Venture Capitalists Putting More Money Into Startups - InformationWeek
IoT
IoT
Mobile // Mobile Applications
Commentary
7/22/2009
11:47 AM
Connect Directly
LinkedIn
Google+
Twitter
RSS
E-Mail
50%
50%

Venture Capitalists Putting More Money Into Startups

Investments rose 15 percent in the second quarter of 2009, with IT earning the most VC dollars. But funding remains significantly low compared to previous years.

Investments rose 15 percent in the second quarter of 2009, with IT earning the most VC dollars. But funding remains significantly low compared to previous years.Venture investments in technology went up 15 percent in the second quarter of 2009 compared to the first quarter, rising to $3.7 billion from $3.2 billion.

IT garnered the most investment, with a total of $1.7 billion. Software led within the IT category, taking just over $644 million. IT services was a distant second at $295.1 million.

Life sciences attracted $1.5 billion in investments, with biotech and medical equipment the leading sectors in the category.

PricewaterhouseCoopers and the National Venture Capital Association announced these numbers on Tuesday, using data from Thomson Reuters.

While the increase in venture activity is welcome news during a long recession, funding is still down significantly compared to the last three years. Total second-quarter investments ranged from $7.1 to $7.6 billion since 2006.

LITTLE HOPE FOR THE IPO HORIZON One reason for the lower numbers is a dismal IPO market. Ray Rothrock, a partner at VC firm Venrock, says that when startups don't have a clear exit, VCs have to keep funding existing investments, leaving less cash to invest in new companies.

The numbers bear him out. Of the 612 deals done in the second quarter, only 141 were first-time investments, compared to 333 in Q2 2008 and 364 in Q2 2007.

Rothrock says the firm, which has a large portfolio in IT, isn't funding startups with an eye towards acquisition. "We try to back companies that have teams and markets that can be an IPO. If a company gets acquired in the meantime that's OK, but it's hard to do an investment in a fund like ours that you don't think it can be an IPO."

By contrast, David Jones, chairman and managing director at Chrysalis Ventures, says acquisitions play a major role in exit opportunities. Jones currently focuses on the healthcare market.

"As I look at the world, I think we still need to plan on selling our companies to those with capital," he says. "We desperately need an IPO market to come back at some point, but we don't see it yet."

IT HOTSPOTS When asked what's driving investments in IT these days, Rothrock says the company looks for technologies that help make enterprises more efficient, both from a cost and operational perspective. "Virtual everything-desktops, servers, things to reduce hardware devices and power management," says Rothrock. "This is a classic, hard-ROI justification." SaaS also falls into the efficiency category. In addition, security remains a compelling area, though these days it comes with a strong compliance angle.

Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
How Enterprises Are Attacking the IT Security Enterprise
How Enterprises Are Attacking the IT Security Enterprise
To learn more about what organizations are doing to tackle attacks and threats we surveyed a group of 300 IT and infosec professionals to find out what their biggest IT security challenges are and what they're doing to defend against today's threats. Download the report to see what they're saying.
Register for InformationWeek Newsletters
White Papers
Current Issue
2017 State of the Cloud Report
As the use of public cloud becomes a given, IT leaders must navigate the transition and advocate for management tools or architectures that allow them to realize the benefits they seek. Download this report to explore the issues and how to best leverage the cloud moving forward.
Video
Slideshows
Twitter Feed
InformationWeek Radio
Archived InformationWeek Radio
Join us for a roundup of the top stories on InformationWeek.com for the week of November 6, 2016. We'll be talking with the InformationWeek.com editors and correspondents who brought you the top stories of the week to get the "story behind the story."
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.
Flash Poll