Tech Trends

Software Biggest Winner of Venture Capital


The software sector captured 50% of the VC investments in the first quarter according to the latest MoneyTree report, the quarterly study of venture capital investment activity in the US, followed by the biotech and green energy sectors.  

Investments were up slightly in the first quarter, at $5.9 billion – the first time in four years since the dollar amount invested in Q1 were greater than Q4. That said the number of deals invested in was down to 736 nationwide – the lowest quarterly number since Q3 2009.

Software was the leading recipient of dollars with $1.1 billion invested in Q1 and the leader in number of deals funded at 187; these are both small decreases over last quarter.

Internet-specific companies (i.e. those with a busi­ness model that is fundamentally dependent on the Internet, regardless of the company’s primary industry category) captured $1.2 billion invested into 171 deals in Q1. Consumer Internet and cloud computing have also seen an increased investment.

The majority of venture capital investment was reaped by Silicon Valley (42%).

A recent survey by the Silicon Valley Bank Startup,  Outlook 2011 Report, relates that the number one challenge for start-up companies is access to capital. Software companies, which comparatively require less capital and are able to generate revenues and profits relatively earlier in their life cycle,  received the most venture funding in 2010 as well as Q1 2011, and are less concerned about equity funding.

Hiring in Silicon Valley is also significantly on the rise, especially at VC-backed firms. The number of job openings have more than doubled to 3,609 (compare this to pre-financial crisis openings of 1,739 in April 2008), according to the VentureLoop Inc. index. Elsewhere in the US, job openings are also rising at VC-backed firms but not as dramatically: 3,311 currently compared to 1,961 in April 2008.

“The Bay Area market for technology employees has grown to a level of competition not seen since the dot-com boom days,” said Jeremy McCarthy, VentureLoop’s chief executive. He added that 52% of venture-backed job openings nationally are now located in the Bay Area, up from 47% in April 2008 – reports Pui-Wing Tam in the WSJ article “Job Openings Rise at Local Start-Ups”. This hiring ramp up is mainly for software engineers and data-analytics professionals.

Further Reading

PricewaterhouseCoopers National Venture Capital Association MoneyTree Report Q1 2011

Silicon Valley Bank Startup Outlook 2011 Report

Job Openings Rise at Local Start-Ups, By Pui-Wing Tam

Crowd Fund Investing, Reversing the Decline in Capital Formation

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