VC investments in IT sector remains undiminished 1H 2006: Datamonitor

Mumbai: Research from independent market analyst Datamonitor has found that the total value of venture capital (VC) invested into the technology sector in the first half of 2006 increased by $1 billion on the levels invested during the equivalent year-ago period. Datamonitor's Technology Finance MarketWatch tracked 602 investment deals into technology companies in the first six months of the year, a rise of nearly 100 deals compared with activity over the same period in 2006 when 513 transactions were recorded.

The new report takes an in-depth view of the activity in the technology sector, tracking mergers and acquisitions and VC investments made in the IT sector, and listing the fluxes in the financial performance of 500 of the biggest vendors of software, hardware and network equipment, consulting and professional services firms, and telecom and carrier services companies. It incorporates an extensive data table which is updated daily and charts all the key financial metrics of the Tech500.

For those cases where the level of the funding was disclosed, the total investments in the first half of 2006 ran to $6.89 billion, up from the same period in 2005 when deal values totalled $5.85 billion.

Trying to predict the emerging 'hot' sector is a difficult job at the best of times but convergence has been a hot topic for some time now. "VC's have been especially interested in anything to do with the 'digital home', such as IPTV, home entertainment, and other multimedia products for the home," said Tom Jowitt, senior analyst for technology finance at Datamonitor.

Other areas of interest include online advertising and broadband. The advent of 'web 2.0' is also of interest to the investment community, and social networks with a strong angle to drive traffic are attracting investments.

"Interest in the VoIP sector remains, although as the case of Vonage demonstrates, this is a difficult sector to crack," said Jowitt. "That said, the sale of Skype to eBay last year provided a terrific return on investment for its VC backers, but this is a relatively rare case. In the main, exit strategies remain limited, mostly due to the fussy IPO market in the United States. Most investors still see trade sales as their most obvious exit."