Venture Money Favors Older Startups - InformationWeek
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7/25/2005
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Venture Money Favors Older Startups

Venture capitalists are putting their money in later-stage ventures with some history behind them.

Though the overall amount invested in nascent IT firms last quarter dropped nearly 18% from a year earlier, young companies with some history behind them are attracting dollars from venture capitalists.

According to the Ernst & Young/VentureOne Venture Capital Report issued Monday, 300 deals raised nearly $2.83 billion in the second quarter, down 18% from nearly $3.43 billion raised in 357 deals a year earlier.

But many venture capitalists last quarter invested their money in so-called later-stage companies, ventures that have been around for several years, not embryonic startups. The number of later-stage deals for all industries climbed to 210 this year from 193 in the second quarter of 2004, while the amount invested increased 23% during the same period to $2.98 billion from $2.42 billion for all categories of business.

The increase represents the most capital directed toward later-stage rounds in nearly four years, and a considerable amount of it ended in the coffers of IT firms. John Gabbert, VP of worldwide research for VentureOne, says improved later-stage-round funding suggests investors believe they'll reap healthy profits when these ventures go public or are swallowed up by bigger companies.

All but two of the top 10 firms receiving VC funding last quarter were later-stage ventures, and five of the top 10 were IT companies, all later-stage funding recipients.

Among the top IT companies receiving funds were:

--Vonage, a provider of residential and small-business phone services using voice-over-IP technology, received $200 million.

--Entrisphere, a provider of multiservice access platform technologies that offer controlled evolution from current overlay architectures to simple converged designs, received $75 million.

--Caspian Networks, developer of flow-state IP quality-of-service systems, received $55 million.

--Omniture, provider of Web-site analytics software, received $40 million.

-- T-Ram, developer of a memory cell based on thin-capacitively-coupled-thyristor technology, which combines existing SRAM and DRAM memory technologies, received $40 million.

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