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Afloat in capital – Billions for tech firms

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Venture capital firms in the U.S. are on a roll, prompting dilemmas for some charitable investors, Bloomberg News reports.

A dozen large venture firms raised a total of nearly $10 billion in the first half of this year, compared to $15.3 billion raised by the entire industry in the same period in 1999.

“There is insatiable appetite for private-equity technology investing because over the long term, returns have been phenomenal,” said John Walecka, a founding partner of Redpoint Ventures.

The biggest firms raise funds of $1 billion or more and increase their fees, Bloomberg said, but the slumping market for initial public offerings, plus the size of the funds themselves, could hurt returns that average 146 percent last year.

“All of us are concerned about the mega-size funds,” Sandra Ell, chief investment officer at the California Institute of Technology, told Bloomberg.

“If you don’t put any money on the table, you may be missing out on an opportunity or you may not be invited back with the best firms,” said Ell, whose school has about 13 percent of its $1.5 billion endowment and other assets in venture capital.

As funds get bigger, so do the investments, Bloomberg says.

Some big firms are the only institutional investor in a startup. And some firms, instead of simply funding entrepreneurs’ ideas, also are helping to finance buyouts, spinoffs or Web exchanges they build with corporate partners as more companies embrace the Internet.

Fundraising could slow in the second half of the year if the stock market weakens, making it hard for newer firms to raise money, Brooke Seawell, a partner at Technology Crossover Ventures, told Bloomberg.

But billions remain to be invested, Bloomberg said, raising the question of whether firms can invest profitably.

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