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Archive for the ‘MoneyTree report’ Category

Software startups reaped lions share of venture capital investment in fourth quarter

By Peter Delevett

pdelevett@mercurynews.com

Posted:   02/18/2012 03:17:00 PM PST

Maybe they should start calling it Software Valley.

Venture capitalists, who provide much of the funding that keeps startups growing, poured twice as much money into software companies in the last quarter of 2011 than into any other sector.

Venture firms nationwide put $1.8 billion into software, spreading the wealth among 238 deals. That was more than double the number of deals in the second-largest sector, biotechnology.

The trend was even more pronounced in the Bay Area, where one-third of all venture money went into software.

The data was reflected in the latest MoneyTree report, prepared by the National Venture Capital Association and PricewaterhouseCoopers using data from Thomson Reuters.

“The big story was software as a service — very hot,” said Debby Farrington of StarVest Partners, speaking of the MoneyTree findings. Her New York-based venture firm focuses on so-called SaaS or cloud-based software, which companies can rent online rather than buy at steep prices.

The wider adoption of cloud software also is being driven by the fact that more workers are bringing their personal smartphones and tablet computers to work and want the freedom to access their files anywhere, she added.

Internet-specific companies also received a healthy dose of attention from venture capital firms in the quarter, the MoneyTree report found. With VCs eager to find the next Facebook,

Groupon or Twitter, the sector received $1.3 billion, shared across 239 deals.But the software and Internet sectors both saw funding drop in the fourth quarter compared to the third, perhaps driven by sub-par Wall Street debuts by Groupon and fellow social media stalwart Zynga.

In fact, biotech was the only one of the five sectors the MoneyTree report tracks that saw gains in both dollars and deals in the quarter.

But while Tracy Lefteroff, who heads the venture capital practice for PricewaterhouseCoopers, called biotechnology “a hot spot” in 2011, his enthusiasm was tempered by the fact that biotech funding — particularly for early stage companies — has been on the decline for several years. In part, that’s because companies in the sector face high regulatory hurdles and steep costs to reach significant size.

The same factors, Lefteroff notes, plague cleantech. Even though the green energy category took in more venture funding in 2011 than ever before — $4.3 billion — the number of deals in the fourth quarter declined 14 percent compared to the previous three months.

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To no ones surprise, the VC community pulled in its spending spree and held back in the wake of the financial crisis. The recent report release by NVCA (National Venture Capital Association) this last weekend. A funny detail in the mix is that they release the data on saturday afternoon, after all media stopped their coverage for the weekend!

“Venture capitalists invested just $3.0 billion in 549 deals in the first quarter of 2009, according to the MoneyTree™ Report from PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. Quarterly investment activity was down 47 percent in dollars and 37 percent in deals from the fourth quarter of 2008 when $5.7 billion was invested in 866 deals. The quarter, which saw double digit declines in every major industry sector, marks the lowest venture investment level since 1997”

Overall, its not good news. In specific areas, the analysis continues;

“The Software sector received the highest level of funding with $614 million going into 138 rounds, a drop of 42 percent in dollars and 34 percent in deals compared to the fourth quarter of 2008.”

“The Life Sciences sector (Biotechnology and Medical Devices combined) experienced a 40 percent decline in terms of dollars and a 31 percent drop in deals with $989 million going into 133 rounds. Investment in Biotechnology fell 46 percent to $577 million in the quarter, while Medical Device investments fell 27 percent to $412 million. Investments in Life Sciences companies represented 33 percent of all investment dollars and 24 percent of all deals in the first quarter, which is in line with historical norms.”

For the whole pressrelease, click here. For additional coverage on this story see; ABF Journal, The Batts report.

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“Venture investment fell 8.5 percent during the first three months of 2008 compared to the final quarter of 2007, according to the new MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association.”

To read more on the MoneyTree report, go to VentureBeat´s excellent article here.

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