Channel players that invest further into niche services are still fruitful for venture capital (VC) firms looking to invest in the IT sector.
According to analyst firm Datamonitor’s Technology Finance MarketWatch, the worldwide IT sector has seen a total investment – where it was declared – of $3bn in the first quarter of 2006. This is down slightly on the same period last year where the value of investment was $3.19bn.
Tom Jowitt, chief analyst for technology and finance at Datamonitor, said: “The VC market has remained pretty constant over the past few years in IT, even during the downturn. The changes are in the particular sectors that firms want to invest. Wireless and multimedia gaming are big right now.”
Jowitt added that traditional reselling firms are not “sexy” for VC firms. However, he said: “Resellers that try to offer services need to ensure that they have some USPs [unique selling points]. VARs cannot generalise and compete with the big boys. They need to specialise. Investors like niche. Once you have a niche, you have a USP.”
Mark O’Hara, managing director of VAR Hydra, agreed. “Firms that try to be a jack of all trades usually end up a master of none,” he said. “For a VAR to be successful it has to be good at certain things. The bigger resellers are good at doing the bigger deals, but the smaller players tend to be more niche, and often more successful. This is because they are run by owners and are more entrepreneurial.”
Des Lekerman, managing director of VAR Eurodata, said most VCs were looking for an investment that would give them a short- to medium-term return.
“If the management team wants out, or wants to do a management buy-in or out, then that’s when a VC will come in,” he said. “Certain parts of the channel, such as services and managed services, are perfect for VCs because they can then either grow the company through acquisitions or float it. The traditional box-shifting side of the channel is struggling to get much funding at the moment.”
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