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The Wall Street Journal

November 21, 2005

The Top 10 trends in 10 Industries

Venture Capital: Where the Bets Are

By Ann Grimes

The technology world is revving up again as venture capitalists seek out a new batch of young start-ups they hope will become the next Yahoo or eBay.

Through the third quarter, venture capitalists have poured some $16.2 billion into 1,605 deals, according to VentureOne, an industry tracker owned by Dow Jones & Co., publisher of The Wall Street Journal. That is a far cry from the $95 billion that flowed into start-ups at the height of the tech boom five years ago. But it’s on par with the $21.5 billion invested in 2004 and in keeping with the industry’s historical norms.

This time around, the VCs aren’t looking just to Internet start-ups or biotech firms for hot growth. Many are exploring new markets overseas, as well as underserved sectors such as alternative energy. Many also are placing their bets on more mature companies—start-ups that weathered the tech downturn and now boast a cool new product or, better yet, a profit. Here’s a look at some trends playing out in the venture-capital world.

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7 > Older And Wiser

Even though hot Internet companies are attracting plenty of dough at a very early stage, many venture capitalists are looking for more—seasoned bets where they can put bigger chunks of cash to work.

After getting burned in the tech bust, and with fund raising up to 16% over the third quarter of 2004, these investors are putting their money into more mature tech companies that weathered the downturn and now have products and customers.

So far this year, the bulk of venture capital, 78% has gone into later-stage deals like Vonage Holdings Corp., an Internat-based telephone service that has raised over $400 million in venture capital.

8 > Adopting Orphans

In the search for seasoned investments, industry veterans Terry Garnett and David Helfrich have launched a new firm focusing on venture buyouts. Their goal: to find “orphan” technologies and products that big companies have developed but abandoned—such as Wyse Technology Inc.’s computer thermals—and spin them out into separate companies. The deals represent a cheaper, safer way to find ready-for-market products, the logic goes.