In the current bear market, institutional investors may arrange to be out of their offices when bankers come knocking on their doors with biotech IPOs to sell. But at the front end of the funding pipeline, venture capitalists continue to have a great deal of success raising money for early-stage funds - implying that they and their limited partners still believe there will be profitable exit strategies for the new companies these funds will support.

At least three large venture funds totalling $580 million have been raised since the start of the year, focusing on life sciences and high tech: $250 million by Kleiner Perkins Caufield & Byers last week, $100 million earlier in the month by Schroder Ventures and $230 million in March by New Enterprise Associates. Sanderling is working on raising an additional $20 million, and others are likely to be out there as well.

That was then, this is now

The optimism is grounded in an analysis of how the structure of the health care market is changing: venture capitalists aren't assuming that the companies they will bring public three to six years from now will be the same kinds of companies they brought public in the bull market of 1991-92.

Nor do they assume that valuations will be the same. The pivot point for valuing companies is the initial public offering, which determines the base level on which future returns for public market investors will be built, and enables private investors to work backwards to calculate an initial valuation that will give them their desired exit numbers.

"A mutual fund manager just asked me why venture capitalists think they can 'stick it to us'," said Brook Byers, partner at Kleiner Perkins. The firm last week closed one of the largest venture funds of the year, a $250 million fund that will invest about equally in high-tech ventures and health care, including drug discovery, therapeutic medical devices, health care services and informatics.