Venture capitalists shift focus
By John Burke • Bankrate.com

Medical, health and biotech companies are already stars in the venture capitalist sky, but they are getting brighter, according to second quarter 2001 figures.

These sectors raked in 13.8 percent ($1.4 billion) of invested cash last quarter. That's a couple of billion dollars behind still-favorite technology operations, but up from 11.2 percent in the first quarter and 3.95 percent higher than a year ago.

"The increased focus on the life-sciences industry, where it can take several years to develop a product, shows that venture firms are getting comfortable again with long gestation periods for their investments," said Adam Reinebach, vice president with Venture Economics.

"The question going forward is, which firms are best equipped -- and best funded -- to maintain their portfolio companies in a more challenging economy?"

Less VC dollars for now
Overall, a slowing economy has continued to drag down new money.

Venture capitalists invested $10.6 million in the second quarter of 2001, representing a 12 percent decline from the first quarter and a 61 percent drop from a year ago. Expansion-stage companies received more than half (54.9 percent) of all venture capital, showing a commitment to growing companies in existing VC portfolios.

Internet-specific companies, which garnered $3 billion, still get the biggest piece of the venture capital pie, but the overall size of the slice fell to 28.4 percent from 34.3 percent in the first quarter.

The computer software and services sector came in second at $2.2 billion. Communications and media companies, with $1.8 billion in investments, were third.

Shifting venture-capital sands
While Northern California remains the leading region for venture, its share shrunk from 34 percent a year ago to 29.5 percent. The New York tri-state area also saw a decrease in venture capital investment, down from 11.5 percent a year ago to 9.9 percent in the second quarter.

Now, the Southwest is snagging a larger percentage of investment cash. VC here jumped from 4.6 percent in the second quarter of 2000 to 8.9 percent in the same quarter this year. New England also saw a considerable increase in the last year, moving from 9.64 percent to 12.57 percent.

-- Posted: Sept. 5, 2001