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The winds of change: consumer Internet and software investing

I was on a panel at the excellent Dublin Web Summit yesterday where we discussed the balance of VC interest between consumer internet and software companies. My perspective is that for most of the last five years the balance was shifting in favour of internet, but in the last year or so software companies have been getting an increasing share of attention.

I think the main drivers have been poor share price performance at many leading consumer internet companies and the continuing good performance is SaaS stocks. VCs think about exits when they make investments and over the last year it has become harder to believe in big Internet exits whilst SaaS exits have more than held up, particularly if you include M&A.

This doesn’t mean that consumer internet investing will stop or that there will be no more big Internet exits. It means that at the margin investment dollars are moving out of internet into software. If share prices at SaaS companies suffer, and they are very highly rated, then we will get the next shift.

Smart VCs are, of course, trying to predict the next shift and investing based on where they think the exits will be in 3-5 years rather than where they are today.