Venture capitalists still like dot-coms

Venture capitalists are still enamored of technology companies in general and dot-com companies in particular, despite a rocky year on Wall Street.

From 1997 to 1999, venture capital investments rose from $11.5 billion to $35.6 billion, and investments this year have already surpassed that mark, according to the Money Tree National Survey conducted by New York-based PricewaterhouseCoopers.

And of those investments, technology companies received 95% of all funding in the second quarter of this year, according to the survey.

Kirk Walden, the survey's national director, said the likelihood that a start-up will be acquired by an established enterprise is key to this trend.

"If you're a venture capitalist, that says there's another valid exit strategy if you're an IPO," Walden said. "An IPO is extraordinarily painful and extraordinarily expensive. Being acquired can be a very attractive possibility."

The acquisitions are most likely for "one-trick ponies," he said, or companies that offer only one product.

Another likely scenario is the merger of similar-size companies. However, such a merger might also carry the likelihood of layoffs among information technology workers, Walden said. But in the current economy, those IT employees are likely to start up their own firms or get hired.

"I think we have a new level of entrepreneurialism that will provide other opportunities for those people that get merged out," he said. "You have opportunities in the pipeline every day."

Walden said investments this year are likely to be double last year's figures.

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