Is Enterprise Software dead?

Enterprise software is not dead at all, however, it seems that the opportunities for early stage start-ups are certainly fewer than there used to be.  Much discussion has been dedicated to this subject, often implying that we're talking about a mature market, and that's what happens when an industry matures. The big guys dominate, and start-ups are left with filling technology holes.

Today's Globes (an Israeli business daily), lead with a headline that HP is believed to be leading bidding for Mercury Interactive.  That's one less big software company out there, and one less acquirer of technology start-ups....

This afternoon, my partner Danny Cohen and I met with Doug Gonsalves who leads the M&A software practice for SVB Alliant.  In most of these discussions, the future of Enterprise Software comes up.  Much criticism is given to the venture capital community for overfunding the sector (-- BTW - not just the software sector).  The result is too many companies, doing too many "similar" things, which end up becoming a commodity.  Commodity items do not command the same valuations as do very unique, complex, mission critical solutions.  But at the same time, if a start-up comes knocking on the door of a VC, with a very complex, high-end, strategic, mission critical system, the VC's will often say 'no' based on the fact that a) how can a start-up tackle that much complexity and b) it will be very difficult to sell such a system to customers, as nobody would place a mission critical part of their business into the hands of a start-up.  (Check out TheVC on the subject).

So...are we stuck?  I hope not.  I have spent most of my career in the Enterprise Software space, either as a programmer, marketeer and VC.  In many senses it's an opportunity, because everybody is focused in other areas.  Many industries are cyclical, so is Enterprise Software.  So, while all those Web 2.0 companies are being formed and funded, I'm not planning on ignoring my favorite space...even if it's not so popular these days.

Comments

[Assif Stoffman]

As I posted in Daniel Cohen’s blog (http://coheda.typepad.com/israel/2006/04/comventures_the.html#comment-16816076) I believe you are right when keeping an open eye on the sector; The incubator I’m involved in already bets on some kind of rebound in about two years – we’re finalizing an investment in an enterprise software company, the first after three years. I am positive that without the VCs concerns this company would have raised funds directly from a VC rather than going via the incubation period first.

[taliaben]

Unfortunately, VC's can have a herd mentality. As somebody once said, it's like watching 6 year olds playing soccer... everybody is running after the ball.
Keep us posted on the progress of the company you mention.