Software investment hit record levels in 2013 (report)

Investments in software companies hit $11 billion in 2013, the highest level since 2000.

According to MoneyTree’s annual report, the software sector captured 37% of total venture capital for the year, which is the highest percentage recorded since MoneyTree’s inception in 1995. Software investment is up 27% from 2012.

The report found that venture capitalists invested $29.4 billion in 3,995 deals in 2013, an increase of 7 percent in dollars and 4 percent increase in deals over 2012. Internet-specific companies also soared last year, raising $7.1 billion, which is the biggest amount since 2001.

The MoneyTree report is created by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters. PwC executive Mark McCaffrey said that these numbers are driven by the success of recent IPOs and the active acquisition market.

Bobby Franklin, CEO of the NVCA, said that investors are feeling optimistic as a result of the strong exit market and an improved economy.

“There has been some public discussion about recent high valuation levels in private technology companies,” Franklin said. “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 amount of money put into biotech rose by 8 percent in 2013 and was the second largest investment sector for the year in terms of deals and dollars invested. The medical device industry decreased in both dollars and deals.

Networking and equipment, financial services, and business products and services experienced some of the biggest dollar increases in 2013.

MoneyTree also looked into deal flow across the various stages of investment.

Seed stage deals increased by 14% in terms of dollars but fell 26 percent in volume, with $943 going into 218 companies in 2013. This is the lowest number of seed deals since 2003. The average seed round was $4.3 million, which is up from $2.8 million in 2012.

$9.6 billion went into 2,003 early stage deals, an increase of 17 percent in dollars and 15 percent in volume. The average early stage deal was $4.9 million, which interestingly is just slightly larger than the average seed deal.

Expansion or growth stage investments stayed fairly consistent, increasing by 4 percent in dollars and flat in terms of volume. 274 deals attracted $3 billion, representing 34 percent of invested dollars. $8.8 billion went into 790 later stage deals, a one percent increase in dollars and 6 percent decrease in deal volume.

First time financings are up by 14% in dollars but down by 4 percent in volume and accounted for 17 percent of dollars and 33 percent of deals in 2013.

The report also included a list of the largest U.S. venture capital deals for the year. Voice-over-Internet-protocol tech developer Genband led the pack with its $343.5 million round. Uber’s $258 million round came next, followed by not one, but two blockbuster rounds from both Pinterest and Palantir.

Reuters collects this data based on surveys of professional venture capital firms making cash-for-equity investments.