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US venture capitalists spend most money since 2000

[SAN FRANCISCO] US venture capitalists invested US$48.39 billion last year, the biggest total since 2000, according to new data from the National Venture Capital Association, PricewaterhouseCoopers, and Thomson Reuters.

Despite the eye popping numbers that hark back to the dotcom era, including US$19.8 billion allocated to software startups, most venture capitalists say last year's investments should not be confused with a bubble. They point to metrics such as revenue-backed growth, often absent 15 years ago but solid in most current high-flying startups. "Internet models today are fundamentally more sound than Internet models of 2000," said Deven Parekh of Insight Venture Partners, a firm which has backed Chinese online giant and message service Twitter.

The US$48.39 billion, spread among 4,356 deals, compares to US$29.96 billion in 2013, and US$105.01 billion in 2000, the largest level since the NVCA began keeping records.

It also includes US$31.81 billion at the expansion or later-stage categories, compared to US$18.67 billion a year earlier. Expansion and later-stage companies are those most likely to attract cash from backers such as mutual funds and sovereign-wealth funds, players who don't consistently back startups. "That subset probably has the highest level of froth," said Parekh.

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But he added that many of the late-stage companies had unprecedented levels of growth, calling for new metrics to value them. Uber, for example, was valued at US$40 billion in its December funding round of US$1.2 billion.

Some prominent voices have urged caution, including a few who have invested in the most richly valued companies.

Venture capitalist Bill Gurley, an Uber backer, warned in September that the start-up community was "taking on an excessive amount of risk." The Federal Reserve said in July that valuation metrics in sectors including social media "appear substantially stretched." Last year's total included US$14.75 billion invested in the final quarter of the year, the richest single quarter since 2000. A year earlier, the quarter total was US$8.82 billion.

Software deals accounted for 41 per cent of all cash, the highest percentage since the report's inception. Biotechnology and the media and entertainment categories followed in distant second and third places.

In a separate report issued on Thursday consultancy CB Insights, which measures data slightly differently to the NVCA, said venture capitalists invested US$47.3 billion across 3,617 deals last year.