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After falling for two years in a row, the percentage of venture deals with five or more investors rose in 2006 as firms scrambled to back companies poised to go public or be acquired.

About one fifth -- 20.6% -- of venture capital financings last year had more than four investors, up from 14.2%, according to a Dow Jones VentureOne analysis of deal syndication.

Much of the syndication is occurring in third or later financing rounds, where a large cast of investors, including hedge funds, other private equity firms and corporations, often join venture firms in backing fast-growing companies.

Kate Mitchell, a managing director at Scale Venture Partners, said crossover investors, who back public and private companies, are looking to get into later rounds because so many venture-financed companies are getting acquired before they hit the public markets.

"They are aggressively calling our companies, and that's brand new," she said of these investors. Scale, formerly BA Venture Partners, is a multi-stage venture firm based in Foster City, Calif., near San Francisco.

Last year, 38.9% of later rounds had five or more investors. This rate, however, is well below the peak of the Internet bubble when investors fell over themselves piling into start-ups that seemed destined for IPOs.

The phenomenon peaked in 1999 when 54.2% of later rounds had five or more investors, according to VentureOne, a research unit of Dow Jones & Co., the publisher of VentureWire.

Deal syndication is a hallmark of the venture industry as investors seek to share risk, tap into additional technical or management expertise and tie into strategic partners. But many investors got burned after the bubble as outsized syndicates, sometimes numbering a dozen or more investors -- battled over companies' futures.

Typically one group wanted to shut a company down to salvage what they could of their investment while another wanted to give it a second chance, which often required more capital. And some VCs discovered to their dismay that syndicate partners were running short of money and couldn't pony up more.

As a result, VCs became more cautious about co-investors, generally choosing to work with trusted venture firms with whom they had partnered before. Also, the so-called tourists -- investment banks, corporations and hedge funds that jumped into venture capital when it was hot -- largely withdrew.

By 2005, the occurrence of late-stage deals with five or more investors had fallen to 28.1%.

VCs historically have been wary of large syndicates in first rounds, but the reins loosened there as well last year. Most first rounds had one or two investors, but 7.4% had five or more, up from 3.1% in 2005. In the bubble year of 2000, 10.8% of first rounds had five or more investors.

"Syndicates are a risk, let's face it," said Michael Fitzgerald, managing general partner of Commonwealth Capital Ventures, an early- and growth-stage venture investor. "Anytime you see more than three venture guys on a board of directors, you've got a problem."

With VCs looking to own 20% or more of each company they back, there is a limit to how many can invest in a deal, said Mike Scanlin, a partner at Battery Ventures who concentrates on mid- and late-stage investments. "You've got to leave something for management," he said.

New investors in later rounds often don't take board seats and some syndicate members might supply only a small part of the round. The capital requirements of a company also have a lot to do with the number of investors.

Biopharmaceutical companies had five or more investors in 31.6% of their 2006 financings overall, compared to 18% for software companies, which are much cheaper to build. Communications and network companies also consume a lot of cash and their financings last year had five plus investors 30.6% of the time.

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