Hardware/Software Wrap: A Strong Two-Year Program –

As year-end fast approaches, a look back at venture disbursements into the computer hardware and software sector since 1998 shows that software and programming investments have dominated the overall market.

Through Dec. 12, the $11.7 billion VCs have pumped into 802 software and programming companies represents approximately 80% of the $14.7 billion in funds dedicated to the entire sector.

While those sums are impressive, the growth of this sector — which one investment banker described as very stable — mirrors the impressive growth of disbursements in the venture community as a whole. In 1998, the sub-sector raked in $3.4 billion in transaction volume to 610 companies, accounting for 81% of the activity in the hardware/software group’s $4.2 billion total.

Then, in 1999, 708 software and programming companies netted more than $6.9 billion. It is important to note, however, that while the sub-sector’s overall volume increased, it actually accounted for a lesser percentage, 76%, of overall activity. Continuing the mirroring of the market, this year saw the sector continue to explode, surpassing the $10 billion mark.

What’s Driving The Sector?

“Software is a pretty substantive area that has always been fairly stable,” said the investment banker. “We have looked at some IXL software, CRM has been pretty active and there is a lot of money going into open-system software companies.”

The source added that while the market slowdown may effect the sector somewhat, in the longer term it will remain a strong area for deal flow. The primary reason being that these companies require a great deal of labor, which of course requires more funding.Looking to the future of companies in this sector, knowledge management was cited as a new area of opportunity.

“This is an emerging area where companies have developed programs that create databases for these companies,” the source said.

George Moriarty can be contacted at