Despite a slumping mortgage sector, shaky equity markets, and growing skepticism among industry analysts, eager venture capital investors pumped nearly half a billion dollars into online lending companies in the first quarter.

GE Capital Corp. was involved in funding deals that totaled $101 million of the $488 million invested in online lenders, according to The General Electric subsidiary put money in Ultraprise Corp.,, Global Commerce Systems, and Virtual Bank.

Among other recipients were, a commercial lending site, and

The vote of confidence from venture capital firms flies in the face of downbeat prognostications about the online lending model, not to mention the first-quarter losses reported by companies such as LendingTree Inc. of Charlotte, N.C.; E-Loan Inc. of Dublin, Calif.; and of Sunrise, Fla.

These three companies alone tallied net losses totaling $41.4 million. But believers argue that online lending will eventually catch on.

"Like all emerging spaces, the growth path requires development," said Richard Garman, a general partner of FT Ventures of San Francisco, which last week invested $10 million in E-Loan's latest $40 million round of funding. "We think we are at an inflection point where many of these companies can be very successful," he said, "and we feel E-Loan is the leader."

Philip E. Larson, principal of Capital Z Partners in New York - whose investments included $25 million for LendingTree; $20 million for PrimeStreet of Menlo Park, Calif.; and $12 million for LoanTrader Inc. of Irvine, Calif. - said private equity investors are interested in online lending because of the "enormous" market and the potential for growth. For its investment, Capital Z controls about 18% of LendingTree.

This wave of investment came amid heated debate over which companies will prevail, with many advocating a business-to-business model.

David Levine, chairman and chief executive officer of Ultraprise, said secondary market companies like his do not have to worry about customer retention or acquisition costs. "The problem is that pure consumer online lending sites end up competing with financial services on the back end - and they don't want an intermediary like LendingTree, HomeAdvisor, or a Priceline diluting their brand."

"I don't think the online mortgage companies are going to survive," said Rory A. Brown, chairman and chief executive officer of Virtual Bank. His company, which offers deposit products as well as loans, recently got $37.5 million of venture capital funding. "How do you advertise for a transaction that only takes place once every seven years?"

But not everyone shares this view - especially those writing the checks. "We feel very positive about our investment in E-Loan," said Scott W. Wu, a general partner in FT Ventures. "We feel they are a leading brand in the online financial space and they have a model that will reach profitability."

Others argue that the Internet lending business is simply too large for the venture capital firms to ignore. By spreading their capital around, venture firms are gambling that some of their investments will land with the next or Yahoo.

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