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New Study from Topline Strategy Group Reveals Enterprise Software Still Attractive to Venture Investors

September 27, 2006
New Study from Topline Strategy Group Reveals Enterprise Software Still Attractive to Venture Investors. Check it out:
BOSTON --(Business Wire)-- According to a new study by the Topline Strategy Group, a leading technology consulting and market intelligence firm, venture capitalists still fund significantly more installed enterprise software solutions than Software as a Service (SaaS), appliance, or Open Source-based solutions. The newly released Follow the Money study contradicts the general market impression that traditional enterprise software has fallen out of favor with venture investors while offering encouragement for start-up companies seeking funding for these types of software solutions.



"Given the buzz around SaaS, appliances, and Open Source, this finding was totally unexpected," said Jon Klein, founder and general partner of Topline Strategy. "We found that large companies, which contribute the majority of dollars spent in the market, still prefer installed software."

Based on a pool of 735 companies that received more than $6.3 billion in venture investment, Follow the Money found that 49 percent of the software companies receiving funding offered only an installed software option to their customers. In contrast, companies offering Software as a Service (SaaS) represented 25 percent of the total number, and companies offering appliances represented 14 percent. 12 percent offered multiple delivery options or other options. Only seven of the 183 software companies that received funding in the second quarter of 2006 were pursuing an Open Source business model.

"This study reveals data that has never been available before," said Noel Fenton, general partner of Trinity Ventures, an early-stage venture capital firm in Menlo Park, California. "It is extremely valuable for entrepreneurs developing their business strategies, tuning their business plans, and defining target markets. It is equally valuable for venture capitalists who want to identify trends in the investor landscape."

Follow the Money data also provides support for start-up companies' target market and product decisions. For example, more than 40 percent of all new consumer Internet businesses funded in the second quarter of 2006 focused on social networking offerings. Offerings included social networking sites targeted to specific demographics and interests, such as networking with college friends, joke and video sharing, and ranged to solutions that enable users to create, store, and share personal multimedia content. While the social networking category is currently highly active, a high level of existing investment may signal saturation of the segment.

The study also revealed that the once-lively local market and lead referral solution category went cold in the second quarter, while sites that enable task aggregation, such as Billeo, appear to be on the rise.

"This study encompasses critical data for leaders of venture-backed companies," remarked Klein. "In the end, business success will rely on choosing and implementing the right strategy and business model."

Follow the Money is a research product of the Topline Strategy Group. Currently, it is the only study that analyzes venture investing in information technology based on start-up companies' target markets and their go-to-market strategies. In addition to the findings mentioned, the study also delivers previously unavailable details about funding, including companies' targeted customer segments and the business models that are capturing funding. Follow the Money is available at http://followthemoney.toplinestrategy.com.

About The Topline Strategy Group

The Topline Strategy Group is a consulting and market intelligence firm dedicated to helping technology companies accelerate sales. Topline consultants possess strategy expertise gained at top strategy consulting firms and operating experience acquired through launching and growing numerous successful technology companies. The Topline Strategy Group employs proven methodologies to help companies grow at each stage of their lifecycles--from launching successful new products and accelerating sales of current products, to building comprehensive corporate growth plans. Topline clients have identified and captured tens of millions of dollars in additional revenue and generated hundreds of millions of dollars in market capitalization.


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