- The Washington Times - Monday, August 14, 2000

Investors haven't hesitated to sink money into John Prisco's privately held 2nd Century Communications Inc. despite growing skepticism of publicly traded technology companies.

Venture capitalists sank $75 million in Mr. Prisco's Arlington-based telecommunications company, which manages computer networks and markets voice and data services to small- and medium-sized businesses, during the second quarter.

They invested $120 million in Silver Spring-based Global Metro Networks Ltd.

"We have had no trouble attracting investors," said Mr. Prisco, 2nd Century's chief executive.

Venture capital investment surged to more than $19 billion nationally during the second quarter, according to a study to be released today by accounting firm PricewaterhouseCoopers, a record level of investment even while stock market performances by technology companies remain volatile and lead to skepticism among some investors.

Local companies also got a record level of investment. Venture capitalists plowed more than $1 billion into D.C.-area companies for the first time.

"It confirms what a lot of people have been saying about this region for a long time that it's become a major technology area," said Larry Alleva, managing director of the PricewaterhouseCoopers southeast region technology practice in Tysons Corner.

PricewaterhouseCoopers said the amount of money invested in private companies nationally grew from $17.14 billion during the first quarter to $19.58 billion in the three months from April 1 to June 30. The technology sector fueled the increase with $18.7 billion more than 95 percent of all investments during the quarter going to technology and Internet businesses.

Venture capitalists make investments in companies in return for an equity stake in a business.

The pace of investing is on track to double last year's investments. Investments during the first six months of this year reached $36.7 billion, compared with $35.6 billion for all of last year.

Private equity investing is growing despite a volatile stock market.

"We haven't slowed our investment pace because of anything going on in the public market," said John Backus, managing partner of Reston venture capital firm Draper Atlantic and chairman of the board of the Northern Virginia Technology Council.

Venture capitalists invest in young, privately held companies with long-term gains in mind. So short-term volatility in the stock market makes little impression on them, Mr. Alleva said.

"Venture capitalists are in it to get a return on their money over the long term five years or longer," he said.

Companies in the D.C. metropolitan area a region including the District, Northern Virginia and Maryland got a combined $1.14 billion, the first time companies in the area attracted more than $1 billion in funding, according to the PricewaterhouseCoopers report.

It was the fifth-highest amount of money for any region in United States. The Silicon Valley region ranked first, with companies there attracting $6.8 billion.

Investors sank $842.4 million in companies in the D.C. region during the first quarter of 2000.

Investment in tech companies in the D.C. area drove the investment frenzy here, and $1.12 billion or 98 percent of the $1.14 billion invested went to tech companies.

Global Metro Networks, which is building fiber-optic telecommunications networks in Europe and the United States, attracted the single highest amount of venture capital in the region, $120 million in its first round of private equity investment.

Global Metro co-founder and President Doug Hudson said the company already has gotten another $120 million since reporting the first round of investment, bringing its total venture capital investment this year to $240 million.

Cogent Communications, a D.C.-based company building an optical network to transfer data at speeds up to 100 megabits per second, ranked second and collected $90 million, and 2nd Century Communications ranked third.

Companies such as Cogent, Global Metro Networks and 2nd Century Communications are typical of the businesses venture capitalists now find attractive, Mr. Alleva said. Companies with products to improve voice, video and data delivery services are viewed as sound investments.

Not all Internet sectors got more money than they did last quarter.

Business-to-business electronic commerce sites got $1.58 billion in the quarter, less than they got in the first quarter, and business-to-consumer electronic commerce sites got $1.36 billion in the second quarter, also less than companies in the sector got during the first quarter.

Despite the billions invested during the three-month period from April 1 to June 30, there was evidence of diminishing enthusiasm, according to Pricewaterhouse-Coopers. The increase in the number of companies getting funding was minuscule, only 1 percent from 1,414 during the first quarter to 1,432 in the second quarter.

In addition, a separate study released last week by Boston-based researcher Venture Economics said the average investment by venture capital firms in start-up companies fell from $15.2 million in the first quarter to $14.5 million in the second quarter.

Mr. Backus said a shift also has occurred among business owners. Entrepreneurs have revised their thinking and lowered what they believe their companies are worth. That has caused them to ask venture capitalists for less money than in the past, said Mr. Backus, whose company makes smaller, early-stage investments in new businesses.

The survey released today by PricewaterhouseCoopers belies trends outlined in two rival venture capital reports released earlier this month that say second-quarter investment fell compared with the first quarter.

Both Venture Economics and VentureOne, a California firm following venture capital investment, show slight second-quarter decreases in private investment.

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