VC Funding Near Dot-Com-Bubble High

2007 venture capitalist fund levels were almost as high as they had been in 2001, but analysts say this is more fallout from the housing market crisis.

Venture capitalists raised $34.7 billion in funds in 2007, an increase of 9.4 percent and the most the industry has raised since 2001, when it raised $38.8 billion.

These numbers were compiled in a report released Jan. 14 by Thomson Financial and the NVCA (National Venture Capital Association), which also noted that the number of funds raised in 2007 only increased a modest 2.6 percent from 2006.

Still, the 2001 comparison caused many observers to worry that the economy could be in the same place it was before the dot-com bust, when the overvaluation of technology companies sent the economy into a near recession.

The NCVA set to quickly calm these concerns. "We are nowhere near the unsustainable fundraising levels of the 1999 to 2001 period when the industry raised more than $200 billion," NVCA President Mark Heesen said in a statement.

"Today's composition [of dollars raised] consists of a broad diversification across early, balanced, later and expansion funds, compared to the beginning of the decade when funds were focused almost exclusively on the early and balanced stages," said Alex Tan, global financial manager at Thomson Financial.

Analysts were also calm about 2007 venture capital funding levels, arguing that the upswing in dollars was part of a ripple effect of the housing market collapse.

"They decided to put it in real estate instead and keep it there because it was considered stable. Real estate is clearly no longer considered safe, and this money is going into funding," Rebecca Wetterman, vice president of research with Nucleus Research, told eWEEK.

Venture capitalists were seen as making savvier, safer investments in 2007 than they did in 2001.

"That was a tech bubble. People were throwing their money into any Internet stock whether or not it had any profit. Now it is a lot more difficult to get funding," Rick Munnariz, senior analyst with Motley Fool, told eWEEK.

Wetterman likened investors to "gamblers with a cheat sheet"-having gone through setbacks before, they're making smarter investments.

"A lot of them are investing in on-demand products like software as services, hoping they'll get their money back sooner than later ... . We're not necessarily seeing them going after startups anymore. They're looking for businesses with a proven track record," said Wetterman.