Technological advances enabling companies to significantly cut costs have led to strong global growth in start-up activity, an American venture capital pioneer told Reuters.

In 40 years in the business, I've never seen such a vibrant startup environment, Alan Patricof, founder and managing director of Greycroft, told Reuters on a visit to Israel.

He added that, in spite of the global financial crisis of the last two years, there's a lot of money around and there's an enormous increase in start-up activity.

That is largely due to the practice of cloud computing -- running computer programs from remote servers. This has eliminated many of the costs involved.

Ten years ago you would have needed a lot more money to start a company, Patricof said. Cloud computing eliminates capital expenditure so you can go global very quickly -- you don't have to have extensive servers in every country.

Moreover, advances in the Internet and wireless have created opportunities for new applications, he added.

Patricof, who founded Apax Partners, one of the world's largest private equity firms, was an early investor in the likes of Apple, AOL Inc and Office Depot.

He left Apax in 2006 to found Greycroft, which is focused on early-stage digital media companies, including The Huffington Post. It has two funds, Greycroft I and Greycroft II, the latter initiated with $130 million in committed capital.

The first fund is fully invested while the second began making investments this year.

Patricof, also a founder of New York magazine, said he believes the venture capital industry has become oversized.

Funds have got bigger and bigger and keep raising new funds, he said. It's hard to make small investments when you're a billion-dollar fund.

Some large VCs are spinning off or setting up seed funds, he said, adding Greycroft intends to maintain the current level for future funds.

More firms are downsizing or coming up with a strategy of how to separate private equity, large-size investments from earlier investments for start-ups, he said.

Greycroft has just made its first investment abroad and Patricof said the fund was open to investing in Israeli companies, in conjunction with a local partner.

A key criteria is ... the company has to have traction such as a modest amount of revenue or customers or usage so we can do due diligence, he said.

(Editing by David Hulmes)