Venture capital firms continued to invest in startups at a strong pace last quarter as deal volume reached its highest level since 2001, thanks to a big jump in money going into Web 2.0 companies and life sciences firms, according to the Quarterly Venture Capital Report released Monday by Ernst & Young LLP and Dow Jones VentureOne.

Information services companies secured $979 million from 131 deals in the second quarter. The numbers are particularly impressive, considering that Web 2.0 startups raised $844 million from 167 financings in all of 2006, according to E&Y's statistics. The information services category consists primarily of Web 2.0 companies, such as social networks, blogs and wikis, and also includes online services and database design and construction.

The healthy VC numbers don't necessarily translate into other good news for the tech investment climate. As TechCrunch points out, while venture firms are piling into Web 2.0 companies, the equity markets aren't coming along for the ride. There were only 17 tech IPOs this year "versus a peak of  41 IPOs in the first quarter of 2000."  

Overall, VC investment rose 8% to $7.4 billion from 717 deals, compared with $6.88 billion off of 663 deals in the same quarter last year. VCs poured money into late- and early-stage companies with equal vigor. Early-stage deals accounted for 36% of deal flow with 254 financings, while later-stage companies garnered 41% all of the capital raised with 253 financings. Second rounds accounted for 23% with 160 deals, the highest total since 2002.

Overall, venture firms put $4.1 billion into 435 information technology deals, with software — the perennial VC favorite — getting $1.5 billion. Meanwhile, life sciences companies received $2.4 billion on the back of the medical devices sector, which raised $1 billion from 75 deals, its highest total on record.

Gentlemen, start your tech bubble warnings. — George White

See Jan. 23 story on TheDeal.com
See VentureOne's Web site
See TechCrunch post

Tags: venture capital, startups