Venture Capital Floodgates Remain Open

If supply is any indication, there has never been a better time to get your hands on some venture capital cash.

For 1999, venture spending hit $35.6 billion, a 150 percent increase from the $14.2 billion in 1998, according to newly released numbers from the PricewaterhouseCoopers Money Tree survey.

The fourth quarter of 1999 was a record breaker. In that period, venture capital companies spent close to $15 billion, a fourfold jump from nearly $3.7 billion a year ago.

For the full year, technology companies, including Internet-related businesses, soaked up the lion's share of the money, accounting for more than 90 percent of all venture funds invested. Within the Internet sector, business-to-consumer e-commerce sites captured the biggest share -- $4.46 billion in 1999, up 1092 percent over the prior year.

The entire country benefited from the apparent largess. Silicon Valley, the traditional hotbed of venture capital activity, remained red hot, garnering 38.7 percent of the deals and accounting for nearly $5.7 billion in spending for the quarter, growing 195 percent from the year-ago period. But in terms of growth, it wasn't even top dog. The New York metropolitan area, the Northwest, and Los Angeles/Orange County all grew more than 200 percent over the previous year. New England and the Washington D.C. metroplex areas grew 104 percent and 114 percent, respectively.

Of course when things look this good, it worries some of the more cautious market watchers who know that what goes up must come down. The gloomiest of doomsayers conjure up comparisons to the speculative boom market that preceded the great crash of 1929.

But, many bulls said the boom is sustainable. Kevin Harvey, partner at Benchmark Capital, Menlo Park, Calif., said he does not think the so-called stock bubble will burst.

"What we're seeing is a prolonged bull market in tech, and a lot of 'bubblets' will burst," Harvey said. "[Business-to-business] is the bubble of the moment."

Jim Forbes, producer of Demo 2000, a technology showcase held last week in Indian Wells, Calif., said the Internet era has changed the rules of investing, at least for the short term.

"The expectations of returns for VCs are typically in the low teens, but in reality, returns are now 20 percent or more," Forbes said. "The reality right now is that market cap is more important than profits."

Still, he and others are unsure this model can be sustained.

"Profits do matter," Forbes said. "[Amazon.com CEO] Jeff Bezos may be able to carry losses and make successful pass line bets, but the average investors aren't Jeff Bezos."