After years of nursing their wounds from the dot-com boom, the venture capital community is finally back on its feet and poised to show strong investment this year, according to research from Ernst & Young, the accounting firm.

In the first three quarters of the year, venture capitalists in the United States, Europe, China and Israel spent $25.39 billion (£12.9 billion) providing seed capital for start-up companies and investing additional capital in others.

If investment continues at the same pace, Ernst & Young predicts, venture capital activity will hit a five-year high by the end of this year, to be at the highest level since 2001, when $51.22 billion was invested.

Venture capital (VC) firms typically make much smaller investments than do larger private equity companies, which spend billions of dollars on acquisitions and rack up huge amounts of debt.

The majority of VC companies were hit hard by the dot-com boom and bust, but the industry is getting back on its feet, most notably in the United States, and with activity in Europe gradually picking up momentum as well. Alongside the classic venture capital-style investments, such as technology and biotechnology, this year VC firms have taken a particular shine to so-called “cleantech” companies, which specialise in more efficient uses of natural resources such as energy and water, the study found.

About $761.4 million has been invested in cleantech so far this year, which, although tiny in the grand scheme of investing, was still up 50 per cent from the previous year, with the US leading the way.

China has proved to be an alluring field for investment, with deal flow in the region poised to reach a record high, according to the study, which was carried out in conjunction with the research firm VentureOne.

This year Europe has experienced the most venture capital-backed initial public offerings since 2000, with 56 in total, although the flotations raised only $1.22 billion. America, by contrast, raised about double that sum with 37 flotations.

However, the study found that the venture capital firms themselves were doing worse in terms of their own fundraising, with only $24.22 billion raised this year, compared with $33.18 billion raised in 2005.

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