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Venture spending returns to dot-com era levels

Investment recalls heady dot-com era

The venture capital industry is pumping money into new companies at a rate not seen since the dot-com heyday at the turn of the century.

Software firms, Web businesses, biotech companies, and other technology startups nationwide received some $9.5 billion in new venture funding during the first quarter of 2014, the largest amount since the middle of 2001 when the Internet bubble began to deflate.

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Indeed, industry analysts and investors describe the current boom in some of the same language used back during the bubble.

“There’s almost a mania,” Chris Douvos, a Silicon Valley investor with Venture Investment Associates. “There are a lot of dollars out there seeking ideas.”

Many startups are now sporting sky-high valuations, and top venture firms are raising billions more to invest in the next wave of companies. But Duovos stopped short of calling the current scene a new bubble.

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“When you’re in a bubble, things start happening and you say, ‘I don’t understand how that happened,’ ” he said. Instead, Douvos described the atmosphere as “carbonated,” but not so inflated that the start-up scene will burst.

Indeed the spending levels today are modest compared with the height of that heady dot-com period, when venture funding surpassed $20 billion for five straight quarters. There is, though, an inescapable excitement among entrepreneurs and investors in the tech hubs of Boston, New York, and Silicon Valley.

“The level of energy is higher than it’s been in awhile in Boston,” said Michael Brown, general partner at Battery Ventures, a veteran venture capital firm now located in the South Boston Innovation District. Moreover, Brown said there is a marked difference between now and the dot-com era, an absence of over-hyped ideas with little real business behind them.

“There’s more substance to today’s companies than there was back then. These are companies with real business plans and real revenues,” said Brown. “I feel much better about the quality of the businesses today.”

As usual, the lion’s share of venture spending went to Silicon Valley, where companies took in $4.7 billion, the largest amount in any one quarter since the end of 2000.

Behind Silicon Valley, the Boston-area received the second largest amount of venture funding at the start of this year, $1.01 billion, 37 percent more than the same period in 2013, according to the latest MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association being released Friday. That report is based on data from Thomson Reuters.

The largest single investment in the quarter was $157 million in Wayfair LLC, a Boston online retailer of home goods, followed by the $75 million raised by Actifio Inc., a Waltham data management company.

Such large-dollar investments were a hallmark of the investment period, said Hemant Taneja, a managing director for the Cambridge venture firm General Catalyst Partners. For instance, the Silicon Valley software firm Cloudera Inc. raised a whopping $740 million and the online storage company Dropbox of San Francisco raised $350 million.

“That’s the dynamic that makes the numbers look so large,” said Taneja, who works out of the General Catalyst office in Palo Alto, Calif.

Meanwhile, the other end of the spectrum — early stage startups — remain popular.

“The early stage activity is really at an all-time high,” Taneja said. “Everybody wants to be an entrepreneur today.”

In the Boston area, the busiest venture capital firm during the period was Atlas Venture, a Cambridge outfit that specializes in finding and backing the youngest companies. Since the beginning of the year, it made a total of 11 investments.

Overall, in New England, 50 early stage startups received $374 million in funding in the first quarter, according to MoneyTree.

“You can see a lot of innovation happen on $1 million that would have taken $10 million a decade ago,” said Jeff Fagnan, a partner with Atlas Venture.

Biotechnology companies typically draw much of the venture funding. But so far this year, software businesses are ahead with $301 million compared with $213 million for biotech.

Michael B. Farrell can be reached at michael.farrell@ globe.com. Follow him on Twitter @GlobeMBFarrell.
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