Industry Standard - February 07, 2000
Web Companies Find 1999 Venture Capital Windfall
Two new reports say Net startups received more than two-thirds of all U.S. venture capital in 1999, at levels four times that of 1998.
By Mark A. Mowrey
Most observers knew Net startups were receiving astounding amounts of venture capital during 1999, yet few knew how great those funding totals would be - until now.
According to data released Monday from the National Venture Capital Association and Venture Economics, a division of Thomson Financial Securities Data, Internet-related companies received a total of $31.9 billion in 1999, up 355 percent from 1998's total of $7 billion. By VE's calculations, Net firms received two-thirds of all venture dollars awarded during the year.
While Northern California remained the largest regional locale for Internet-related VC activity, at $12.4 billion, the greatest growth in Net-related VC investing came from the Rocky Mountain region. There, totals jumped from $226 million in 1998 to $1.4 billion in 1999.
San Francisco-based researcher VentureOne also released year-end 1999 venture capital figures Monday. The firm measured VC funding in Internet companies during the fourth quarter of 1999 at $11.6 billion, higher than any annual total ever recorded, bringing the aggregate for the year to $25 billion, a more conservative figure than that released by VE. That's more than four times greater than the 1998 total and 68 percent of all VC funds raised during 1999.
According to VentureOne, Net-related business services firms received $10.6 billion, or 42 percent of all Internet VC awarded during 1999. Internet software and database firms raised $4.8 billion while e-commerce companies raised $4.0 billion.
VentureOne estimated the 1999 median VC round raised by Net startups at $9 million (versus $7.5 million for all U.S. venture-backed firms). The median pre-money valuation for Net startups that received venture backing was $30.9 million (versus $25 million for U.S startups overall).
VE and VentureOne are two of a group of four primary sources for total VC funding at the U.S. national level. The third, PriceWaterhouseCoopers, plans to report year-end 1999 figures during the week of Feb. 14, while the fourth, Technologic Partners, will not release their year-end totals until March.
While both researchers paint a picture of vastly increasing Net venture-based funding, there is a significant variation between the totals - VE tallied a U.S. VC total for 1999 of $48.3 billion, while VentureOne estimates the year reached only $36.5 billion.
Much of this variation arises from differences in the definition that each researcher uses to designate an investment as "venture capital." VentureOne - the group with the most conservative figures - uses a strict definition for such investments that includes stipulating the source of the investment funds as, "professional, institutional, venture capital limited partnership[s]."
This clarification will often limit the inclusion of many investments made by corporations and other private equity interests whose investments might be more strategic, longer-term, or not specifically made in order to provide a return for a specific set of limited partnership-based investors.