Silicon Valley tech companies are bringing in more venture money now than anytime since the dot-com boom.
Venture capital firms in the valley invested $7.1 billion in private tech firms and startups in the second quarter this year, a 45 percent increase over the first quarter -- which, until now, had been the largest fundraising quarter since 2000, according to The MoneyTree Report, a quarterly report released Friday by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters.
"There's a lot of money," said Robin Vasan, managing director at Menlo Park venture firm Mayfield. "The magnitude of investment is up substantially."
Venture firms in the valley are managing more funds and are raising more money for those funds, meaning there is more to go around, analysts say. Companies are raising more megadeals -- rounds of $100 million or more -- than ever before. Many of the established startups -- such as Uber and Airbnb -- are raising more money from venture capitalists than many companies raise in their initial public offering.
"We are in a period of time where the private market is basically doing IPO-size financing," Vasan said.
Uber in the second quarter scored a $1.2 billion investment, led by BlackRock, Fidelity, Google Ventures, Menlo Ventures and other Silicon Valley firms. It is far and away the largest venture deal ever made, according to data from PwC. Mountain View-based Pure Storage, a data center and storage platform for businesses, raised $225 million, and design sharing and social networking site Pinterest raised $160 million.
"When those disruptive technologies come into a play, investors want in," said Mark McCaffrey, a software industry expert with PwC. "It's not about whether these technologies are going to be adopted, because everyone around me is using these apps."
According McCaffrey, these companies can delay their IPO instead of rush to the public market to raise money.
"Because of the size of these rounds, the companies are going to have the ability to wait it out until the market looks in their favor," he said.
The number of megadeals for the first half of 2014 has already exceeded deals for all of 2013, according to the report, and this year is on pace to be one of the biggest in venture investments since the height of the dot-com boom. Since PwC began tracking venture investments in 1995, the largest year for fundraising was 2000, when firms invested $105 billion. Nationally, firms have invested almost $23 billion so far this year, with Silicon Valley accounting for 53 percent of that.
"At the current pace of investing, we will exceed the $30 billion invested in 2013 and potentially could reach levels that we haven't seen in the last decade," McCaffrey said.
The second quarter saw yet another jaw-dropping sum of money invested in software, the valley's hottest sector, at least for the moment. Investments exceeded $4.08 billion -- almost double the first quarter and the largest quarterly investment into any industry since 1999, when software again led with $4.15 billion.
But software companies may have to share the spotlight with biotechnology companies, which have seen investments increase nearly fivefold since 2012. Firms invested $632 million into biotech in the second quarter, more than double the amount in the first quarter. Other health tech companies also benefited, with more money going to software-based health care service and medical device startups.
"And that is going to continue to be a long-term trend when you look at how complex the human body is," said Jeffrey Grabow, an analyst who leads venture efforts at research firm Ernst & Young. "We've got this large opportunity, applying technology in helping physicians do things at the patient level and at the back-office level."
However, biotech, which had some of the strongest IPOs in the first half of this year -- was dealt a blow Tuesday when Federal Reserve Chair Janet Yellen told Congress that biotech, and social media, stocks were overvalued. CareDX, a Brisbane company that had developed a test to determine the risk of rejection among heart transplant recipients, suffered the first round of blowback from Yellen's comments when the company priced shares at least $5 below its IPO filing and watched its stock tank on its first day of trading Thursday.
McCaffrey said biotech firms may continue to struggle in the short term, but Yellen's comments likely aren't enough to deter investors in the long term.
Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.
Top five venture capital deals in the country
second quarter of 2014
1. Uber Technologies
3. Pure Storage
4. Intarcia Therapeutics
Sources: The MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters