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Software Tops In VC Funding

Software companies regained the top spot in venture-capital financing during the first quarter after being pushed to No. 2 by biotech companies in the previous two quarters, according to PricewaterhouseCoopers, Thomson Venture Economics, and the National Venture Capital Association's MoneyTree survey.

Software companies received $956 million in VC funding in the first quarter, edging out biotech firms, which received $943 million. Nearly a third of all first-round financing, or $279 million, went to software companies, with biotech a distant second at $89 million.

Tug Of ViewTwo of the biggest software deals were for information-security companies: CipherTrust Inc. received an expansion-stage investment of $42 million, and Fortinet got a later-stage investment of $39 million. The leading software categories in terms of number of deals were business and office (36), information security (19), communications and networking (14), and enterprise resource planning (13).

Ted Schlein, a partner at Kleiner, Perkins, Caulfield, & Byers, said in a conference call last week that regulatory compliance makes the outlook especially bright for startups in storage and networking. A lot of investment also is going to security, infrastructure, and high-end data analytics, he says. "With the ability to access so much information, how are you going to analyze and make sense out of it?"

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