VCs return to Silicon Valley

Signaling recovery of economy and more jobs, venture capitalists invested $1.66 billion in Silicon Valley last quarter -- 22 per cent increase from $1.36 billion in the last quarter, according to a survey by VentureOne and Ernst & Young.

The first significant upswing in investments after years of rough times, the rise in venture investment in information technology companies signals recovering economy and greater jobs, since start-ups have traditionally created the most job growths.

More than $1 billion were invested in information technology companies in the San Francisco Bay Area region in 108 financing rounds. Healthcare was also particularly strong with $528 million invested for the quarter and $1.6 billion invested for the year.

The data shows not only growing confidence among venture capitalists, but the investors are moving on from trying to save their older, struggling companies and investing in the start-ups -- the ones most likely to hire.

Nationwide, venture capital investments rose a less robust six per cent to $4.49 billion from $4.24 billion in the third quarter, the highest level in a year.

Silicon Valley now accounts for 37 per cent share of the United States' total venture capital -- up from the 34 per cent average seen over the past six years.

"We are optimistic that continuing strength in the capital markets will translate into increased early stage investment in 2004," said Gil Forer, global leader of the Ernst & Young Venture Capital Advisory Group.

"The uptick comes at a time when large tech companies are finally more optimistic and new trends in tech are emerging -- combining to create the sort of enthusiasm that hasn't existed in the valley for several years," the San Jose Mercury News reported.

First, the economy is showing more signs of life, boosting profits at large companies and making them more willing to open their pockets to buy the technology products produced by Silicon Valley's venture-backed companies.

Venture capital investment has also been spurred by strength in the stock market as investors can see a way to take companies public and profit from investments.

Large companies are willing to spend more to acquire venture-backed technology companies, and investors are buying shares in companies considering going public, said John Gabbert, vice president of research at VentureOne.

Some 13 companies went public in the fourth quarter, the most since the fourth quarter of 2000.