Software Market a Magnet for Venture Capital Funds

Continuing a recent trend, the software industry received the highest level of funding of all industries in the fourth quarter.

pwc and vc

The venture capital ecosystem deployed $58.8 billion across the United States in 2015, marking the second highest full year total in the last 20 years, according to a report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA).

The report, based on data provided by Thomson Reuters, found venture capitalists invested $11.3 billion in 962 deals in the fourth quarter of 2015, down 32 percent in dollars and 16 percent in deals compared with the third quarter when $16.6 billion was invested in 1,149 deals.

In calendar year 2015, there were 74 mega-deals (investments of $100 million or more), compared with 50 in 2014. Overall, financial services (up 183 percent), consumer products and services (up 57 percent), and health care services (up 133 percent) saw stronger increases from 2014.

"For 2016 we expect the size of VC investments will normalize over the course of the year," Tom Ciccolella, US venture capital market leader at PwC, told eWEEK. "This is based on the likelihood that there will be fewer megadeals this year, but even so, we still expect to see a consistent amount of investment activity in the startup ecosystem--currently at about 1,000 deals per quarter. This return to normal would be much more sustainable for the startup ecosystem."

The software industry continued to receive the highest level of funding of all industries in the fourth quarter, receiving $4.5 billion invested in 369 deals for the quarter. This was despite being down 24 percent in dollars and 17 percent in deals compared to the third quarter.

For the full year of 2015, software was up 8 percent in dollars, but down 5 percent in deals, compared with 2014, and four of the top 10 mega-deals in the fourth quarter went to software companies.

First-time financing--companies receiving venture capital for the first time-- decreased 12 percent to $2.2 billion in the fourth quarter, as the number of deals declined by 20 percent to 322 compared to the previous quarter.

The report noted first-time financing accounted for 19 percent of all dollars and 33 percent of all deals in the fourth quarter.

"In 2016 it will be all about startups with truly innovative technology and disruptive business models," Ciccolella said. "These types of companies should continue to receive a growing proportion of funding, because of ongoing breakthroughs in technology, software and the evolution of new business models. That being said, we do expect software to continue to be the largest or near largest sector in terms of funding."