The venture capital spotlight is ready to turn back onto the IT sector in 2011, after giving up ground to cleantech and life sciences companies over the past few quarters. A recent survey by the NVCA shows that investments in IT, internet & digital media, cloud computing and mobile/telecom are all anticipated to increase in the year ahead. Between 77-82% of respondents (a combination of VCs and CEOs) expect increases in healthcare IT, cloud software and consumer Internet investments throughout 2011. VC exits for technology IPOs are also predicted to increase, while 81% of respondents suggested that venture-backed acquisitions will also increase.
If VC investments from the fourth quarter of 2010 are any sign of what is to come, then these predictions are not far off. The chart below shows a handful of the biggest VC investments during the fourth quarter – a trend of investments we expect will continue and even spur M&A in the coming months. Social media-based companies in particular received a number of big investments this year, including e-commerce companies such as LivingSocial, and internationally in shopping sites Vostu (Brazil) and Prevalia (Spain). Group buying megalith Groupon recently raised $500 million (with the ability to raise another $450 million) after turning down Google’s $6 billion acquisition offer, while Facebook also pulled in $500 million from Goldman Sachs. These investments, which value the companies north of $6 billion, reinforce the idea VCs are anxious to grab a piece of the pie, especially in social media and e-commerce. Similarly, investments in cloud applications, including the $25 million picked up by both Meebo, web IM platform, and Cloudera, cloud data-management software provider, show the increasing value investors are finding in the maturing technology.
The VC market is beginning to come back to life and that is a great sign for M&A as well. Recent data from Dow Jones shows that 62 Web-based startups worth a total of $4.1 billion were acquired in 2010. That is nearly double total deal volume for both 2008 and 2009 thanks to hungry acquirers like Google, Facebook, IBM and social gaming company Zynga. Preliminary M&A deal valuations year-to-date are at their highest points since the peak of the market in 2007, according to Signal Hill Updata’s proprietary database [see our upcoming 2011 IT M&A Outlook to be published in January]. We have no doubt that a full pipeline of deals, hearty investments in the venture capital world, and an increasingly recovering IPO market will spur even greater M&A growth in 2011.
Select Large IT VC Investments, Q4 2010-Q1 2011
(click image to enlarge)