NEW YORK-Led by technology companies in communications and software, 1996 was a record year for venture capital investments, and it may therefore be a tough act to follow.
“Venture capital investments exceeded $9.5 billion in 1996, a 25 percent increase over calendar (year) 1995, with more than 2,000 companies [receiving] funding in 1996,” said Donald A. McGovern, chairman of Price Waterhouse L.L.P. Technology Industry Group, Dallas, which released its Venture Capital Survey late last month.
“1996 was so strong that there is some evidence growth may be beginning to level off, [but] if 1997 investments hold near the current level, it will be another excellent year for entrepreneurs and venture capitalists alike,” said McGovern.
The most funds went to companies in the software and information and the communications industries. Taken together, 942 companies in these sectors received a total of $4 billion.
The fourth quarter of last year accounted for $2.48 billion of the 1996 total and represented a 6 percent increase compared with the fourth quarter of 1995.
Last quarter, technology-based companies dominated all venture capital investments. While 65 percent of all companies receiving funding were technology-based, companies in the communications and the software and information industries accounted for 44 percent of all venture capital funding, drawing nearly $1.1 billion, a 10 percent increase compared with fourth-quarter 1995.
“We expect these two interrelated sectors to continue to lead venture capital investments in 1997 and beyond,” McGovern said.
Reflecting the underlying strength of these industries, the majority of investments in these two categories during the fourth quarter of 1996 went to companies in the formative stages. Start-up and early stage enterprises accounted for 47 percent of all companies and dollars invested in software and information companies and 43 percent in communications companies.
Overall, companies in these formative stages attracted $781 million of the $2.48 billion invested, an average of $3.3 million per company. This was second only to companies in the expansion stage of development, which garnered $840 million in the last quarter, or $4.8 million apiece on average.
Venture capitalists made a number of above-average early stage investments in wireless-related companies last quarter, among them:
$15 million in Subscriber Computing Inc., Irvine, Calif., which provides billing and real-time switch interface software for wireless carriers;
$12.5 million in Diablo Research Inc., San Jose, Calif., which develops electronic products for wireless communications;
$7.03 million in American Wireless Corp. of Bellevue, Wash., which develops broadband fixed wireless network systems.
Likewise, wireless industry companies seeking follow-on stages of venture capital also were well represented among those receiving larger than average investments last quarter:
$20 million to Centennial Communications Corp., Denver, a specialized mobile radio operator;
$20 million to Sygnet Wireless Inc., Canfield, Ohio, a cellular carrier;
$20 million to Corsair Communications, Palo Alto, Calif., a designer of cellular fraud prevention systems.
Last year and last quarter also were noteworthy because investments became more dispersed geographically. “Venture capital had an exceptional year in 1996 because investing continued to strengthen in non-traditional regions throughout the country,” said Carl Thoma, president of the National Venture Capital Association, Washington.
For the year, Silicon Valley in California still retained the top spot, with 552 companies of all kinds attracting a total of $2.29 billion in venture capital. New England kept second place with 330 companies garnering $1.27 billion. However, 60 percent of all venture capital in 1996 went to companies in other regions, the Southeast in particular, followed by the Midwest, New York and Texas.
During the last quarter, Silicon Valley also topped the charts in terms of dollars invested, $571 million, and number of companies financed, 153. New England placed second, followed in order by the Midwest, the Southeast and Texas.
Of the 17 major regions into which the survey is divided, eight captured more than $100 million each last quarter. In 10 different parts of the country, 20 or more companies got venture capital backing, up from seven different regions during the fourth quarter of 1995.
“Figures increasingly are showing that a company’s potential is a more important determinant in attracting capital than its geographic location,” said McGovern of Price Waterhouse.
The Price Waterhouse fourth-quarter survey included responses from 419 venture capitalists. Another 203 co-investors were identified by respondents.
Further information about the survey can be obtained from the company’s Web site at http: www.pw.com/vc.