Recovery In The VC Community For Internet & Software Companies

Online, February 13, 2012 (Newswire.com) - As the U.S. economy has been continually recovering, the VC investment market has also been recovering at a steady pace. Venture capitalists invested $28.4 billion in 3,673 deals in 2011, an increase of 22 percent in dollars and a 4 percent rise in deals over the prior year, according to the MoneyTree Report by PricewaterhouseCoopers LLP and the National Venture Capital Association (NVCA), based on data from Thomson Reuters. The amount of venture dollars invested in 2011 represents the third highest annual investment total in the past ten years.

The Software industry maintained its status as the single largest investment sector for the year, with dollars rising 38 percent over 2010 to $6.7 billion in 2011, which was invested into 1,004 deals, a 7 percent rise in volume over the prior year. However, Software investing experienced a decline in the fourth quarter of 2011 with $1.8 billion going into 238 deals. Software was also the number one sector for dollars invested and total number of deals in Q4 and counted more than double the number of deals during the quarter than the second largest sector, Biotechnology.

Internet-specific companies also saw a substantial increase in investing in 2011. The $6.9 billion going into 997 deals represented a 68 percent increase in dollars and 24 percent increase in deals from 2010 when $4.1 billion went into 807 deals. This year marked the highest level of Internet investment over the past decade. For the fourth quarter, Internet-specific investment declined 23 percent in dollars and 7 percent in deals with $1.3 billion going into 239 deals, compared to $1.7 billion going into 257 deals in the third quarter of 2011. 'Internet-specific' is a discrete classification assigned to a company whose business model is fundamentally dependent on the Internet, regardless of the company's primary industry category. These companies accounted for 24 percent of all venture capital dollars in 2011, up from 18 percent in 2010.

The following are elements that are particularly important for start-up and early stage companies seeking financing according to Capital West Advisors, a nationwide leader of business plan writing and capital introduction services headquartered in Los Angeles, CA:

• Management Team: The strength of the Management team is one of the most important elements of a business model from an investor's perspective. The Advisory Board can supplement the strength of a Management team.

• Existing relationship with Distributors, Suppliers, Developers, & Affiliate Partners:

• Existing interest from potential customers or test survey results

• Intellectual Property that can yield competitive strengths or licensing/partnership opportunities

According to Capital West Advisors, a growth stage or mid-stage company seeking financing needs to maintain all of the key core components featured above as well as one or more of the following:
• Certain level of historical revenues (which can vary substantially) and sometimes they will require certain level of net income performance.

• Economies of scope or scale that can be realized through capital investment and a higher scale of operations.

• New key relationships or new management that will better position the company to obtain sustainable growth.

• New contracts or letters of intent from prospective customers or distributors.

• New forms of marketing that can create new marketing channels or improve marketing performance.