By Michael J. Martinez
The Associated Press

NEW YORK - Start-up businesses received $5.6 billion from venture capitalists in the second quarter of 2004, a two-year high that continues an upward trend in investment, according to figures to be released today.

That amount, shared among 761 companies, is a 17 percent increase from last year, according to a survey from PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association. However, both the amount of investment and the number of deals are far below the highs of 1999 and 2000, when dot-com companies received more than $20 billion per quarter.

"We see 'refined optimism' in the market," said Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers. "Investment levels are realistic, not exuberant."

Venture capitalists invested heavily in early-stage companies, with 229 companies receiving $1.17 billion in first-time outside investment, the highest number of start-ups in two years and the most invested since the first quarter of 2001. Venture capitalists saw this as a positive sign.

"There's definitely a shift toward early-stage deals, and that's good news for companies seeking start-up funds," said Jesse Reyes, vice president at Thompson Venture Economics. "It means that a lot of later-stage deals are healthier right now, and attention can be focused on the real up-and-coming early-stage companies."

Funding for expansion-stage companies - those that have established themselves with a product but now wish to expand their businesses - accounted for $2.8 billion, or 50 percent of all venture investment in the quarter, an increase of $200 million from a year ago.

Late-stage funding, however, was flat year over year. Late-stage companies, those which are well-established and considered well on their way, accounted for $1.6 billion for the quarter.

The types of businesses funded shows a continuation of the trend toward health-care companies. Life sciences companies accounted for $1.41 billion, or 25 percent of all venture capital for the quarter, and life sciences investing, which includes biotechnology and medical device companies, remained near historic highs.

Computer technology remained attractive for venture capitalists. Software makers saw $1.2 billion in investment for the quarter, spread among 212 companies. Semiconductor investment rose 17 percent to $437 million.