Boom 2.0: Internet startups spark 7 percent surge in VC spending

Venture capitalists pumped $29.4 bn into almost 4,000 deals last year, an increase of 7 percent in dollars and 4 percent in deals. Internet companies led the charge with $7.1 bn in funding, the most since 2001.

It's starting to feel a lot like 1999 again. Actually, more like 2001.


The latest MoneyTree Report from PricewaterhouseCoopers LLP and the National Venture Capital Association confirms what most have long suspected: the gold rush in the tech sector is on again – and in a big way.

For the year, venture capitalists invested a total of $29.4 bn in 3,995 deals, up 7 percent in dollars and 4 percent in total deals.

Internet-specific companies garnered $7.1 bn from VCs last year, the most since 2011. Meanwhile, software startups raked in $11 bn spread across 1,523 deals – the highest level of investment since 2000.

"We are hearing that this optimism is being fueled by a strong exit market, an improved economy, and as always, innovative entrepreneurs," Bobby Franklin, the NVCA's president and CEO, said in the report. "There has been some public discussion about recent high valuation levels in private technology companies. Private company valuations follow the public markets and market-leading venture-backed companies are seeing strong interest from investors across the board. We are not hearing concerns of a return to bubble values of the late 1990s."

The fourth-quarter and year-end numbers represent a sharp about-face from midyear when VCs only pumped $2.66 bn into 305 deals – a 22 percent decline from the same period in 2012 and the least amount of investment since 2009.

In the fourth quarter alone, internet startups hauled in $2.4 bn from 273 separate deals. Internet-specific companies are defined as those whose business model is fundamentally dependent on the internet regardless of the company's primary industry category.

Overall, 10 of the 17 industries tracked reported a spike in VC infusions. Networking and equipment (up 111 percent), financial services (100 percent) and business products and services (61 percent) also got their fair share of funding.

"Consumers see how innovation is changing their lives in the internet and software spaces and are eager to embrace technology at a faster and faster rate," Mark McCaffrey, global software leader and technology partner at PwC, added. "It is no surprise that more venture capital dollars are flowing into early stage software and internet companies."