Staff Writer, CNET News.com
Venture investing in technology companies rose to $11.3 billion last year, reversing three years of consecutive declines as the market returned to more normal patterns of investing, according to a venture capital report scheduled to be released Friday.
U.S. technology venture investing rose 8.6 percent over the previous year, according to a report by Ernst & Young/VentureOne. Though the figure still pales in comparison to the go-go days of 2000, it does reflect a return to a more normalized pattern of venture investing, said Matt Garlick, VentureOne research manager.
"A lot of the trouble that came with the postbubble has erased itself out, so we'll see more investments in early stage companies, as well as continued funding in companies that have received funding in the past," Garlick said.
Electronics and information services captured the largest increases in tech venture investments last year, as consumer gadgets and consumer-related Internet sites grabbed VCs' attention.
"Consumer electronics were big drivers across all IT investing, and information services—with the strong performance of Google's IPO—drew more attention to that space," Garlick said.
Consumer electronics rose 41 percent to $1.3 billion last year over the previous year. And information services climbed 58 percent to $931.7 million.
The information services industry was helped by investments in communications services provider Mobile Satellite Ventures and online matchmaking site eHarmony. Mobile Satellite Ventures received the largest funding round across all industries, capturing $145 million in a late-stage investment round. eHarmony raised $110 million in a second round of funding.
Although electronics and information services performed well, both industries represent a small part of the overall tech investment pie.
Software investments, which make up the largest slice of VC tech funding, rose 19.5 percent to $4.9 billion last year.
Communications and semiconductor companies, however, did not fare as well in attracting investment dollars. Communications investments fell 17 percent in the year to $2.5 billion, while semiconductors dropped 5.8 percent to $1.6 billion.
Although security companies were spread across several tech industries, a couple of companies stood out. IronPort Systems, which markets an e-mail appliance, ranked sixth, based on its late-stage investment round of $45 million.
Other security vendors receiving large investment rounds included Cipher Trust, a spam-monitoring company that raised $42 million in its first round of funding, and PatchLink, a patch-management company that received $30 million in a second round of funding.
"These were large rounds. The median round for tech was $7 million in 2004," Garlick said.
The outlook for this year may see a continuation of venture investing growth. VC firms are expected to have raised a total of $16.5 billion in 2004, once the final figures are in, Garlick said. That's roughly double the $8.7 billion raised in the previous year, indicating that VCs have a sizable bankroll to burn on investments, he added.
Meanwhile, VC investments across all industries last year reached $20.4 billion, up 8 percent from the previous year.