Why Venture Capitalists Are Down, And MSP Software Companies Are Up

Why Venture Capitalists Are Down, And MSP Software Companies Are Up

Venture Capitalists Are Down, MSP Software Companies Are UpI just spotted this on The Wall Street Journal's Business Technology blog:

In a study released Wednesday by the University of San Francisco, Mark Cannice, founder of USF’s Entrepreneurship Program, found that venture capitalists’ confidence is at its lowest level since the university began surveying venture investors in 2004.
But that doesn't necessarily mean bad news for the managed services industry. Here's why.

Fact is, many managed service software providers are privately held and/or self funded. As a result, they don't need to press the panic button. Plus, they don't have irate investors or concerned venture capitalists dialing their investor relations phone lines.

A few examples:
  • Kaseya CEO Gerald Blackie in June 2008 told me his company is entirely self-funded and not seeking to enter public markets.
  • N-able CEO Gavin Garbutt told me in August 2008 that his company also is self-funded and has declined investor money.
  • Nimsoft recently raised $12 million (from companies like Goldman Sachs), proving that risk-averse venture capitalists still believe in selected managed services software companies.
  • Vembu CEO Sekar Vembu says his company is self-funded and could sustain operations without any revenues for at least two years. Vembu is driving revenue growth by positioning its software for managed storage providers.
Of course, many MSP software companies have raised venture capital and will need to pursue IPOs (initial public offerings) at some point. This could lead to a market shakeout or accelerated M&A activity in 2010 or so, I believe. And I'm starting to hear that the economic crisis is slowing down some MSP customer decisions.

But overall, I believe the MSP market is holding up better than the broader economy.

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TAGS: Financing
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