Bay Area VC Funding Ignores Service and Support Innovation
When the Q3 2008 list of Bay Area/Silicon Valley venture capital (VC) funding was published recently, I read each entry line by line. I’ve done several reference calls with VCs over the last few months, and I was hoping to see that cool new technology for service and support was well represented on the list.
I wrote a piece of research about this, which just went live on the SSPA website today. Here are some highlights:
With a high concentration of both VCs and early stage technology companies, Silicon Valley startups typically represent between one third and one half of the total allotment of VC funding to North American technology companies. To identify trends in technology innovation, the Q3 2008 VC investments in Silicon Valley were analyzed, with the following high level findings identified.
- Biotech and healthcare solutions come out on top. The largest chunk of investments, 31%, was made to biotech and healthcare firms, for a total of over $836 million. There were 46 transactions in this category, with an average investment of $18 million.
- Software investments remain strong. Software companies remained a strong area of investment, with 27% of VC funding in Q3. There were 76 transactions in this category, with an average investment of $9.6 million.
- Service and support related technology loses appeal. Of the software firms receiving funding in Q3, the largest percent, 18%, went to infrastructure. Enterprise applications received only 15% of software funding.
Unfortunately, only a small portion of the funding for enterprise applications has applicability to SSPA members as you can see in the above chart. Only one software firm receiving VC funding in Q3 was directly related to customer support: a $7.5 million investment in Utopy, who builds speech analytics for contact centers. One investment was made in professional services tools, and three investments were made in salesforce automation tools (forecasting, sales compensation).
I believe the current economic recession will play a role in returning VC attention to business productivity tools, as companies begin to put out the call for innovative solutions to cut operating expenses in 2009. With this in mind, I offer the following recommendations:
- Invest in innovation. Yes, there is definitely risk involved in selecting a small startup with innovative technology, but in order to have a competitive edge, some risk is warranted. Expand your search for technology to include some startup vendors with bleeding edge capabilities.
- Push incumbent vendors to innovate. In addition to VC funds, startups also receive capital through partnerships with more established vendors. Put pressure on your incumbent technology vendors to increase the speed of innovation, and be clear about your areas of interest. With sufficient customer demand, vendors will investigate emerging innovative technology for investment or acquisition.
- Leverage your SSPA Inquiry privileges. Not sure what innovative startups exist in a certain area, or want input on the viability of a startup before investing? Leverage the SSPA Inquiry service to ask any question related to service and support technology and receive an answer within 48 hours.
I plan to begin tracking this info moving forward to establish better trending, so stay tune for the Q4 results coming in Feb-March. And a special thanks to everyone for reading my blog today; with seemingly half the internet down or very slow due to people trying to see pics of Prince Williams’s willy, thanks for making the time for Ragsdale’s Eye on Service!