Venture Capital Firms Swarming to Late-Stage Investments

Software has been a favorite of VCs for some time. In 1999, just before the peak of the bubble, venture funds doled out $53.3 billion, including more than $10 billion to software companies. No sector got more that year. Biotech, for example, was in 10th place, receiving just 4% of the money.

Although the numbers for the first quarter of 2004 have yet to be tallied, a glance at recent funding announcements indicates that both software and biotech are still hot. On March 9, for example, Private Equity Week reported a $12.6 million second-funding round for Agitar Software, a Mountain View Calif.-based provider of tools to automate software testing, and $15 million in funding for nCircle Network Security of San Francisco. The day before, three biotech companies received a total of $40.7 million in venture funding from various sources.

Companies that develop business intelligence software, tools that allow companies to generate reports and derive useful data from the mountains of information stored on their networks, are garnering serious attention -- and serious cash.

Object Reservoir, which helps energy companies make sense of complex geological data, has raised $14 million from a number of companies, including U.S. Venture Partners, which has directed 80% of its software investments toward business analytics software.

Vendavo and Metreo, companies that develop business intelligence software that helps companies analyze retail buying data, have raised more than $40 million each, according to a recent story in the Silicon Valley/San Jose Business Journal.

Other sectors also are likely to be hot in 2004. Wi-Fi (a popular wireless communications technology), storage, and application service providers, companies that develop software for other companies to rent via the Internet, are expected to be strong performers, said Jim Breyer of Accel Partners, a Palo Alto, Calif.-based VC firm with more than $3 billion in assets.

One company that fits that description: SalesForce.com, a feisty challenger to Siebel Systems (SEBL - Cramer's Take - Stockpickr). SalesForce is expected to go public this spring. (Accel Partners is not a major investor in SalesForce.com, according to documents on file with the Securities and Exchange Commission.