Network World's 25 new IT companies to watch have raised a total of just over $320 million in venture funding.
Chip maker Smooth-Stone leads the way with $48 million in venture funding, followed by flash storage vendor Virident with $26 million. Hardware vendors, more capital-intensive than software startups, tend to require significant funding to get off the ground. Server vendor SeaMicro, for example, has $25 million in venture funding plus another $9.3 million in a grant from the U.S. Department of Energy. (See bottom of story for more details on funding from our IT companies to watch list.)
Nimbula, whose technology lets customers build Amazon-style private clouds, leads the way among software vendors with $20.75 million in funding.
The $320 million in venture funding was raised by 23 out of the 25 vendors. The figure does not include Oxygen Cloud, which is a subsidiary of the privately owned vendor LeapFILE, and it also does not include cash raised by LightSquared, which has several billion dollars in debt and other financing to help it build a nationwide 4G wireless network.
Despite these impressive figures, venture capital and private equity investments in IT companies have dropped steadily throughout most of the past decade, from more than $51 billion in 2000 to $9.7 billion in 2008 and $6.7 billion in 2009, according to Dow Jones VentureSource.
With $5.3 billion invested in IT companies through three quarters in 2010, the industry is on pace for a very slight increase to just over $7 billion for the full year. Investments in the third quarter were up 35% over the previous year.
While 2010 is looking better than 2009, nearly all segments of the IT industry have seen investments shrink since 2007, the year before the financial crisis, says Robert Armstrong, a financial analyst and senior columnist at Dow Jones Investment Banker.
One exception is data management services, which rose from $138 million in 2007 to $205 million in 2009 and is on pace for even more this calendar year. That's because businesses are struggling with vast amounts of data that grow every day, and products that can better manage data are in high demand. EMC's purchase of Greenplum earlier this year is a signal of the momentum in this portion of the IT industry.
Although investments are certainly far more limited than they were a decade ago, there are still opportunities for innovative vendors, says Armstrong, who notes that "there are a lot of bad ideas getting weeded out" by the shrinking VC industry.Investors' emphasis these days is on software companies - with the exception of hardware vendors that target the data center energy crisis, he says. The rise of cloud computing and virtualization is requiring all sorts of new technologies to manage and secure workloads in next-generation data centers.
"Investors in general are chasing growth," Armstrong says. "If you have an IT product that addresses an underserved market, and does it right, I would think the money would be there."
More funding details:
$8 million -- Actifio$6.5 million -- Akiban$16.5 milion -- AppDynamics$2.6 milion -- AppFirst$14 million -- Aryaka$10 million -- Cirtas$17.6 million -- Cloud.com$2.05 million -- Cloudflare$20 million -- Delphix Corp.$20 million -- Gridiron Systems$15 million -- Infineta Systems$1.9 million -- JouleX$15 million -- Membase$9 million -- Nicira Networks$17 million -- Nimble Storage$20.75 million -- Nimbula$25 million -- SeaMicro$48 million -- Smooth-Stone$9.5 million -- Translattice$1.2 million -- TrueDomain$26 million -- Virident$8.25 million -- Virsto$6.4 million -- ZeRTO
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Read more about data center in Network World's Data Center section.