Where the money is: VCs pour cash into software startups

The bloom seems to be off social tech, and startups focused on apps -- from games to ERP -- are the new darlings for investors

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Information technology as a whole was the only major industry that saw a year-over-year increase for both deals and capital raised. IT companies raised $2 billion through 257 deals, a 14 percent increase in capital invested and a 2 percent increase in deals.

IT-related companies other than software included IT services, which garnered $347 million in 69 deals, or 6 percent of the total capital raised; semiconductors at 26 deals for $199 million; telecommunications at $172 million and 21 deals; and networking at 11 deals for $67 million.

(I'm doing a little mixing and matching in this post, drawing numbers from NVCA and VentureSource. Their tallies are usually pretty close to each other, but not identical, so there are a few inconsistencies here. The trends, though, are very clear.)

What's hot in software
Five segments in the software industry gained nearly half of the $1.6 billion raised by the sector. They were recreational and game software ($208 million), industry-specific software ($157 million), business and office software ($151 million), database and file management software ($147 million), and ERP/inventory software ($119 million).

Although cloud computing is not broken out as a separate segment, Forrester's Gualtieri says it is driving innovation -- and funding -- in software. For example, NoSQL, a distributed (instead of relational) database makes it much easier to change the structure of data and distribute it across multiple nodes, he says. "Interest in NoSQL is driven by the cloud and the need to change applications much faster."

Platform as a service (PaaS) is another driver of the software renaissance. "What we're seeing is a real need and opportunity to increase developer productivity," Gualtieri says. And smaller companies are leading the way: WaveMaker, for example, was purchased by EMC VMware last year. Other such providers include OutSystems and Mendix. It's worth noting that Mendix has a number of jobs posted on its website, as does Outsystems.

Isn't it great to see money moving to areas where it will fund useful technologies, along with good jobs?

I welcome your comments, tips, and suggestions. Post them here (Add a comment) so that all our readers can share them, or reach me at bill@billsnyder.biz. Follow me on Twitter at BSnyderSF.

This article, "Where the money is: VCs pour cash into software startups," was originally published by InfoWorld.com. Read more of Bill Snyder's Tech's Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.

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