Venture Capitalists' Investments Climb - But No 'Bubble'; N.C. Deal Flow Slows

Venture capitalists invested $7.1 billion in 887 deals during the third quarter, maintaining a financial equilibrium that so far has helped prevent the latest Internet fervor from forming another dot-com "bubble."

The amount of venture capital disbursed during the three months ended in September represented a 5 percent increase from $6.79 billion at the same time last year, according to data to be released Saturday by Thomson Financial, PricewaterhouseCoopers and the National Venture Capital Association.

It marks the third consecutive quarter in which the high-tech financiers' investments have ranged between $7 billion and $7.5 billion.

However, in North Carolina, the deal flow was much slower. VCs invested $86.7 million inn 12 deals totalling $86.7 million.

That's the lowest quarterly total for North Carolina since the $40 million reported in the fourth quarter of 2005.

While that has been enough to put venture capitalists on track for their biggest investment year since 2001, it lags the feverish pace that fed the dot-com boom in 1999 and 2000 and set the stage for a traumatic bust.

"We are nowhere near that scenario," said Bryan Stolle, who ran Agile Software during the boom years and is now a general partner for Mohr Davidow Ventures in Menlo Park.

Venture capitalists invested an average of $20 billion every three months during 1999 and 2000, emboldened by the soaring stock prices of young and mostly unprofitable Internet startups.

This time Wall Street has shown little inclination to embrace unproven startups, one of the factors that has caused venture capitalists to show more restraint.

"I very seldom look at a closed deal and wonder, 'How did that one get done?'" said Bruce Robertson, managing director for H.I.G. Ventures in Atlanta. "It looks like most of the money is flowing into pretty good opportunities."

Entrepreneurs also aren't seeking as much money as they did during the dot-com boom because the lower cost of technology also means many startups need less money than they did a decade ago.

Nevertheless, the worries about a possible bubble are escalating as more entrepreneurs try to capitalize on the flood of advertising dollars pouring into the Internet.

The shift to online advertising has turned Google Inc. into the Silicon Valley's most prized company with a market value of more than $200 billion. The Internet search leader started with just $100,000 in 1998, followed by a $25 million injection of venture capital.

With $13 billion in cash, Google now buys up many startups before they need to raise much venture capital.

The rapid rise of online social network Facebook Inc. also has encouraged Internet entrepreneurs and venture capitalists angling for big returns.

Started just 3 1/2 years ago in a college dorm room, Palo Alto-based Facebook is close to raising another round of financing that reportedly will value the privately held company at between $10 billion and $15 billion.

Internet companies raised $1.06 billion in venture capital during the third quarter, down by 8 percent from the same time last year. Venture capitalists have planted at least $1 billion in the Internet sector in four of the last five quarters.