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Research by Ernst & Young has found that the volume of cash invested in venture capital globally has reached the highest levels for four years, which may prompt some folk to talk about dotcom bubbles once again.
Worldwide, VC investment is predicted to top $32 billion, which would make 2006 the highest year for VC investment since 2002, when the global figure was $51.22 billion. In the first three quarters of 2006, $25.39 billion in venture capital was invested.
Global director of Ernst & Young's Venture Capital Advisory Group Gil Forer explains the figures:
“The new wave of venture capital investments around the globe, particularly at the early stage, has been driven by a number of factors. First, demand for innovation in sectors such as Web 2.0, cleantech and biotechnology is increasing in both mature and emerging markets.”
Ernst & Young see the figures as a sign that VC companies are getting back on track after the dotcom crash, with investment levels rising in the US especially, but also in Europe
The report also shows the high levels of early stage activity in 2006, 42% of the completed rounds in Europe so far this year have been seed and first rounds, the highest percentage since 2001.
Forer believes venture capitalists are being more selective in their investments than 2001:
“We have seen median deal sizes at their highest levels in at least six years, demonstrating that investors are placing bigger bets on selectively fewer companies to sustain the most promising emerging market leaders as they compete worldwide to become the next global market leaders.”
Google’s acquisition of YouTube, alongside the news that the search engine giant’s shares reached the $500 mark, has led some commentators to talk about the dotcom bubble again. We think there's a hell of a lot more to come from Google.
However, as Skype founder Niklas Zennstrom says, the current boom is built on more solid foundations, with widespread internet use and rising online sales.
He doesn’t rule out the possibility of a downturn in the market at some point though. So long as boom doesn't turn to bust...