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IT Gets the VCs

3:15 PM -- Information technology leads all other industries for venture funding in the U.S., according to the latest Ernst & Young/VentureOne Quarterly Venture Capital Report, from Dow Jones and VentureOne . In 2005, VCs spent over $11 billion on firms in the IT space -- 117 percent more than they spent on healthcare firms, and a whopping 265 percent more than on startups with other products and services.

Surprised? Neither were we. But some of the fine points are intriguing. To wit:

  • In the IT space, software firms get the most funding. In 2005, over $4 billion was invested in IT software startups, compared with about $2.6 billion in those focused on communications; $1.5 billion in semiconductor firms; $950 million in information services firms; and $811 million in electronics outfits.
  • By geographical region, growth in VC funding was lower in 2005 than in 2004, with one exception: The smallest region, Research Triangle Park, N.C., saw an uptick from $126 million in 2004 to $141 million in 2005 in VC funding.
  • The most-funded regions saw drops in outlay: Startups in the Bay Area of California scored $5.5 billion in funding in 2004, but $4.9 billion, 11 percent less, in 2005. In New England, funding in 2004 was $1.6 billion, but fell 7 percent in 2005 to about $1.5 billion in 2005.
  • By state, California led with most fundings in 2005, with 966; Massachusetts came in second, with 251; and Texas ranked third, with 108.
  • The top investor in the Bay Area is Menlo Ventures , followed closely by New Enterprise Associates (NEA) .

Bottom line? If you're starting out in IT and think you're a potential software superstar, move to California and call Menlo or NEA. Or take your chances and stay local, but make sure EMC and Symantec know you exist.

Mary Jander, Site Editor, Byte and Switch