Tech recaptures lion’s share of venture capital

Venture capital investment in software companies outpaced investments into biotech and medical devices for the first time in two years, according to figures in the MoneyTree Survey by PricewaterhouseCoopers, Thompson Venture Economics and the National Venture Capital Association.

The data show that 198 software companies attracted $1.1 billion in Q1 2005, compared to $1.08 billion for companies in the life sciences sector. IT services, an historically slower growing part of the tech market, hit a two year of $302 million.

For the past few years life sciences companies have pulled in the most private capital as investors shied away from anything too closely connected to the ailing tech market. The tidal shift may signal a return to historic patterns in venture finance when life sciences and tech-oriented companies garnered roughly equal shares of private investments. Equally likely is that more institutional investors are putting money in venture funds which hold the promise of greater earnings growth than stocks.

Tech entrepreneurs certainly have much to look forward to if the pace of investment keeps us. Those in the software sector obviously have learned how to work with VCs and structure their balance sheets to draw investors; they send out proposals only when they have achieved a track record of positive cash flow and earning growth. In other words, they have learned to think and behave like proper entrepreneurs, and private investors are rewarding them.