Bigger Bets by VCs

WSJ writes that venture capitalists are thinking bigger:

Overall, the portion of money invested in bigger, later-stage companies like Visto rose to account for half of all venture financings in the third quarter of this year, according to data from the National Venture Capital Association, an Arlington, Va., trade group. That’s up from 33% in the year-earlier period and 15.5% five years ago. Meanwhile, the percentage of venture money invested in seed- and early-stage companies fell: Such funds accounted for just under 19% of all venture investments in the third quarter, down from 22.4% in the year-earlier period and 27.4% at the end of 2000.

The average investment in a later-stage company, which a trade group defines as one with a widely available product that is generating continuing revenue, was about $10.6 million in the quarter ended Sept. 30, up from the $10.1 million average investment a year ago. Start-up and “seed” stage companies drew an average of just under $2 million, while slightly more developed “early-stage” firms took in an average $5.4 million each, according to the venture trade group’s data.

Such trends are a sign that many venture-funded companies, particularly those in industries like wireless and pharmaceuticals, still need significant cash to ramp up operations. But it also indicates a problem for venture firms: Their funds, which raised tens of billions of dollars during the dot-com boom and never spent it all, are now scrambling to find places to put their remaining cash before the fund’s life, usually 10 years, runs out.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.