Silicon Valley again was the No. 1 destination for venture capital dollars in 1996, as information technology investments fueled a record year for venture-backed capital, according to a study released today.
Price Waterhouse, in its National Venture Capital Survey, said all venture capital nationwide topped $9.5 billion, besting the record of $7.5 billion set in the previous year. Three-quarters of this growth came from investments in information technology firms.
"The entire venture capital market is driven by information technology investment," said survey director Kirk Walden. Software and Internet companies are attractive to venture capitalists because of their comparatively low start-up costs and potentially high payoffs, he said.
Venture capital investments in information technology companies reached $4.7 billion in 1996, up from $3.3 billion in 1995.
|1996 VC investment in
|Software & information||$2,227,731,514||24|
|Computers & peripherals||379,559,530||4|
|Electronics & instrumentation||197,839,000||2|
|Semiconductors & equipment||94,109,000||1|
|* Numbers rounded to nearest point.|
Software and information companies raked in nearly 24 percent, or $2.2 billion, of venture-backed investments in 1996. The next-largest slice of the pie went to communications companies, which accounted for 19.2 percent, or $1.8 billion, of the total. Meanwhile, consumer companies came in a distant third at 9.1 percent, or $861.7 million.
Internet firms have enjoyed an astronomical rise in popularity with venture capitalists. Internet investments rose 650 percent in 1996 compared to the previous year, while the venture capital market as a whole rose only 25 percent.
Internet investments contributed to another trend--geographical diversity. While Silicon Valley retains its No. 1 position with a comfortable lead, other regions of the country are making substantial gains.
"The conventional wisdom is that Silicon Valley, along with the Boston area, get all the money," said Walden. "But when you look at the numbers, they only got 37.5 percent of all dollars invested across the country."
Walden attributed the growing geographic distribution of venture dollars to the ability of tech companies to set up shop in any location.
Silicon Valley attracted $2.29 billion in all venture capital dollars, up from $1.7 billion in 1995. New England earned $1.27 billion, up from $627 million in 1995. Other areas posting gains in the venture capital market include the Southeast, which earned $1.08 billion--up from $952 million in 1995. Texas earned $668 million in venture funds; it saw $536 million in 1995.
The venture capital investment boom is not expected to continue at its current growth rate. Fourth-quarter 1996 results represent a 6 percent increase over the same quarter in 1995, while the increase from fourth-quarter 1994 to 1995 was 55 percent.
"We may be reaching a plateau going into 1997," said Walden. "But that's not necessarily bad news?By anyone's measure $9.5 billion is not such a bad place to start."