Last fall, Vonage sought financing to expand its broadband telephony service. It tallied a relatively modest $35 million, but was struck by the level of interest from the venture capital (VC) community.

After "pulling people away from the deal," the upstart went out again just three months later. This time, it socked away $40 million at more favorable terms. And again, would-be investors were turned away, and Vonage hired Deutsche Bank to handle the "onslaught of institutions" that still wanted a piece of the company.

"This is the busiest summer I can remember since I've been in venture," said Jeff Fagnan, who recently joined Atlas Venture as a partner after four years with Seed Capital Partners.

More deals are coming through the door and more deals are getting done, he said. What's more, VCs say they have learned some painful lessons from the late 1990s. They say they are more disciplined and more careful -- no more "drive-by due diligence."

"There's a tremendous flight to quality. Companies that have proven themselves with customers and revenue are getting a lot of attention," Fagnan said, which helps explain Vonage's rock star treatment.

Heading Toward the Exits

Improving exits -- the IPOs or acquisitions of portfolio companies -- are spurring VC activity.

Google's recent IPO inspired giddiness from the sprawling IT campuses of Silicon Valley to the wood-paneled suites of Wall Street. Much of that is specific to the search engine's business, but the whispered hope was maybe, just maybe, Google would re-ignite the IPO market.

The Google debut was successful, but it's too soon to say if it was a turning point. Still, it served as notice that, at least for the right company, the IPO road is open again.

A more likely exit for VC portfolio companies is acquisition. Venture-backed mergers and acquisitions activity during the second quarter of 2004 rose for the fifth consecutive period, according to Thomson and NVCA.

In all, 86 firms were acquired, with an average valuation per deal hitting $94 million, up from $88.6 million in the previous quarter.

The media and communications sector had eight deals tallying $1.14 billion, driven by big buys like Ask Jeeves' $501 million purchase of Interactive Search Holdings and Thomson's $385 million pickup of TradeWeb.

The highest number of deals came in the software sector, though 25 transactions had comparatively lower values than other sectors. Some notable acquisitions include Symantec's $370 million bid for Brightmail.

Telecom enjoyed a decent quarter with nine acquisitions, including Cienna's $466 million buy of Catena Networks.

"We had five exits last year," said Kate Mitchell, managing director of BA Venture Partners, the San Francisco venture arm of Bank of America that invests in software, semiconductors and networking, bio-tech and health care.

Acquisitions are more common among IT companies, Mitchell said. Much of the IPO action so far this year has been in bio-tech and pharmaceutical, since large companies in those spaces tend to license technologies rather than snap up smaller firms.

Entrepreneurs are mindful of the trend, as well. Many, especially in the networking and security spaces, have forged partnerships and technology agreements with sector leaders in the hopes they will eventually get a buyout offer.

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