Software Venture Capital
The software venture capital market was greatly impacted by the Dot Com boom and bust in the last decade. Many venture capitalists see it rebounding now, but there are cautious voices out there.
Software venture capital seems to many people like the ideal investment. There is no question about the computer’s invasive influence into almost every area of life. It is still a mainstay of the global venture capital market as third world countries move to reach the level of internet connectivity enjoyed elsewhere. Even cultural diversity offers remarkable opportunities for software development. A major and successful venture capital deal in India recently involved software designed to facilitate arranged marriages, something that would not sell well in the United States, obviously.
Also, the very nature of software makes it something hard for the conservative lending industry to get a grasp on. They are looking for something they can see and touch that can be used as collateral. Although they use software programs extensively on their desktop computers, and everyone in the banking industry has a desktop computer, the workings of the software makes about as much sense to them as the movement of atoms did to the Neanderthals. So, software companies do not find traditional lending easy, opening the door to venture capital funding.
There are some people now saying that software and venture capital are far from the ideal marriage and more like a couple heading rapidly for the divorce courts. They give two compelling reasons for this. The first is an over saturation of technology. We have just moved too far too fast. The market is not there for every bit of innovative software that is coming on the market. The consumer can just use so much.
The second problem is the growing number of venture capital funds. Membership in the National Venture Capital Association has doubled in the last ten years and the amount of funds under control has grown even more. There might be just too much money to throw at two few good deals to make the software venture capital market viable.
It is important to understand that these doomsayers are not predicting the demise of software companies. Rather, they are seeing them moving more and more out of the venture capital arena and into the mainstream investment one. The risks are no longer quite as high, which means the ROI is going to be much lower. There is two much money being thrown at two few potentially good deals to attract the really smart venture capitalist who will inevitably turn to richer pickings elsewhere. Or, just maybe this is all a smokescreen designed to chase away some competition and open the way for that real killer software deal.