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Tuesday, April 25, 2006 - Page updated at 12:00 AM

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More venture capital flowing to Internet companies

Seattle Times technology reporter

Four of the five companies Bay Partners invested in during the first three months of the year relied on the Internet as their primary business.

"There are glimmers of activity that really remind me of the early days of the Internet bubble, not in terms of irrational exuberance but what I would call budding enthusiasm," said Bob Williams, general partner of Bay Partners, an early stage venture-capital company in Cupertino, Calif.

Williams made the comment during a conference call Monday discussing The MoneyTree Report, a quarterly accounting compiled by PricewaterhouseCoopers, the National Venture Capital Association and Thomson Financial. The report is being released today.

The report details the level of venture-capital investing during the first quarter of this year. It reveals that a growing sector was Internet-specific companies, which rely on the Web to do business.

That nugget of information suggests that the second wave of the Internet is taking place as companies such as MySpace, owned by News Corp., and Facebook, a social-networking site for college students, attract large audiences.

Overall, venture-capital investing nationwide increased 12 percent year-over-year with $5.6 billion invested in the first quarter. In Washington state, investing jumped 85 percent over the previous year to $281.9 million in the first quarter.

Internet companies across the U.S. received only a sliver of the total, but it is a growing portion. In the quarter, 145 companies relying on the Internet got $861 million. In the year-ago period, 112 Internet companies got $774 million.

Williams said it's still largely unknown how those companies will make money or if they will go out of style.

One Bay Partners' investment in the first quarter went toward Riya, a Redwood City, Calif., company developing search technology that uses face recognition to find photos.

He said that before Bay made the investment, Riya was getting acquisition offers, but it decided to take the investment and remain independent.

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"They decided to remain in control of destiny and build a much bigger, lucrative company," Williams said.

That's not always the circumstance; some companies are unsure of how they are going to make money and are looking for an early way out.

"There's an element of fashion to these," Williams said. "There's pressure for these to be capital-efficient and to go out quickly and look for earlier exits."

During the quarter, 32 companies in Washington state got funds, according to the report. About $122 million went to medical devices and equipment, $64.8 million to software, $20 million to telecommunications and $20 million to health-care services.

Tricia Duryee: 206-464-3283 or tduryee@seattletimes.com

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