Global venture funding over $32 bln in 2006-report

SAN FRANCISCO, Dec 10 (Reuters) Venture capital financing in the world's major markets should top $32 billion in 2006 and is poised to head higher still in 2007, according to a survey published on Sunday by Dow Jones VentureOne and Ernst & Young.

With $25.39 billion invested during the first three quarters of this year, venture capital activity in the United States, Europe, China and Israel is poised to hit a five-year high, albeit still well below the venture bubble of 1999-2000.

But while demand for funding is rising, the supply side of the equation is behind the pace of 2005, the research found.

Fund-raising of $24.22 billion during the first three quarters of this year is behind the pace of 2005, when $33.18 billion was raised in the full year, amid strong private equity fund-raising in Europe, VentureOne and Ernst & Young said in a statement.

''Looking forward to 2007, the improving liquidity landscape is likely to continue in the next year on a global basis, thus improving the overall level of investing along with it,'' the report said.

Deal flow, the rate at which companies receive rounds of funding, remains constrained and is expected to fall slightly short of the 3,931 deals completed in 2005, the study said.

The year-end VentureOne survey found funding flowing into new markets such as China, where deal flow is at record levels, and into emerging industries, including the burgeoning environmental technology and the latest generation Web areas.

An analysis by VentureOne and Ernst & Young found $761.4 million has been invested in ''clean technology'' - meaning firms that cause little or no pollution - on a worldwide basis so far this year, up 50 percent from $504.1 million invested in the first three quarters of 2005.

Sixty U.S. environmental technology firms received $585.6 million. Europe saw $102.4 million in clean-technology financings. China had nine such deals, with $74 million invested to date.

''Venture-backed companies also have higher capital requirements today as the median time from initial VC financing to exit lengthens,'' said Gil Forer, global director of Ernst & Young's Venture Capital Advisory Group.

Merger activity for venture-backed companies in the United States and Israel rose in 2006 from 2005 levels, with 311 such deals in the United States and 32 in Israel. The median deal size of $50 million is also higher in both countries.

Initial public offering (IPO) activity in Europe is on track to have the biggest year since 2000, with 56 venture-backed companies going public.

However, the size of the deals in Europe is far smaller, with just $1.22 billion raised so far, VentureOne said. The United States had 37 IPOs so far this year and raised $2.47 billion, putting it in line to exceed 2005's absolute value.

Indian venture-backed companies received $178 million in 48 deals.

REUTERS PKS RS1330