Total venture capital investments in software companies surged to more than $4 billion in the first quarter, the most since the fourth quarter of 2000, according to the latest MoneyTree Report from Pricewaterhouse Coopers LLP and the National Venture Capital Association.
And while total venture capital investments rose 12 percent sequentially to more than $9.5 billion, the total number of deals actually declined 14 percent from 1,112 deals to just 951 deals this quarter.
The first-quarter figures also reflect how, where and why venture capitalists are placing their bets as many of the startups that have already received millions in seed capital inch ever closer to their expected initial public offerings.
"Seed and early stage financing numbers are down from the previous quarter, but expansion stage dollars invested are up 34 percent," Bobby Franklin, president and CEO of the NVCA, said in the report. "Because these companies are now moving to the next stage of their maturing process, the investment rounds tend to be bigger, which explains why the numbers are trending toward the later stages of the investment calendar."
"To be sure, the spring thaw of the exit markets is providing some firms with new life, but overall capital remains constrained for most venture capital firms," he added.
Last year, venture capitalists ponied up more than $29 billion in almost 4,000 deals, up 7 percent in dollars and 4 percent in total deals compared to 2012. Internet-specific startups, including numerous security firms, received $7.1 billion in seed capital last year while software companies raked in more than $11 billion.
That trend seems to be holding firm so far this year as fledgling software firms grabbed $4 billion in the first quarter, three times more funding than their biotechnology counterparts. In total, software companies received 42 percent of total VC investments in the quarter.
"Investments into the software sector continue to remain healthy as investors look for companies with disruptive technology that challenges the norm," said Mark McCaffrey, global software leader and technology partner at PwC. “These companies are attracting significant funding from venture capitalists and non-traditional investors alike as their business models continue to provide real value across all sectors and get access to global markets."