SAN FRANCISCO, May 22 (Reuters) A cloud software boom has nudged startups into unlikely realms such as dairy farms, yoga studios and back-of-the-building loading docks, leading venture capitalists to hope for stratospheric returns. Venture capitalists poured more than $11 billion into software last year, more than into any other sector and about double the amount in 2010, according to the National Venture Capital Association. The number of deals in which venture firms have backed software startups has risen by about half in the same time, to 1,570 last year.
Not everyone shares their enthusiasm. Wall Street investors are voting with their wallets when it comes to the hottest sector, known as “software as a service” or SaaS. Internet-delivered, subscription-based software has slumped this year, with big companies like Workday Inc and Salesforce.com Inc each shedding around 9 percent of their market value.
Venture capitalists say that decline has dragged down the valuations of private companies. A few months ago, VCs counted on companies trading at 10 times forward revenue when they went public, instead of five times today.
While those numbers might have some observers muttering about bubbles, venture capitalists defend their bets, saying that software is just starting its advance into all kinds of unexpected and lucrative places.
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