According to the MoneyTree(tm) Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), of October 18, 2013, there’s credible reason to be optimistic about the future of innovation and the vibrancy of the software startup ecosystem.  “It’s an exciting time to be an entrepreneur with a software company,” according to Mark McCaffrey, global technology partner and software leader at PwC US.

According to the MoneyTree™ Report, based on data provided by Thomson Reuters, the US software industry received the highest level of venture capital funding in the third quarter of 2013, exceeding the $3 billion mark for the first time in 12 years with $3.6 billion flowing into the sector during the quarter. The report notes that “[m]ore venture capital dollars are going into more software deals than we’ve seen in the past decade. The continued increase in valuations for innovative and disruptive technologies in software-related companies, coupled with the increase in exit activity, is driving venture capitalists to make more investments in this space. And, at the current pace of investing, we should see total venture capital investments in 2013 exceed the annual total from 2012.”

The report goes on to say that “[w]ith more than half of this quarter’s deals coming from early and seed stage deals, there’s credible reason to be optimistic about the future of innovation and the vibrancy of the startup ecosystem. Software is a natural increased area of focus given that many tech deals are less capital intensive to get to proof of concept,” said John Taylor, head of research at the NVCA. “We are balancing this optimism, however, against the recognition that VCs are still trying to gain exits for the previous generation of companies. There is some improvement on that front but we would like to see it strengthen even further,” Taylor added.

As I have reported before, the US software industry has continued to enjoy incredible success both in comparison to other industries in the US, and also in comparison to other countries with weaker software patent rights.  Yet again, the predictions of the destruction of the software industry by software patents, and the harming of software start-ups by trolls, is simply nowhere evident in the generous venture capital funding being poured into the software industry.  It would only stand to reason that if trolls were placing venture capital investments at an unusual risk, VC investment would not be expected to increase, and indeed would likely go down.  But VC funding is indeed going up along with the growth in the software industry. Is it at least possible that the “dyed in the wool”, anti-software-patent consortium will at least acknowledge that the software ecosystem in the US is far from hobbled by software patents and trolls, the latest and completely baseless “sky is falling” theme?  Could they not at least admit that is possible that the US’s generous protection of software innovation, by patents and copyrights, is a help to the software industry, and particularly the start-ups that are relied upon to do most of the breakthrough innovation? Of course we know not to hold our breath for that, since the anti-IP forces have been predicting the destruction of the software industry by patents since at least 1985, when Richard Stallman, a brilliant but by many accounts decidedly anti-capitalist computer scientist, founded the Free Software Foundation, and later that same decade the League for Programming Freedom.  I do have to at least give Mr. Stallman credit for not only being a programming genius, but also for being able to generate a huge volume of misinformation over the last 30 years!  Isn’t it time to acknowledge, however, that Mr. Stallman got it wrong, and move on to addressing real problems for the software industry?

As the voice of the U.S. venture capital community, the National Venture Capital Association (NVCA) empowers its members and the entrepreneurs they fund by advocating for policies that encourage innovation and reward long-term investment. As the venture community’s preeminent trade association, NVCA serves as the definitive resource for venture capital data and unites its nearly 400 members through a full range of professional services. For more information about the NVCA, please visit www.nvca.org.

The PwC Private Equity & Venture Capital Practice is part of the Global Technology Industry Group, www.pwcglobaltech.com. The group is comprised of industry professionals who deliver a broad spectrum of services to meet the needs of fast-growth technology start-ups and agile, global giants in key industry segments: networking & computers, software & Internet, semiconductors, life sciences and private equity & venture capital. PwC is a recognized leader in each industry segment with services for technology clients in all stages of growth.