Fueled by merger and acquisition activity and continuing VC interest in late-stage technology investing, valuations of U.S. venture-backed companies have hit a four-year high in the second quarter.

The median pre-money valuation rose to $15.6 million, up $2.1 million from the same quarter a year ago when it was $13.5 million, according to industry tracker VentureOne, a unit of Dow Jones & Co., publisher of this newsletter.

The last time the median pre-money valuation was this high was in the second quarter of 2001, when it was $17.3 million.

"It seems valuations are being pulled up due to higher valuations in M&A activity," Josh Grove, research analyst at VentureOne, said. VentureOne calculated that the median amount paid for an acquired company in the second quarter was $70 million, upwards of $30 million more than the median amount paid a year earlier. In turn, these higher acquisition prices are driving up the value of recent financings.

In the second quarter, investors placed a higher value on companies receiving later rounds of financing, which posted a median pre-money valuation of $29.5 million. Although this is a slight decline from the first quarter, it is more than $2 million higher than a year ago.

The increase in later-round valuations also appear to be pushed upward by higher valuations for later-round investments in information technology companies. The median pre-money valuation for later-round IT companies was $27 million in the second quarter, almost $5 million higher than a year ago.

The rise in valuations also may be due to a survival-of-the-fittest curve. "The pool of companies that were founded during the bubble has been weeded through," said Grove. Those that have survived the downturn "have buckled down and made themselves into stronger, more established companies."

But fears of any bubble-like valuations seem to be unwarranted. Grove points out that the valuation numbers really dipped in 2002, falling to an annual median of $10.8 million from $25.5 million at the height of the bubble in 2000, and valuations have only started to creep back up in recent quarters. "We're really returning to pre-bubble valuation levels."

Eric Sigler, director at Bank of America Inc.'s venture capital arm BA Venture Partners, said that using public company comparables, it may "feel as though private companies are highly valued."

Sigler attributes this to the high demand he is seeing for later- stage investment opportunities. The firm has had to walk away or has gotten outbid on a couple of deals in the last six months, he said.

"There are a lot of funds wanting to show some near-term returns," Sigler said, noting a "pretty efficient market" in terms of competition for later-stage venture investing, and that competition seems to be a driver in the rise of late-stage valuations.

And with a lukewarm public market and Sarbanes-Oxley compliance challenges, companies also are more gun-shy about pounding the IPO pavement. "The population of later-stage companies may very well be more than they used to be," said Sigler. More and more companies "are letting their revenue continue to grow," thus contributing to higher valuations.

The overall quarterly median valuation for the IT segment remained flat at $15.2 million, nearly the same as a year ago. Within this category, software valuations increased to $15 million from $11.7 million in the second quarter of 2004. Valuations for communications and networking companies also climbed to $23.5 million from $15.2 million a year ago.

Meanwhile, the electronics and semiconductor segments saw quarterly valuations of $14.9 million and $14 million, respectively, a decline of $5 million and $6 million.

Health care posted a median pre-money valuation of $18.1 million - the highest among the major industry categories - and higher than the $14.2 million median reported for this segment a year ago. The median pre-money valuation for medical-device deals rose to $27.4 million, up from $20 million in the second quarter of 2004. Biopharmaceuticals and healthcare services companies also posted higher valuations.

These venture capital statistics represent equity investments in U.S. technology companies and do not include companies receiving funding solely from corporate, individual or government investors.