Investments In IT-Based Ventures Rise

Oct 25, 2004 (11:10 AM EDT)

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Venture-capital investments in IT-based companies totaled $2.5 billion in the third quarter, up from $2.3 billion in the year-earlier quarter, according to the VentureOne/Ernst & Young quarterly VC report released Monday. The number of IT deals by VC firms in the third quarter was 272, down from 280 a year ago.

Year to date, venture-capital investments in IT totaled $8.6 billion, up from $7.5 billion for the comparable period a year ago.

Software companies attracted $1.1 billion in VC investments in the third quarter, including the period's largest VC deal, a $105 million later-stage investment in Vonage, a phone service provider using voice-over-IP technology. Other IT categories include communications ($600 million), electronics ($230 million), information services ($162 million), and semiconductors ($386 million).

Early-stage investments in IT companies--a gauge of interest in promising new technologies--was up in the third quarter, with the median amount invested in first-round deals hitting $5.7 million.

Health-care companies also attracted higher earlier-stage investment. Early-stage health-care companies drew $358 million spread out over 40 deals in the quarter, the most raised since mid-2002. Biopharmaceutical firms garnered $967 million spread out over 61 deals in the quarter, an increase of 16% in money invested and 25% in deals over the second quarter. Early-stage health-care investors were likely encouraged by the ability of companies to find initial public offering opportunities; 32 of the 48 VC-backed IPOs in the third quarter occurred in the health-care sector.