Private equity affiliates of commercial and investment banks contributed 13% of the more than $24 billion of second-quarter venture capital investments, according to data released Monday by Venture Economics.
Chase Capital Partners, the high-profile private equity affiliate of Chase Manhattan Corp., led the bank group with $368.3 million of venture capital investments in 66 companies. Morgan Stanley Dean Witter & Co.'s venture unit was second, with $352.6 million of investments in 34 companies, according to Venture Economics, a Thomson Financial company and an affiliate of American Banker. Financial institutions' venture capital investments more than doubled from the year earlier, to $3.3 billion. Overall venture capital investing rose 96%, according to Venture Economics.
The hot market for venture capitalists persisted despite the quarter's volatile start. Many commercial and investment banks reported sharply lower profits from venture capital investments during the second quarter, but nevertheless their enthusiasm for the business appears unabated.
"They put their big toes in the water, and they're seeing that it works," said John Taylor, director of research at the National Venture Capital Association in Arlington, Va. Nonfinancial corporations, particularly those that are research- and technology-intensive, have begun to follow banks' lead and make their own investments he said.
As might be expected, capital-hungry companies in Northern California and in the Northeast continued to attract the lion's share of funding in the second quarter, garnering 36% and 21%, respectively. But other regions are starting to catch up. Investing in the Midwest jumped 122% in the quarter, to $1.8 billion for 139 companies. Similarly, investment in the Southeast jumped 122%, to $1.53 billion for 136 companies.
Norwest Venture Partners, an affiliate of Wells Fargo & Co., was third-highest on the list of financial institutions, with $206.3 million invested in 29 companies. Donaldson, Lufkin & Jenrette's Sprout Group, which sank $198 million into 29 companies, placed fourth, and Goldman, Sachs & Co. was fifth, with $142 million invested in 22 companies.
Among other commercial banks, FleetBoston Financial Corp.'s BankBoston Capital Partners affiliate ranked seventh, with $126 million in 23 companies, according to Venture Economics. Hambrecht & Quist Private Equity, now also a unit of Chase Manhattan, ranked 12th, with $89 million invested in 18 companies.
J.P. Morgan & Co.'s venture capital unit ranked 14th, with $70.6 million invested in 12 ventures. And BA Venture Partners, a unit of Bank of America Corp., ranked 15th, with $64.6 million invested in nine companies.