Venture capitalists have been the backbone supporting the growth of the software sector through the years and have helped take technology to newer and untouched domains. Whether it is a life sciences product helping people in remote corners of the planet or an educational product helping promote worldwide literacy, the venture capital community has made a global difference through their engagements and funding.
Although their portfolios may be diverse, these are mostly for-profit institutions that are very stringent and careful about where they invest and what they invest in. This often includes guiding organizations or being part of their boards with the goal of monitoring how they fare and being able to help them have a successful exit strategy. Such an exit, typically an IPO or a merger and acquisition, helps the venture capitalist group in two ways: financially reaping a great return on the investment they made and creating a better brand for themselves so they have a strong portfolio with successful exits.
However, IPOs and mergers and acquisitions are not easy. Larger organizations that have been upbeat about acquisitions are beginning to slow down. Even established brands have had their challenges during an IPO.
The venture capitalist community was significantly hit by the dotcom bubble more than a decade ago, and again by the 2008 recession. From these two devastating time periods, the community as a whole has learned important lessons—lessons about what to watch for in their lifecycle of operations, such as where to invest, how to invest, what valuations to take on, what roles they would play in an organization they have funded, and what their roles should be in an exit strategy.
These lessons have further strengthened their bond with the technology community, especially independent software vendors, resulting in a very positive market scenario in 2013. One study shows the overall 2013 funding to be more than $33 billion spread across disciplines, with life sciences funding alone accounting for close to 25 percent.
The same positive outlook has been forecast for 2014, and the first-quarter results have already shown performance in line with the upbeat predictions—especially for the software sector. For the first time in more than thirteen years, venture capital funding is seen soaring to the levels of 2001, which is great news for fund seekers. The overall investment portfolio continues to range from funding as low as $1 million to $2 million to investments as large as $350 million.
These indicators are bringing a rise in optimism like never before. However, venture capitalists should continue to be wary, and fund seekers should be grounded and genuine about their operations, with a strong passion for excellence. This is important to ensure that together, they leverage the optimism in the right way and prevent a relapse of the 2001 bubble.
