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.

It wasn’t.

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.

Q3 2008 VC Software Investments by Category

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!

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4 Comments on “Bay Area VC Funding Ignores Service and Support Innovation”

  1. Stephen Lynn Says:


    I assume you aren’t surprised by the lack of funding for anything related to Customer Service and Support (CS&S). We at Dovetail Software refer to the CS&S segment of CRM as “The Forgotten Space” because too many vendors focus on other segments of CRM and see CS&S as an afterthought. Dovetail, however, will continue to focus all of our efforts on the needs of the SSPA members.

    Happy Holidays!

  2. jragsdale Says:

    Hi Stephen;
    I actually was surprised! Earlier this year there was more activity in our space, and I was hoping that was an upswing…not an anomaly. But the conversations I have with VC’s are always the same these days. “Will this vendor make it to $100M next year?” Uh, no. How many $100M vendors are there in the CSS space?

    I still think there is a fear of investing in innovation because things went so far into fantasy land in the late 90s. But then, they are still pumping money into community sites targeting teens with no business plan other than the hope of ad-click revenue.

    Give me solid business value and a definable ROI.


  3. Stephen Lynn Says:


    Unfortunately, I think during these trying economic times, executives will say one thing and do another. What do I mean. They will tell the outside world (customers, media and analysts) they are focusing on keeping customers and improving their customer service. Yet, internally, they will be cutting costs within their customer service group to deal with their shrinking top-line and imploring their people to do more with less. It is the reality of our coporate world where short-term profit goals drive everything.

    Therefore, often even when you can show them a compelling ROI, they are unwilling to proceed. But, as you say, show them a solid business value and a definable ROI, and at least you improve your chances of success.

  4. Sri Says:

    Nice blog. Thanks for sharing this. I think for the right ROI and upside you can get VC’s interested in software/SaaS vendors in the support/services space. We just launched our new site today – and have just started talking to VC’s. The solution and message has to be about not just cost savings but also about service revenue expansion. The reception has been great so far. Landing key customers with a good business model is key.

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