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VCs Bet $1.4 Billion on Big Data in 2012

According to a new report, total investment dollars went down last year, but the number of deals and exits soared.
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You've undoubtedly heard of big data. The idea is to take massive amounts of information--much larger than the typical entrepreneur has dumped into a database or spreadsheet--and find the hidden trends and insights they can help illuminate. Although I've argued that, for most young companies, big data is a trend to avoid, at least in terms of putting tons of attention into massive data sets if you haven't come to grips with more prosaic types of analysis, there is at least one major exception. If you have a tech firm that can let other companies more easily handle big data, now's a good time to look for VC funding.

Venture capital investment in big data has gotten, well, big, according to a report from law firm Orrick and research firm CB Insights. Over the last five years, VCs have put about $5 billion into big data-related businesses, and there was almost 20 percent year-over-year growth between 2011 and 2012 in the number of deals--from 132 to 164. Top deal makers in 2012 were SV Angel, Sequoia Capital, IA Ventures, New Enterprise Associates, and First Round Capital.

However, even as deal count rose, the money count didn't. VCs may have put roughly $1.4 billion into big data startups in 2012, but in 2011 the total was higher by about $100 million. That could indicate a few things:

  • VCs are spreading their bets because it's still unclear who the big winners might eventually be.
  • There is a turnover in companies, making the average age of the investment properties--and the amount of money they're likely to get, as a result--lower.
  • VC firms are negotiating terms more effectively, or entrepreneurs have been less effective on that front.
  • A mix in the types of start-ups--more emphasis on analytics (48 percent of deals), which can start smaller and then scale up with third-party cloud services, and less on infrastructure to run big data projects, which would mean manufacturing costs--could mean that start-ups simply need less, on the average.
  • Because these start-ups are in the B2B field, there is a greater chance of them creating revenue, and so they need less to sustain them while waiting to find how to monetize traffic and users.

And for the would-be funded, California was the top state for deals, which could have more to do with the amount of experience out there with these technologies (think Google, Facebook, Yahoo, and Twitter, to mention a few) than with some preference for sunshine and citrus fruit.

However, VC exits from big data hit 20 last year, versus 14 in 2011 and 4 in 2010. If you are in the business, or want to get into it, be advised that the industry maturity level may be trending up, which could make life harder in the future for start-ups.

Last updated: Feb 28, 2013

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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