If you're a Net entrepreneur and you can't get cash now, you just ain't hot. And if you're not part of the online revolution, you're old and cold. That's the resounding message from the latest figures on the venture-capital boom. The first quarter of 1999 was a bonanza for young companies staking out new territory online. Internet companies -- or those in related fields -- sucked up $1.8 billion, or 43%, of the nearly $4.3 billion venture capital firms invested during that period, according to PricewaterhouseCoopers' quarterly Money Tree Survey, released Monday, May 17.

Doubt the momentum behind this trend? Look at growth in the Net's share of VC money -- in dollars and share of total investment. The latest figures are a big jump up from the 27% for Net companies out of $3.7 billion of total VC investment in the last quarter of 1998 and 17% out of $3.0 billion in 1998's first quarter. Technology in general consumed 84% of the quarter's total investment, the PWC survey found. "Investment in all other industries actually went down," notes Kirk Walden, national director of the Money Tree Survey. "Before, they were holding their own."

A few years ago, a '50s-style burger-and-shake restaurant got VC funding, Walden observes. No one would bother now, he says, because "there's too much upside on the tech side." A parallel lesson in this tech-mad world: If you're looking for money, geography counts big. The Mecca and Medina of Internet developers, Silicon Valley and New England, drew 40.7% and 13%, respectively, of VC money in the U.S. No other region came close.

IDEAL CONDITIONS. With the U.S. economy still cooking and the Dow continuing to set records, even while showing much volatility lately, entrepreneurs and investors are reaping the benefits of practically ideal conditions for starting and running businesses -- and for buying into them and getting out by taking them public profitably and fast. "I would say no good idea goes unfunded," says Walden. "If you can't get funding, you don't have a good idea." Fueling the VCs are institutional investors, eager to reap those 25% to 35% annual returns.

But that doesn't mean it's a cinch to get your hands on money from the notoriously selective VC world: He points out that the number of companies getting funded increased just 7%, to 722 year-on-year, at a time when the amount of money pouring into startups soared 41%, and average investment per company jumped 31%, to $5.9 million. "I conclude from the number of people getting funded, that they're at least as selective," Walden points out.

VCs aren't plowing more money into each company out of generosity, though. Product cycles are so short for Internet and communications businesses that investors are pushing entrepreneurs to work faster by giving them more money at early stages, says John Martinson, managing partner at Edison Venture Fund in Lawrenceville, N.J. "The race to be the first mover is leading to more capital up front."

DIFFICULTY EXITING. What could slow this locomotive? A sustained downturn in the stock market or overall economy. But don't look to VC figures as a harbinger of a market downturn, says Walden. That's not how the industry works. In fact, a brief shutdown in the market for initial public offerings -- such as the one that occurred last fall -- was a buying opportunity for many VCs. They took advantage of the drop in prices -- and entrepreneurs' cockiness -- to take larger stakes in promising young companies for less. Investors "must see difficulty exiting before it slows.... [The stock market] would have to stay down for a significant period for it to have a chilling effect on valuations," according to Walden. At this rate, VC investment should handily surpass last year's record of $14.3 billion, as measured by PWC.

One cautionary note from Edison Venture's Martinson: There are parallels to the previous waves of enthusiasm and disillusionment over the biotech industry, which gleaned only 2.5% of the first quarter's VC funding. Prodigious amounts are going into sustaining many early-stage companies that probably won't be profitable for some time -- even after they go public, he observes. That leaves them dependent on secondary offerings of stock to keep going. A market crash would dry up their funding, wiping a number out. "The biotech industry has been through two or three downturns. Each time there has been capital constriction," says Martinson. Of course, that couldn't possibly happen to the miraculous world of Web companies -- could it?

By Julia Lichtblau in New York
julia_lichtblau@businessweek.com

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