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NetVentures: Investors Pour $1.8B Into Internet Firms

Underhyped and loving it, that's the Internet, the number one investment for venture capitalists in many cases.

For the first time ever at our request famous accounting firm Price Waterhouse broke out its special abacus and tallied up the number of Internet dollars and deals for the past three years and presented the startling results at Spring Internet World. Here's our exclusive snapshot:

Follow The Money: 1997 vs. 1996 Internet Venture Capital

Internet Venture Capital 1997 1996 % change
Investment Survey (millions) (millions)  
Dollars invested $ 1,880 $ 926 103%
Number of deals 422 262 61%
       
Internet investment      
by segment 1997 1996 % change
Software $ 733 $ 344 113%
Services $ 518 $ 290 79%
Infrastructure/Access $ 485 $ 216 125%
Content $ 144 $ 76 89%
TOTAL $ 1,880 $ 926 103%
AVERAGE $ 470 $ 232 103%
Presented as a world exclusive debut at Spring Internet World, Capital Connections session.
) 1998 Price Waterhouse

Some $1.8 billion rolled into future Net hopefuls, wannabes, and plain old dreamers looking to be the next big thing. Just when you think that Microsoft holds back anyone from foolishly betting on software, guess what? Software was the number one area of investment with $733 million being outlaid by venture firms nationwide (see table).

Biggest growth in percentages came from infrastructure/access as the underlying fundamental backbone, and technology is always trying to stay two steps ahead of the exponentially growing traffic and demands. Bandwidth demand doubles every few months so anything that makes faster access is scorching hot.

Squeaking onto the list but showing strong growth was content that jumped 89% in dollar volume to $144 million vs. 1996. This area presents VCs with a tremendous challenge since content, while king, is not a traditional venture investment vehicle. VCs prefer widgets and wadgets rather than words and pictures or sounds to invest in.

Although we don't present a table on stage of investment, we'll summarize that in 1996 most of the dollars invested--67%--went to startups or seed stage firms. By the next year that percentage dropped to 50%, with expansion taking a 37% chunk of cash.

Was the money trail democratically dispersed? Nope. California dominated the deal flow with 220 deals and $1 billion of the pie.

Top 10 Dollar Deals

1997 Top Company Deals Invested
  (millions)
Juniper Networks $ 50
DoubleClick Network $ 40
IXL Holdings $ 30
Lightspan Partnership $ 26
Healtheon $ 25
Zip2 $ 25
Epoch Networks $ 23
Live Picture $ 22
Home Financial Network $ 22
Exodus Communications $ 21
TOTAL $ 284
AVERAGE $ 28
TOTAL $ % OF ALL DEALS 15%
) 1998 Price Waterhouse

Massachussets was second, a distant second that is, with 48 deals and $224 million invested in them. The results show a shift to a U.S.-wide phenomenon, however, as the Net makes location less important. A good idea has wings, especially with the Web.

Many of the deals fell under the $5 million mark, but our own analysis of Price Waterhouse's survey results indicates that the top 10 deals in dollar value accounted for 15% of all deal dollars.

So the next time you see a headline that says the Net is hyped, check the money trail and see where the billion dollar bets are--on the Internet.



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