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.com, Leslie Walker
What Google Shouldn't Ignite

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By Leslie Walker
Thursday, April 29, 2004; Page E01

An apt title for today's technology industry might be "Waiting for Google Gold."

The story line revolves around the increasingly popular belief that Google's initial public stock offering will ignite a second big bang for investors, much like the 1995 Netscape IPO kicked off one of history's frothiest investment bubbles.

But Google Gold could turn out to be Fool's Gold, especially if trends revealed this week in two new reports on venture capital persist.

Research rivals VentureOne and VentureEconomics released reports showing that spending on start-ups is growing again -- but at nowhere near the heady rates of five years ago. Moreover, Google Gold prospectors should note that investors nowadays seem more interested in biotechnology companies than in the communication, advertising and electronic commerce start-ups that led the original Internet investment boom.

First, the numbers: The quarterly MoneyTree survey from Venture Economics and PricewaterhouseCoopers pegged nationwide venture funding in the first three months of this year at $4.6 billion, an increase of 10 percent over the same quarter a year ago. Dow Jones's VentureOne, working with Ernst & Young, offered a slightly higher estimate -- $5.1 billion in venture funding for the first quarter, up 24 percent over last year.

The seeming discrepancy in tallies is due to a methodological difference. VentureOne counts all dollars initially pledged, rather than waiting for the various stages of each funding commitment, as Venture Economics does. So one big deal alone, in which funds will be doled out gradually to a biotechnology start-up called Jazz Pharmaceuticals , was counted as $50 million by Venture Economics and $250 million by VentureOne.

Still, it is interesting to note that the MoneyTree survey showed an actual decline in investment activity -- by 12 percent -- from the last quarter of 2003, when venture capitalists plowed $5.2 billion into companies.

The MoneyTree survey also found VC spending to be fairly soft in the Washington region. Venture capitalists sank $213 million into 39 D.C.-area companies during the first quarter of this year, down from $218 million in the fourth quarter of last year and $219 million in the first three months of 2003.

Mark G. Heesen, president of the National Venture Capital Association in Arlington, which co-sponsored the MoneyTree survey, put a positive spin on the national results, saying they show the industry has stabilized and is growing more sustainably than during the reckless era of the 1990s. Venture investments have ranged from $4.2 billion to $5.2 billion for seven quarters in a row, he noted.

"Entrepreneurs are getting money but with milestones attached," he said. "Often they get less dollars and have to keep that money for longer, because we are seeing a growing gap between each investment round."

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