Information Technology Trends
Hot Companies, VC Bets
Yesteryear’s top bets
VentureBeat’s top 10 VCs in 2010 included hot companies Twitter, Zynga, and Groupon. This creamy top ten included only one non-web/digital-media company: Boston-Power, maker of EV and Grid lithium-ion batteries.
Software was the single biggest benefactor in 2010 according to The PwC MoneyTreeTM Report Q4 2010/Full-year 2010. Life Sciences (biotech and medical devices) took nearly 1/3rd of the VC market. CleanTech grew significantly taking with five of the top ten deals in 2010 attracting 17% of VC dollars; the same percentage was invested in internet-based companies.
IT Services, Tele¬communications, and Media & Entertainment all saw big dollar increases in 2010 as venture capital investment rises for the first time since 2007.
This year’s top 50
2011’s Wall Street Journal’s most likely to succeed US-based VC-funded companies shows a similar bent. The second annual “Top 50 Venture-Backed Companies” picks are based on the capital raised, the experience and track record of the talent and investors, and have a valuation of $1b or less. The winners are in Information Technology (23 out of 50), Business & Financial Services (12), Health Care (8), and Consumer Services (6).
The top of the top include: Castlight Health Inc. (web-based software analyzing health care costs), Xirrus Inc. (enterprise Wi-Fi), Xactly Corp (web-based sales compensation management tool), Recycle Rewards Inc. (recycling partnering and motivation), ExteNet Systems (infrastructure for wireless), Cyan Optics Inc. (data delivery), Aster Data Systems Inc. (data management and analytics), Glam Media Inc. (web publisher/targeted advertising), Carrier IQ Inc. (mobile analytics), and Imperva Inc. (data security).
The web dominates throughout: with all of the Consumer Services companies offering an internet-based, the majority of Business & Financial Services companies and a quarter of the Health Care companies
offering a web service. Wireless infrastructure, data-management/analytics/delivery services, software as a service, storage and security, as well as the cloud are all looking hot.
Betting folks are betting on California, with a whopping 35 of the 50 companies. New York and Texas followed up with 4 and 2 companies, respectively. And each of the following had one company on the list: Illinois, Indiana, New Jersey, Massachusetts, North Carolina, Georgia, Colorado, Utah and Washington.
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Sadly, venture capital for cleantech continues to lag in the U.S. VC’s have learned that cleantech companies require a much longer gestation period than they would like. Many of the cleantech sectors, from solar to electric vehicles, involve manufacturing, and building factories is an expensive and time-consuming undertaking. Plus, Congress’s failure to pass a climate change bill has dampened demand for cleantech, even if energy policies have taken shape, in a hodgepodge fashion, in many states.
At the Abu Dhabi 2011 World Future Energy Summit in February it was noted if you look at exits for VCs, they took three to five years in the 90s; seven years in 2004-05. Now we are talking about nine years plus. Not a lot of VCs can sustain this time frame from investment to exits.
Luckily, the Obama administration is putting support behind theAdvanced Research Projects Agency-Energy (ARPA-E) program. In 2009 ARPA-E invested $151 million in 37 cleantech start-ups deemed too radical or preliminary to attract private financing. Already 6 of the companies have attracted over $108 million in private financing.
This is a great program, modeled on the DARPA program that provided seed funding for the development of the internet. One of the companies, 1366 Technologies, got $4 million from ARPA-E and has raised $33.4 million in private money since then. 1366, based in Lexington, Mass., casts silicon wafers, a basic building block of solar cells, directly into their final form, which is 0.008 inch thick. That cuts the price of the finished solar cells about 40 percent, the company says.
6 out of 37 already pulling in significant private financing in a little more than 1 year is a tremendous track record.
The only question for me is: Why has the program not invested 10 times as much? $151 million is peanuts compared to what the Chinese are investing in similar cleantech start-ups.
Comment by John Whitney AIA — March 31, 2011 @ 10:51 AM