Bits are better than bugs for VCs

Software companies pulled in almost $1bn in venture funding in the first quarter of the year, pushing biotechnology out of the top spot in the VC cash league.

That's according to the latest MoneyTree survey, done for PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.

However, when biotechnology and medical devices are combined as life sciences, they still hog the top spot.

But, when it comes to first-time funding, the venture capitalists have got over their dot-com phobia and put a third of their money into software, with the dosh coming in in larger buckets. The report reveals that, while the number of companies remains the same, the amount invested is 50 per cent up on the past quarter, at $279m.

Spending on telecoms companies stayed relatively stable, with a total of $547m going to 65 companies.

Total venture investment for the quarter was $4.6bn, down from the $5.2bn of the last quarter but sticking in the range of $4.2bn to $5.2bn that has been established since the dot-com bubble burst.

The entrepreneurs are having to make their money work harder and they're getting less of it as they go along. The report warns that second-round and later funding is drifting slowly south and that the period between funding rounds is increasing.

The average time between rounds has increased from 12.2 months to 15.5 months during the past two years. And expansion stage companies, which traditionally account for the largest amount of cash and deals, are seeing a similar drop with the average take sliding from $9.4m two years ago to $8.7m now.