Software a winner as VC market heads to biggest year since dot-com era

Software as a service attracts investors

Venture capitalists are investing more money in private companies than at any time since the dot-com bust, with software companies grabbing the biggest slice of the pie.

In the third quarter this year, the software sector received the highest level of funding of all industries in the U.S., scooping up US$5.8 billion in 412 deals, according to the latest MoneyTree Report.

Venture capitalists also invested $5 billion in 242 of what the report calls "Internet-specific" companies, a classification for companies with business models that are fundamentally dependent on the Internet, according to the report, put out by  PriceWaterhouseCoopers (PwC) and the National Venture Capital Association, based on data provided by Thomson Reuters.

Within the software arena, social-oriented companies and software as a service business models appear to be hot. "We're seeing a lot of Saas models, a lot in the on-demand category because it's not capital intensive, it's not people-intensive, it has a recurring revenue stream and once people get their hands on the product, hopefully they keep using it," said Tom Ciccolella, U.S. venture capital market leader at PwC.

The top 10 VC deals of the third quarter included a $450 million investment in data analysis company Palantir Technologies; a $251 million deal with software services site GitHub; and a $150 million cash injection into customer experience management software maker Medallia. Also in the top 10, Avidxchange, an IT services company specializing in accounts payable and payment technology, snapped up about $225 million in VC money.

The $47.2 billion invested in all company categories in the first three quarters of 2015 is higher than full-year totals for 17 of the last 20 years. In the third quarter alone, the figure was $16.3 billion. That's 5 percent lower than the second quarter, but the VC market is on a path to be bigger than for any year since 2000, when the dot-com craze flamed out.

The inevitable question is whether it amounts to a bubble that's about to burst. There are, however, rational reasons for the increase in VC funding, points out Ciccolella.

First of all, there are more players, and therefore more competition, in the VC market these days, with non-traditional players like hedge funds getting into the private-investment game. In addition, some of these companies may be taking a long view and not necessarily be looking for a quick initial public offering (IPO). Many private companies are electing to take advantage of the situation and receive late-stage funding rather than going public.

"Private companies don't have analysts looking at their quarterly results to see if they missed expectations," and can focus on improving their products, Ciccolella said.

Software companies, meanwhile, are relatively low-risk. "The barriers to entry in software are lower than in other types of businesses," Ciccolella said. Software companies, for example, don't need to worry about manufacturing plants and the material costs of hardware.

Join the newsletter!

Error: Please check your email address.
Rocket to Success - Your 10 Tips for Smarter ERP System Selection
Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Marc Ferranti

IDG News Service
Show Comments

Most Popular Reviews

Latest Articles

Resources

PCW Evaluation Team

Sarah Ieroianni

Brother QL-820NWB Professional Label Printer

The print quality also does not disappoint, it’s clear, bold, doesn’t smudge and the text is perfectly sized.

Ratchada Dunn

Sharp PN-40TC1 Huddle Board

The Huddle Board’s built in program; Sharp Touch Viewing software allows us to easily manipulate and edit our documents (jpegs and PDFs) all at the same time on the dashboard.

George Khoury

Sharp PN-40TC1 Huddle Board

The biggest perks for me would be that it comes with easy to use and comprehensive programs that make the collaboration process a whole lot more intuitive and organic

David Coyle

Brother PocketJet PJ-773 A4 Portable Thermal Printer

I rate the printer as a 5 out of 5 stars as it has been able to fit seamlessly into my busy and mobile lifestyle.

Kurt Hegetschweiler

Brother PocketJet PJ-773 A4 Portable Thermal Printer

It’s perfect for mobile workers. Just take it out — it’s small enough to sit anywhere — turn it on, load a sheet of paper, and start printing.

Matthew Stivala

HP OfficeJet 250 Mobile Printer

The HP OfficeJet 250 Mobile Printer is a great device that fits perfectly into my fast paced and mobile lifestyle. My first impression of the printer itself was how incredibly compact and sleek the device was.

Featured Content

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?