The swell of early- and midstage venture capital continues to swamp the enterprise space. It's where the money is, with worldwide enterprise spending accelerating to pass $2.6 trillion in 2013, according to Gartner. The smartest VCs like Philly's First Round Capital (backers of Bazaarvoice, Gigya) are making enterprise-focused partner hires. They're competing for enterprise deals with everyone from Silicon Valley archangel Ron Conway to Microsoft; the latter teamed with seed fund TechStars to start the enterprise-focused Microsoft Accelerator.
Venture capital, like any asset class, tacks quickly to take advantage of prevailing winds. With Wall Street down on recent consumer Internet IPOs and enterprise M&A picking up, "the momentum/late-stage investors have moved from consumer to enterprise," writes Fred Wilson, whose Union Square Ventures is the smartest early-stage money on the East Coast. In 2012, VC consumer bets were off 42 percent as VCs watched enterprise get all the upstream loving -- from Cisco buying cloud-based Meraki Networks for $1.2 billion to enterprise scoring decent IPO floats like Demandware, Workday, and ExactTarget.
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No wonder enterprise angel-round valuations are rising to a median premoney valuation of $2.7 million, according to Halo Report. Venture investment in enterprise startups was the only area that didn't see a decline in the third quarter, according to Dow Jones VentureSource. Innovation shifts investment priorities. "IT will experience greater change in the next five years than there has been in the last 30 years," says Jim Kissane, partner at Stone Key Partners, a strategic financial adviser. And change means the sort of disruption that VCs love to fund.
The hottest enterprise startups not coincidentally mirror recent CIO spending increases in business intelligence, data visualization, collaboration, virtualization, and the move to the cloud and mobile. These new-breed enterprise firms tend to trickle their products into organizations via line-of-business managers rather than waiting for pilots. Here's a mix of under-the-radar and white-hot startups attracting smart money.
Social media management systems, or SMMSes, impose order on the social media chaos by adding governance, integration, workflow, and intelligence capabilities across the enterprise. Basically, they're a content management toolbox for social, handling the average brand's 178 social media accounts, according to Altimeter, and gleaning all manner of knowledge about itself.
Buddy Media sucks up a lot of oxygen in the end-to-end marketing enterprise space, with $90 million raised to date from top VCs. HubSpot is hot too, recently raising $35 million from gold-plated VC Sequoia. But because winning in the enterprise software game is about sales and marketing teams who can crash through the gatekeepers, smart money likes Shoutlet, whose sales brains helped build email service giant ExactTarget. New York City-based FTV Capital, a strong player in funding enterprise (its Utopia holding is a big data play), is behind Shoutlet, as is American Family Insurance (venture arms of insurance carriers are growing into an unexpected startup funder, with Liberty Mutual investing in Utopia).
Shoutlet aims at the midmarket rather than hunting elephants. "We're going after wide-open turf," says Eric Christopher, vice president of sales. In three years, Shoutlet has grown to 100 employees and 500 direct customers, doubling revenue every year. Shoutlet gets around $20,000 a year for cloud-based, consumer-oriented UI and services like Social Switchboard, which marketers use to trigger-schedule tweets, emails, and status updates for release once the company or product reaches a certain number of likes on Facebook or retweets on Twitter.