Wall Street Beat: VC money pours back into Internet companies

The software sector attracts more investments than any other sector, as VC investments grow year over year

By , IDG News Service |  Internet

Venture capitalists poured more money into Internet companies last year than they have since the dot-com bust, according to a survey published Friday.

Internet companies in the U.S. took in US$7.1 billion from VCs in 1,059 deals in 2013, the highest level of Internet investment in terms of dollars and deals since 2001, according to The MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters. In comparison, VC investment in Internet companies totaled $6.7 billion in 995 deals in 2012, another strong year, according to the MoneyTree report.

In addition, VCs invested $110 billion in 1,523 software industry deals last year, the highest level in both dollars and number of deals for the sector since 2000, according to the MoneyTree report. VC dollars going into software rose 27 percent year over year, while the number of deals increased 10 percent.

The amount of money invested in the software industry accounted for 37 percent of total VC investments in 2013, the highest percentage since the MoneyTree report was initiated in 1995.

All this is taking place against a backdrop of a generally strong VC environment, as VCs invested $29.4 billion in 3,995 deals across all sectors in 2013, a year-over-year increase of 7 percent in dollars and 4 percent in deals, according to the report.

Companies involved in big data, mobile apps, security, digital marketing, and medical and health software are among those that are especially interesting to VCs, according to Mark McCaffrey, PwC's U.S. and global software leader.

Top deals in the fourth quarter of 2013 included a $225,000 investment in Pinterest, a site for sharing photos, recipes and other items of personal interest, and a $177,514 investment in Palantir Technologies, a government contractor in the systems integration business, according to MoneyTree data.

Going into 2014 a sense of optimism prevails, but this does not mean that the tech industry is going through a bubble of the sort that arose in 1999 and 2000, McCaffrey said.

"Bubble is a dirty word that people don't like to talk about," McCaffrey said. "There is always the risk of macroeconomic conditions causing something to happen."

However, even though valuations are going higher, "the value proposition for technology has never been so clear," McCaffrey said. For example, mobile devices and applications are becoming more global than they ever have been, while at the same time companies across all sectors are using technology to change their business models and develop better customer relationships.

There also are fewer VC firms than there were during the dot-com bubble, making for a less frenetic, more stable investment environment, McCaffrey pointed out.

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