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Venture investment hits a 6-year high

January 19, 2008|From the Associated Press

SAN FRANCISCO — Venture capital investments in U.S. start-ups climbed to a six-year high of $29.4 billion in 2007, raising hope that ample money will be available to back promising new ideas even if the staggering economy falls into a recession.

The amount of venture capital spread across 3,813 deals represents the industry's busiest year since $40.6 billion went into nearly 4,500 U.S. start-ups in 2001, according to data scheduled for release today by Thomson Financial, PricewaterhouseCoopers and the National Venture Capital Assn.

The $29.4 billion invested last year marked an 11% increase from $26.6 billion in 2006.

In 2001, venture capitalists were actually curtailing their investments after the dot-com bubble pushed the U.S. economy into its last recession.

Although many experts believe another recession is imminent, venture capitalists say there is little reason to believe their investment pace will slacken this year. In a show of confidence, venture capitalists raised $34.7 billion last year for future investments, a 9% increase from the previous year.

The industry's optimism stems from a belief that many of today's hottest concepts either are recession-resistant or are developing money-saving products that may have even more appeal during an economic downturn.

The investment areas spurring the optimistic outlook include healthcare and biotech, the Internet and technology aimed at alternative energy, pollution reduction and resource conservation. Combined, these sectors attracted nearly $16 billion in venture investments last year, more than half of total activity.

While focusing on specialties that are less susceptible to economic downturns, venture capitalists have been increasing their investments more gradually in recent years. During the dot-com boom, high-tech financiers routinely entrusted millions of dollars to young Internet entrepreneurs who had never run profitable businesses.

The more disciplined approach makes it less likely there will be a dramatic about-face like the one after venture capitalists invested almost $160 billion in 1999 and 2000. After that flurry, venture investments fell for the next three years before bottoming out at $19.7 billion in 2003.

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