RESEARCH TRIANGLE PARK, N.C. — Venture capital funds, which have been raking in huge amounts of money, are now starting to invest it in numbers not seen 2001.

VC firms placed $6.73 billion in 619 deals in the second quarter of 2006, which is the largest total since the fourth quarter of 2001, VentureOne and Ernst & Young reported on Monday. Venture funds raised more than $11 billion in the second quarter as well, the best total since 2001.

Meanwhile, MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data by Thomson Financial, reported $6.3 billion for the second quarter. That amount is the highest quarterly total reported by MoneyTree since the first quarter of 2002.

However, the numbers in the Southeast and in North Carolina, while not bad, weren’t the best in years, either.

Some 10 deals worth $126.25 million were made in the quarter in North Carolina, according to VentureOne and E &Y. That was a jump from $87.70 million in the first quarter. Nearly one third of the second quarter total came in one deal — the $40 million closed on by Durham-based Motricity in April. In the third quarter last year, North Carolina firms closed on $190 million in deals.

Other deals of note include Nitronex ($21.8 million), Hatteras Networks ($21 million), Alveolus ($15 million) and Overture Networks ($7.5 million).

The MoneyTree report cited different totals with 16 investments totaling $117 million in Triangle area companies in the second quarter.

Sixteen deals in Georgia produced $94.25 million, up sharply from the first quarter of $32 million.

No deals were reported in South Carolina for the quarter.

Across the Southeast, some $337 million in 37 deals was reported for the second quarter. That is the highest total in three quarters but far below the $551 million raised in the third quarter of 2005.

The San Francisco Bay Area, as usual, generated the most deals (207) and value of deals ($2.42 billion). Those figures were up 8 percent and 13 percent from 2005. The New England area also jumped, with $740.3 million in deals, a 22 percent spike from 2005, despite the fact that 11 fewer deals were done.

The influx of money should mean good news for companies seeking to raise capital, said Dennis Dougherty of Intersouth Partners in Durham.

“We are in a good cycle, and it may last a couple of years,” Dougherty said, “although in our area the population is not as great.

“One or two big deals can make a quarter look really good — or bad — but over a period of time I think we’ll see a substantial increase in venture activity. One reason for that is in the last 18 months VC funds have been able to raise substantial amounts of money. We’re just one example, and there were many funds much bigger than ours.”

Intersouth recently closed on its seventh fund – $275 million, a record for it and North Carolina.

Through six months of 2006, 105 VC funds have raised nearly $18 billion. VCs appear to be well on their way to exceeding the $26.5 billion raised in 2005, which had been the highest total since 2001.

The influx of cash is now being put to work, Dougherty said.

“It takes six to 12 months to get in the full swing of development,” he explained. “We’re seeing that now nationally and locally.”

The hottest categories for investment are wireless and enterprise software, he added. Dougherty also said more firms are having less of a challenge in assembling alliances for co-funding of deals. Valuations of companies are also increasing somewhat as competition for deals heats up a bit, he added.

The number of deals nationally increased 3 percent over the same quarter of 2005, and the amount invested was up 5 percent, according to VentureOne and E&Y.

Especially hot were health care and information technology investments, with health care deals drawing their most cash since 2000.
“A plethora of very promising and innovative life science companies and a public market climate that is supporting, at least moderately, health care IPOs over the past 2 ½ years, is generating this strong level of investment activity. Thus, it’s no surprise that health care investing, and in particular record-breaking investment in biopharmaceuticals, is surging ahead,” said Stephen Harmston, director of global research at VentureOne, in a statement. “Confidence in the market is also apparent in the level of current venture capital fund raising…in which some particularly large funds are readying for deployment.”

Health care deals hit $2.24 billion in the quarter spread among 160 deals. In fact, the $1.45 billion invested in 80 deals was the highest quarter since VentureOne began tracking data in 1992.

Medical device investments generated $617.6 million in 58 deals, a jump of more than 30 percent in deals and total money raised over a year ago.

However, all the money did not necessarily bode well for early-stage companies. Some $3.22 billion went to later rounds, the highest total in five years. Second-round deals drew $1.55 billion, the most since 2002. While later-stage rounds made up 38 percent of the deals, they produced 48 percent of the investments.

Seed and first-round deals received 20 percent of the capital invested.

Forty recapitalization deals generated $575.3 million, which is the most ever in a quarter, VentureOne and E&Y said.

Among early stage companies, those focusing on alternative energy drew a great deal of interest, VentureOne and E&Y reported. The number of deals tripled to 15 from a year ago and produced $239.1 million in investments, a 290 percent increase from 2005.

Energy deals set a quarterly record — 25 investments totaling $354.4 million.

Information technology deals generated $3.51 billion in the second quarter, up 2 percent from 2005. However, information services skyrocketed to $637 million, a 128 percent jump from a year ago.

VentureOne: www.ventureone.com