Dan Primack

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

For venture capital, IT ain't what it used to be

September 22, 2010: 1:25 PM ET

Fred Wilson wrote a blog post last week about how the VC industry has bifurcated into two distinct spheres: IT and the rest of it. The former gets all the buzz, and has experienced some fundamental changes (the rise of super-angels, the fall of startup costs, etc). The latter is virtually ignored outside of select trade press, and today looks pretty much how it looked five, ten or twenty years ago.

He's right, of course. It's still virtually impossible to do lean life sciences, let alone lean utility-scale solar development.

But venture investment in IT not only has changed over time, but also has changed relative to investment in other sectors. A decade ago, IT deals dominated the VC landscape. According to MoneyTree, over 86% of all venture dollars invested in 2000 went to technology companies (Internet, software, hardware, chips, etc). If you only include Internet-specific and software deals, the figure still stands at nearly 62 percent (and represents 65% of al companies funded).

So far in 2010, however, the situation looks much different. Investments in IT deals now represent just 41% of all VC dollars disbursed, and the more limited category stands at a paltry 31 percent. Life sciences investments, however, come in just a smidgen higher. And the disparity really begins to grow if you throw an emerging sector like cleantech into the "other" sample -- even if just the cleantech that doesn't look  like IT for energy customers (e.g., smart grid software).

IT continues to lead in terms of "most companies funded," but that gap too is narrowing. Obsessing over the valuations/exit prospects of companies like FourSquare or Twitter is great fun (and great for pageviews), but the real money is being made or lost elsewhere.

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Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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