Successful venture capitalists and private equity firms often have a knack that is the envy of the common investors. They can tell what’s going to be hot, and they get in on the ground floor.
Lately, technology has attracted the lion’s share of private equity and venture capital funding. According to PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, the software industry received the highest level of venture capital funding for all industries with $1.6 billion invested during the first quarter of 2012. Software saw the most venture capital deals completed in the first quarter, with 231 rounds.
By comparison, biotechnology was the second largest sector for dollars invested with $780 million going into 99 deals.
Internet-specific companies received more than one billion dollars for the eighth consecutive quarter with $1.4 billion going into 188 deals.
What’s interesting is the companies that venture capitalists are investing in within the software sector.
Big bets are being made on personal financial management systems (PFM’s). PFM’s include software and mobile applications that help individual consumers gain control in their financial lives. They include web and mobile apps that give users the ability to perform tasks previously reserved for financial professionals, like investment analysis, total portfolio organization, aggregation and analysis. They also make other household finances easier, such as budgeting and bill pay.
According to a recent Wall Street Journal article, in the first quarter 2012, venture capitalists invested $150 million in companies developing personal financial management software and mobile applications. This is over twice similar investments made in the first quarter last year.
These investments provide us insights as to the types of technologies that venture capitalists believe may transform the way we live our lives. Consumers are becoming increasingly reliant on technology to provide instant answers, improve the organization of our lives, and provide support and guidance on areas where we have questions.
Financial advisors must see these technologies for what they are … disruptive. They will change the way clients’ consume financial data, and how they seek advice.