Young technology companies raised $3.36 billion nationwide, up 13 percent from $2.98 billion a year ago. In the Bay Area, technology startups raised $1.26 billion in the first quarter, up from $1.10 billion in the same quarter last year.
"I see a continuation of the interest in Internet business models," said Joe Muscat, Americas director of Ernst & Young Venture Advisory Group. Ernst & Young publishes the quarterly report with Dow Jones VentureOne. "I think it started to pick up last year and has accelerated in 2006."
The Bay Area companies that received the largest VC investments in the quarter were both technology companies: Pay By Touch, a San Francisco company that allows consumers to buy things with only a fingerprint for identification, and Sling Media, the San Mateo maker of a product that beams television programming to computers and handheld devices. Pay By Touch, in its second round of funding, raised $6o million in January, and Sling Media raised $46.6 million.
Pay By Touch has biometric identification systems in 2,000 stores, including Albertsons, and it plans to offer a version of its product for Internet shopping as well. The company set out to raise just $25 million, but interest was so strong that investors offered four times that. It closed on $60 million in January, after raising $130 million in 2005.
"It definitely shows that there is an appetite in the market with institutional investors for great inventions, and they will write big checks for great opportunities," said Gus Spanos, Pay By Touch chief financial officer and executive vice president. "But I think that our success and the amounts of money we've raised ... really is more specific to investors' recognition that this truly could be a transformational company."
Sling Media, too, raised more money than it had planned, due to high investor interest.
"It's a validation that what we're doing is novel. And especially since it's financing that's taken place after we've gotten the product out to market, it's a validation that we've executed well and that people who bought the product have embraced it," said Jason Krikorian, vice president for business development. Sling Media had already raised $11.5 million in its first round of funding in 2004.
Across the board, it was a good quarter for the Bay Area, where companies as usual raised more capital than any other region. In the first quarter of 2006, 172 area companies raised a total of $1.9 billion. That's five fewer deals than in the first quarter of 2005, when 177 companies got funding. However, the companies raised a bit more money this time around than in the first quarter last year, when they raised $1.8 billion.
Another trend showing up this quarter, according to Muscat, is an interest in energy technology. For example, the following alternative energy companies all got funded during the quarter: GreenFuel Technologies of Cambridge, Mass., which recycles smokestack emissions into clean fuel; Southwest Windpower of Flagstaff, Ariz.; and Seattle Biodiesel.
Investing more money in fewer companies is a trend being seen across the country, Muscat said.
"I'm seeing the investors back in a very traditional mode, ... which is to make larger bets, and more specific bets in terms of companies, rather than the peanut butter approach of spreading a lot of dollars in a lot of places," which was more common in the Internet bubble years of the late 1990s and in early 2000, Muscat said.
This article appeared on page E - 1 of the San Francisco Chronicle
Investors are rushing to fund new ventures in renewable energy as Americans continue to see rising gasoline prices at the pump. The price for crude oil continues to rise to new record highs ($75 per barrel of crude oil on NYMEX as of Friday's close). According to the results of a survey reported by the San Francisco Gate, in the 1st Quarter of 2006 investments in the clean technology sector has increased by 13% to $3.36 Billion in the US. In addition to attracting venture capital, clean technology companies are receiving a buzz from high profile investors.

Bill Gates, Founder of Microsoft, announced last week that his venture group (Cascade Investments) initiated the purchase of 25.5% ownership in Pacific Ethanol Inc. Pacific Ethanol is an ethanol production company that plans to expand operations by opening a new facility in California. Gates is not alone in high profile investments into the clean energy market, Bob Metcalfe (Founder of 3COM and Inventor of Ethernet), who acts as the managing partner of  Polaris Ventures, announced the VC's first investment into the energy market. Polaris, which manages over $3 Billion in funds, invested $6.8 million into  GreenFuel Technologies Corporation of Cambridge, MA. GreenFuel Technologies is an emissions to biofuels company, that utilizes natural algae in their patented bioreactors to turn greenhouse gas emissions from power plants into rich bio fuel. Polaris's investment into GreenFuel was part of the company's $18 Million Series B financing round that also included a high profile venture capital investor: Draper Fisher Jurvetson. When asked about the new industry venture, Bob Metcalfe said, "Energy has got to be one of the top five problems the world faces, and it's been frustrating to watch activists and politicians fail to solve the problem,...Now it's time for the entrepreneurs and scientists to give it a try." 

According to the International Energy Association, demand for renewable energy fuels will more than quadruple in the next decade. The current jump in oil prices is fueling investment into this relatively new market as investors view clean technology as an emerging opportunity rather than a public relations campaign. As gasoline prices continue to rise, alternative fuels become respectively cheaper and more attractive. In his latest State of the Union Address, President Bush outlined a plan to direct new investment into ethanol production and other clean technologies. According to a poll conducted by CBS News, Americans now see gas prices as one of their top three main concerns. With pressure coming from constituents, politicians are beginning to exert pressure on new spending on renewable technology to promote energy independence. Yet another front in this debate is that of environmental concern. With global warming on the rise, and many European governments eagerly searching for a Carbon Dioxide solution, the promise of reducing these emissions by 46% (as claimed by GreenFuel's bio reactor system) begins to resonate as a promising environmental and business opportunity.