Poor Q4 Unable to Bring Down 2000 Totals –

In news that will not shock anyone who tried to secure venture capital financing over the final three months of 2000, Venture Capital Journal publisher Venture Economics released year-end VC disbursement figures in late January revealing that the investment glass really was just three-quarters full.

The final numbers, which were compiled and released in conjunction with the National Venture Capital Association, show that only $19.59 billion was raised in the fourth quarter of 2000. That relatively measly number represents a 30.9% dip from the $28.32 billion raised in the third quarter, and a 23% decrease from the $25.44 billion raised in the fourth quarter of 1999.

Moreover, the recent trend of venture capitalists propping up needy portfolio companies continued as first round commitments plummeted to just 25.5% of the overall fourth quarter pool. Overall in 2000, first round investment dollars constituted 33.3% of the whole, down from 34% in 1999 and a whopping 42.4% in 1998.

Still Breaking Records

In spite of the rocky fourth quarter, the VC industry still managed to dole out a record amount of capital to a record number of companies last year.

Over the course of 2000, 5,380 companies received approximately $103 billion. In 1999 – which was also a record-breaking year – 3,967 companies received $59.4 billion.

The year’s biggest winner was CapitalSource Holdings LLC, a Washington D.C.-based loan provider that secured $540 million in September from a group of investors that included Fallaron Capital Management, First Union Capital Partners, Madison Dearborn Partners and Rosewood Capital.

Other success stories – at least in terms of VC fund raising, were Dallas-based MetroPCS with $321 million, Texas telecom firm Grande Communications with $241.73 million and Web-based delivery company Kozmo.com with $215 million.

Despite talk of an Internet backlash, Internet-specific companies continued to attract over 40%, or $7.93 billion, of all venture investment in the fourth quarter of 2000. Other leading sectors included communications garnering $4.18 billion; computer software and services garnering $2.89 billion; and semiconductors pulling in $1.49 billion.

Regional Breakdown

It should come as no surprise that the largest portion of VC investments went to companies in Silicon Valley and Silicon Alley.

VCs invested a total of $33.4 billion in Northern California, a 72.1% increase of the 1999 total of $19.4 billion, and invested $12.1 billion in the Greater New York region, a 62.1% increase from 1999’s $7.5 billion. Combined, those areas accounted for 44.8% of all VC disbursements in 2000.

More noteworthy are the areas that recorded the largest percentage gains in 2000.

The Rocky Mountains, the Great Plains and New England posted the greatest growth rate last year of 135.7%, 107.4% and 100.9%, respectively.

Certainly even with such impressive gains, VCs will not be fleeing Silicon Valley any time soon to head for a more promising land; however they will be keeping close tabs on these vibrant areas.

On the flip side, the South was the only region that posted a loss in 2000, with investments falling off 27.9% to $943.9 million from $1.3 billion.

Firming Up Disbursements

Although at press time Venture Economics has not yet officially released year-end figures for venture firm commitments, our VentureXpert database indicates that Morgan Stanley Dean Witter Capital Partners (MSDW) led the pack by committing $1.04 billion to 41 companies.

Following MSDW, Chase Capital Partners committed $985.18 million to 45 companies, Madison Dearborn Partners committed $963.56 million to 15 companies, Warburg Pincus & Co. committed $701.64 million to 27 companies and Advent International Corp. committed $562.76 million to 13 companies.