Venture capital poured into enterprise software in Q1

20.04.2012
The buttoned-down IT industry outshone flashy consumer Internet startups at raising money in the first quarter, logging a big increase in U.S. venture capital investments, especially in enterprise software.

Venture capitalists invested US$2 billion in 257 deals with young IT companies in the quarter, according to a quarterly survey by Dow Jones VentureSource. That marked a 14 percent increase in dollars and a 2 percent increase in the number of deals compared with the first quarter of 2011, making IT the only large industry where both figures rose.

By contrast, investors trusted 76 percent less money to consumer Internet companies, in 17 percent fewer deals, than they did a year earlier. That segment attracted $375 million in 88 deals in the first quarter of this year, according to VentureSource. The survey noted that one reason for the big drop may have been the strong quarter a year earlier, when hot companies such as Zynga and LivingSocial raised large amounts of money: $870 million between the two of them. Zynga has since gone public.

In the IT arena, software companies took in the most investment, making 196 deals for a total of $1.3 billion. That was 6 percent more deals and 61 percent more money than a year earlier. Business application software made up the biggest chunk of that category, according to Jessica Canning, global research director at Dow Jones VentureSource.

Business technology companies across at least two categories did well at the venture trough during the quarter. The second-largest funding round in all of software was for Appirio, which sells technology to help companies take advantage of cloud-based services. But there were also big gains in IT fields that VentureSource classifies under business support services. For example, funds raised by information security companies such as LifeLock grew from $28 million to $135 million, and project and document collaboration companies boosted their fundraising from $2.5 million to just over $100 million, Canning said.

Overall venture investment fell 18 percent from a year earlier, feeding $6.3 billion into all business sectors combined. Even the amount invested in renewable energy declined, VentureSource said.