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Start-Up Financing Booms in U.S. Tally

July 25, 2006|From the Associated Press and Times Staff Reports

Increasingly optimistic venture capital investors pumped $6.35 billion into start-ups in the second quarter, marking the biggest burst of deal-making in more than four years.

A separate regional tally showed that Southern California companies attracted $730 million in venture financing in the quarter, down from $792 million in the first quarter and $792 million in last year's second quarter.

Nationwide, venture capitalists spread the money across 856 deals -- the most completed in any quarter since the fourth period of 2001, when 978 financings closed, according to data from the National Venture Capital Assn., PricewaterhouseCoopers and Thomson Financial.

The second-quarter report provides more evidence of a venture-capital rejuvenation after years of malaise after the dot-com bust.

"We are finally in the recovery phase," said Gilbert Kliman, general partner at venture firm InterWest Partners in Menlo Park, Calif. "It's good to see a lot of people coming out and investing again."

The big question hanging over the venture-capital industry is whether the recent uptick in investing and fundraising activity portends a repeat of the reckless behavior that fueled the dot-com mania of the late-1990s.

Many venture capitalists seem convinced that people in the industry are treading more carefully this time around.

"Common sense and prudence are the words of the day," said Steve Baloff, general partner with Advanced Technology Ventures in Palo Alto.

The hottest investment sectors in the second quarter included biotechnology, medical devices, computer software and the Internet.

A regional survey of venture investing by Dow Jones VentureOne and Ernst & Young showed that the San Francisco Bay Area, as usual, attracted the majority of venture funding in the second quarter. The region, which includes Silicon Valley, took in $2.4 billion, up from $1.9 billion in the first quarter and $2.1 billion a year earlier.

In Southern California, although the dollar amount invested in the second quarter was down from a year earlier, 65 companies received financing, compared with 56 in the first quarter and 64 a year earlier.

Southland companies that got financing in the quarter included L.A.-based ethanol producer Altra Inc., niche content website operator Demand Media Inc. in Santa Monica and microwave systems manufacturer Lucix Corp. in Camarillo.

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