The US market is key to the continued growth of global tech investments, both in terms of financing domestic innovation that goes on to launch added-value services globally but also as a barometer of general tech health. Although emerging markets such as China, Russia and India are home to dynamic digital landscapes, the US is by far the single biggest investor in international start-ups. The good news for corporate finance boutiques and sell businesses is that the US start-up scene is enjoying a period of good health.
According to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, venture capital firms invested some $9.5 billion across 951 deals in the first quarter of 2014. This was a rise on the total value of investments, although a decline on the number of deals compared to the previous quarter. The numbers could also be somewhat misleading though, as more money could be simply being placed into middle- and late-stage companies that have developed a minimum viable product and have proved a market opportunity. In essence, this funding could just be follow-ups to the early stage investments of 2013.
Nonetheless, there are additional indicators to suggest the first quarter of the year is a stand-out performer on the US domestic market. In Q1 2014, investments in software companies reached $4 billion for the first time since Q4 2000. In this year’s first quarter, venture capital investments in software companies were responsible for 42% of total sums invested and 44% of the total deals. In fact, five of the top 10 biggest deals for the quarter were in software companies. Apart from the fact that now is a good time to be a software start-up in the US, this also demonstrates the growing confidence investors have in driving new products to market.
Not all segments of the US tech economy are seeing good times. There are growing fears of a US tech bubble, which is contributing to a slight overheating in public US tech markets. There has already been a slight decline in the country’s IPO market in the second quarter of 2014, with several high-profile consumer tech companies placing flotation plans on hold. The anxiety is somewhat natural, as memories of the first tech bubble of the late 1990s and the even more recent global economic downturn of 2008-2009 are still haunting many investors. During the last financial crisis, many corporations pulled back their in-house research and development teams but now these companies are looking to acquire start-ups as outsourced product development. In part, this is also fueling the spike in growth in corporate venture capital investments.
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