Entrepreneurs raked in record amounts of venture-capital money all spring, thanks to near-ideal conditions for them and investors, PricewaterhouseCoopers' latest venture-capital survey shows.

Venture capitalists just couldn't help themselves, it seems. They put $7.7 billion into 992 young companies, up from $4.3 billion for 728 companies in the last quarter -- for a total of nearly $12 billion invested in the first half. Conditions were just too good to pass up, says Kirk Walden, national director of the accounting giant's quarterly MoneyTree Survey, which tracks U.S. cash-for-equity investment in young companies. "The second quarter was a confluence of all the right things. Plus there were the deals that didn't quite make it under the wire for the first quarter," says Walden. The backlog swelled the numbers even more. This quarter's investment was the largest since the first quarter of 1995, when PWC began the survey.

What made it so great? First, VCs saw plenty of opportunity to get back money they'd already invested. The boom in Internet stock prices meant a rollicking market for public offerings (124 companies went public in the second quarter). And second, U.S. economic conditions remained extremely propitious for launching a business, with strong economic growth and relatively low interest rates and inflation. At this rate, venture investment will have surpassed last year's nearly $14.3 billion by the end of the third quarter.

Walden doesn't expect third-quarter investment to be so prodigious, partly because the stock market has fallen off considerably since its late-June highs. Internet stocks have been hit particularly hard: By Friday, Bloomberg's Internet stock index was down more than 25% over the previous three months, though it was still up some 36% year-to-date. A weak IPO market doesn't always mean a drop in VC interest, however. It can mean entrepreneurs simply have to give up more equity for less money. There is the human element, though. "The VCs have to go on vacation some time," Walden points out. The third quarter tends to be a lighter period for VC investment -- mainly for that reason.

Who's peering in at the party from the window? Anyone who's not in a technology business. Technology -- particularly anything related to Internet development -- raked in 90% of the total investment last quarter. In the same period of 1998, less than three-fourths of total VC cash went to technology, PWC's data show. Funding for Internet-related companies quadrupled in only a year to $3.8 billion, consuming nearly half of the total VC funding for the quarter. There's no reason to foresee a change here, Walden notes. And a lot of investing in the Net isn't for E-retail. Much of it is infrastructure bets. The big money is going into telecommunications and software.

There may be something of a downside to all this largesse. The deal load for VCs is staggering. "Some VCs are more than stretched thin," says Walden. A look at a firm-by-firm breakdown of the top dealmakers shows some were closing as many as two deals a week last quarter. For entrepreneurs, that probably means less attention and handholding from those financial father figures. On the other hand, when you pull in $5 million for a company that only exists on paper, how resentful can you be?

By Julia Lichtblau in New York
julia_lichtblau@businessweek.com

To: FINANCE