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For those US investors who got IPO stock at the offer price last year, the median appreciation over one day was 30%; over three months it was 26%. (Average increases, rather than median, were 64% and 104% due to the few really high flyers.) Median appreciation for tech IPOs was 63% in one day and 116% over three months. However, the offer price is typically available only to favored investors. If you bought in at the day's closing price, the median appreciation over three months was 0% across the board or 24% for tech stocks. There are enough people who want in on the deal that 1999 was a record year for IPOs. 555 companies went public -- almost half of them tech companies -- raising almost $74B. That's nearly 50% more than the record 1996 capitalization.

US venture funding is increasingly flowing to communications, software, and information-processing businesses, which are getting 60% of new investment (up from 41% in 1995). Health care and biotech have dropped from 20% to just 7%. VCs invested $21B in the first three quarters of 1999, 50% more than in all of 1998 and four times as much as in 1995.

US venture capital is concentrated in California and the Northeast, and in knowledge-intensive industries. (Ditto for technology advances and new patents.) 75% of 1999 venture capital has gone to CA, MA, NY, TX, WA, and CO. Most of the wealth from previous venture funding is concentrated in those states, as are skilled knowledge workers and tech-related university programs. [Gene Koretz, BW, 07Feb00, p. 30.]

Arthur Andersen Ventures is a new, $500M venture capital fund for Web startups, charging equity instead of fees. It will invest in business-to-business commerce and Internet-based services. [WSJ, 24Jan00. NewsScan.]

Softbank, the Japanese computer publishing and Internet conglomerate, is forming a $500M Softbank Emerging Markets investment fund to invest in Internet startups in about 100 developing countries. (The World Bank's International Finance Corporation is providing about 25% of the funding.) [Financial Times, 14Feb00. NewsScan.]

Internet companies raised almost $20B in venture funding last year, up from $3.4B in 1998. More than half of all 1999 venture investments went to Internet-related businesses. Funding in 2000 will likely shift to business-to-business services, rather than consumer startup such as Webvan and [PricewaterhouseCoopers. IBD, 14Feb00. NewsScan.]

When startup Direct Hit needed venture funding in 1998, Warren Packard of Draper Fisher Jurvetson arranged the investment within one day of hearing of it. (A record, to be sure.) Now Ask Jeeves Inc. (Wellesley, MA) is buying Direct Hit for $500M in stock, and DFJ will get about $105M from its $3.75M investment over three rounds of financing. That's a 28-to-one return, the kind of event that keeps Silicon Valley investment churning. VCs are often afraid *not* to invest, and their big scores keep money flowing in from elsewhere. (Then they pressure the startups to grow quickly so that the money can be recovered and put back into play.) VCs pumped almost $6B into 362 Bay Area companies in the 4th quarter (up from $1.2B in 4Qtr98), with average 1999 investment of $12M in 1,153 companies. (That's a doubling of deal size and of total investment, to $13.5B for the year. A few of the deals were over $175M; Webvan group got $275M.) Accel Partners shepherded to IPOs this past year, bringing a $5.6B return on $56M invested. It also took in 45 new companies, for $372M -- double what it could invest in 1998. One theory is that entrepreneurial demand is the "external energy source" driving this seeming perpetual motion machine (or success spiral, or snowball effect): as entrepreneurs develop the desire and need for funding, VCs will find a way to raise the capital. Stock options and capital gains tax cuts are also important drivers, as is technological progress. Growth is rapid partly because intellectual property can be accumulated much faster than physical property. Another theory says that the stock market's attitude toward Internet IPOs -- which could change at any time -- is the chief energy source.

Bay Area startups are also getting funding from corporations, buyout funds, investment banks, and financial corporations -- possibly $3B in corporate funding last year, about nine times the 1998 total. Corporations usually invest in strategic technologies -- outsourcing their R&D -- rather than just for maximum profit, so they may be willing to invest more than would a VC (though often not with the same speed). They may provide advice, administrative support, technology access, standards development, publicity, and sales channels, but their interest sometimes falls off quickly after they gain access to the technologies they want. In other cases they are investing to speed up the development of a new market. They may not be as interested as VCs in getting to an IPO quickly, so they don't take board seats or provide the same type of executive guidance. The emphasis is on product and market success -- thus helping and enriching the corporate partner -- rather than founders' profit. Often a corporate sponsor will work hand-in-hand with a VC, for the best balance of financial support. Intel invested more than $1B in 250 companies last year, at about $1M-$10M per company. (Its total portfolio is about $8B in 350 companies worldwide.) PricewaterhouseCoopers is just beginning to track these sources, with existing estimates compiled by Venture Economics (Newark, NJ).

VCs invested almost $36B in the US, up from $14B in 1998. New England got $4B; the New York City area, $2.5B. In the Bay Area, $3B went to software companies. Of the $15B in 4th-quarter VC money, the Bay Area got 39%; New England, 11%; the Southeast, LA/Orange County, and New York each 7%; DC, the Midwest, Northwest, and Colorado each 4%. 15% went to software companies (or 23% in the Bay Area). The limiting factor at this point may be people rather than funding. [Shawn Neidorf , SJM, 13Feb00, 1E and 3E.]

Part of the game is to get backing from prestigious VCs. "If Kleiner Perkins thinks enough of you to invest, or so goes the thinking, other people will surely follow the lead." It's been great for the VCs, who typically invest only pennies to perhaps $1 in stock that sells for $10 or more. Almost all of the risk has been moved to the public markets, giving extraordinary returns to all levels of pre-IPO investors. If anyone is taking stupid risks, it's the small investors. "The skinning of momentum-maddened, greedy suckers is a necessary part of capitalism." When prices finally drop, it may be by as much as 90%. After that, even the best ideas will have trouble getting funded. Most VCs are already saying that the market is nuts and that bizarre and stupid ideas are being funded -- except for their own portfolios. [Dan Gillmor, SJM, 13Feb00, 1E.]

Still interested in day trading and high-tech stock investment? Send a "subscribe" message to . [BASES, 24Jan00.]

----- "Shoot ducks when they're flying. Investors determine when investors are interested -- and that's when entrepreneurs must pull the trigger." -- Moneyhunt Rule #27. -----