VC tech spending saw surge in 2007

U.S.-based venture capital investments reached their highest point last year since 2001, with software remaining the strongest category, according to The MoneyTree Report, released this week by PricewaterhouseCoopers and the National Venture Capital Association (NVCA).
VC firms sunk some US$29.4 billion into 3,813 U.S. deals in 2007, according to the report.

Software-related VC funding once again received the most funding, with $5.3 billion, compared to $5.1 billion in 2006, according to the report, which used data from Thomson Financial.

VC spending on other technology categories also rose. Funding for computer- and peripheral-based interests was $580 million, up from $497 million in 2006; IT services, $1.3 billion, compared to $1.1 billion in 2006; networking and equipment, $1.25 billion, compared to $1.1 billion the previous year.

However, semiconductor VC investment fell to $1.85 billion, from $2.14 billion in 2006. Telecommunication also saw a slowdown, falling to $2.14 billion, compared to $2.6 billion in 2006.

While the VC market has hardly bounced back from its boom year -- 2000, when spending stood at $105 billion according to NVCA -- it has slowly crawled back to life. A low point came in 2003, when VC investments were a mere $19.7 billion, NVCA data shows.

Major software vendors employ varying strategies toward the VC market. While some companies, notably Sun Microsystems, infuse cash into startup companies through funds of their own, others such as IBM take a different tack, working with VC firms to analyze their portfolios and spot companies that could be potential future partners.

"We're not in the venture investment business," said Claudia Fan Munce, managing director of IBM's venture capital group and vice president of corporate strategy.

"The due diligence process today is much, much heavier," Munce remarked of the current climate. But as the report's numbers indicate, venture investing is far from dead. "They're coming back in a very different way. They're not just looking at Silicon Valley," Munce said.

According to the study released this week, U.S.-based VCs invested $1.1 billion in India and $1.4 billion in China, record highs for U.S. investments in those nations (The numbers are not included in the study's aggregate totals, according to PricewaterhouseCoopers.).