing a steep decline from the peak of $35 billion in 2000, investment in San Francisco Bay area technology companies regained its forward momentum in 2004. Although the Silicon Valley has experienced a decline in technology jobs, startups are being financed at a rapid clip.

VCs earmarked most of the money for Silicon Valley software, semiconductor, networking, and hardware companies, increasing their investments last year by 15% to $7.1 billion, says Doug Henton, president of Collaborative Economics, an economics consulting firm. Henton is a preparer of the Silicon Valley Index, produced for 10 years by Joint Venture, a not-for-profit organization.

On The Comeback Trail Chart

"We're back to the preboom levels," Henton says. He doesn't expect venture funding in Silicon Valley to experience another colossal spike like the one that occurred in 2000. Yet, companies receiving funds are technology innovators that have undergone a thorough review. "Instead of handing money hand over foot," he says, "we're getting better business plans."

Silicon Valley is attracting a higher proportion of venture capital today than it a decade ago. In 1995, the region represented 14% of the total; today it represents 35%.

New sources of capital for Silicon Valley ventures are coming from Washington--including NASA and the departments of Defense and Homeland Security--as federal agencies seek out advanced technologies. Henton says government IT investments reached $3.4 billion in 2003, the latest year for which figures are available, up from a little over $1 billion a year earlier.

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