Venture Funding Off to Strong Start in 2006: Q1 Total of $6.02B Is Highest in 5 Years

Dow Jones VentureOne

and Ernst & Young LLP. That's 18 percent higher from one year ago and is the most money invested in an opening quarter since 2001.

The number of deals was also the highest for an opening quarter since the 558 deals done in the first quarter of 2002.

Also, 2006 deals had a median value of $7.5 million. That's the highest first quarter total since 2001.

"The results of this quarter's study suggest that investors are placing fewer but bigger bets on exciting, innovative companies," said Joseph Muscat, Americas Director of the Ernst & Young Venture Capital Advisory Group, in a statement. "This reflects a desire by investors to accelerate the business models of these companies and a recognition of the increased capital needs of private companies up to an eventual exit transaction, whether an acquisition or an initial public offering."

Most deals were later stage, 208 investments drawing $3.04 billion.

Seed deals generated $16.95 million across 15 investments.

First-round deals totaled 166 and $1.198 billion.

Second-round deals produced $1.44 billion across 129 deals.

Restart investments (28) added another $196 million.

Information technology deals surged to 327 worth $3.36 billion, according to VentureOne and E&Y's report. That was the highest amount since the second quarter of 2004.

"Overall, the first quarter numbers point to a positive start for the U.S. venture market in 2006. The renewed IT activity is a sign that investors are recognizing the significant potential of new information technology innovations and are supporting them once again," said Steve Harmston, director of global research at VentureOne. "But investors also remain committed to existing portfolio companies as the predominance of the capital investing shows."