VCs thinking big – More Bets Outside Information Technology

(Via The Boston Globe)Venture firms in Silicon Valley,have continued to put their money to work in a post-bubble environment that is at once less certain and more competitive, especially in their own neighborhood. Even as venture investing slowed 7.9 percent nationally in the first quarter of 2005, the investment mix has changed markedly from the boom years of the 1990s, when information technology drove economic expansion and early-stage start-ups were the rage. The start-ups raising money today are not only capitalizing on rapid Internet adoption, like Google, but also using technology for biomedical, environmental, multimedia, and other applications. And more mature later-stage companies are grabbing a larger chunk of the dollars.
Familiar high-tech sectors such as networking, security, enterprise software, and wireless communications are still drawing funds. Emerging areas ranging from nanotechnology to clean energy, from open source software to business process outsourcing are getting investments. Investors are backing traditional businesses, like consumer products and financial services, that use technology for competitive advantage."The big megatrend that I've been investing in is really use of the Internet for the basic fabric of our business and personal life," said J. Sanford (Sandy) Miller, a US managing director of 3i Group who backed the Vonage broadband phone service.
The convergence trend, and the focus on consumers, stand in contrast to the 1990s, where the most profitable niches in California and New England were selling software and telecommunications gear to corporate data centers. But those niches are being squeezed today, with businesses cutting back on spending,and in general selling software to enterprises has become a tougher proposition. While many trends can be seen on both coasts, a venture industry in the Valley that invests more than twice as many dollars as New England, which traditionally has more tolerance for failure; a greater emphasis on consumer-oriented investments, from digital media to personalized medicine; and a higher share of start-ups by immigrant entrepreneurs from India, China, Israel, and Eastern Europe, including many who have set up offshore operations in their native countries.Silicon Valley venture capitalists increasingly are scouting outside their region for investment candidates.