The mood among VCs remains hesitant about enterprise software startups. Competing against today’s megavendors is tough. The last investment “bubble” funded plenty of strong small and mid-sized vendors who are still waiting to be acquired with many stagnating. Perpetual license models are a slowly dying business model, but the much-hyped Software as a Service (SaaS) model is still more conjecture than reality in the core software sectors.
Yet software companies received $4.7 billion in venture capital investment during 2006. That’s more than biotech, alternative energy, or any other sector.
2006 looks like it will be a solid year for software investment for two reasons. One, we aren’t yet seeing a bubble that is funding a lot of unworthy companies. And two, we aren’t yet overfunding hot categories.