While network and telecom start-ups this year are beginning to see some renewed interest from investors, the software sector continues to attract the most funding, particularly those companies with products having anything to do with security.

See for yourself
Browse through four quarters of data from the survey.

Software companies saw $1.3 billion in investments in 231 deals during the second quarter, up from $1.2 billion for the first quarter, according to the latest MoneyTree Survey, published quarterly by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association (NVCA). Companies that fall into the software category - which the survey defines as software programs for business or consumer use and includes both general-purpose and vertical applications - have gained the most investments for the past seven quarters, clearing the $1 billion mark every time.

Five of the top 20 investments went to companies with security-related products last quarter, as they together secured more than $72 million.

Investors have been pouring money into software companies for the past few years because these investments have seemed safe compared with sectors such as network and telecom that skyrocketed during the Internet bubble only to crash and burn when it burst. In addition, the trend toward doing business over the Web and the recent focus corporations are placing on security have given rise to new software categories that are deemed essential, and therefore viewed as good investment bets.

Although he generally describes the security market as over-funded, one venture capitalist says there's still plenty of room for investing in these companies. "We're really looking for either new approaches to existing problems in large markets, or white spaces - markets that are small today but we expect to grow in the future," says Asheem Chandna, venture partner with Greylock Partners. Examples of companies targeting white spaces are makers of regulatory and industry compliance software and products designed to protect corporations from information leakage.

Despite software's dominance, networking and telecom companies are starting to pique investors' interests again, as evidenced by this year's first- and second-quarter investing trends. VoIP service provider Vonage, which attracted $200 million in its sixth financing round, sealed the second-largest deal of the quarter. Also ranking among the top 10 deals were switch maker Caspian Networks, which received $55 million, and access equipment vendor Entrisphere with $50 million.

This renewed interest is "in part pent-up demand. People literally spent nothing on new [network] equipment for quite a few years," says Shanda Bahles, managing partner with El Dorado Ventures, which invested in Entrisphere during the second quarter. "Driving this is the desire to put video, voice and data on the same network."

Click to see: Software rules

Recent acquisitions by large network vendors also are helping to bolster start-ups in this area."Cisco and a few others have started nibbling again at acquisitions," says Tracy Lefteroff, global managing partner at Venture Capital & Private Equity Practice at PricewaterhouseCoopers, adding that merger and acquisition activity usually is the first sign of interest in a sector.

What's missing, he adds, are a few successful public offerings from network or telecom companies that would put the sector in good graces with investors on a more permanent level.

Investors put $5.8 billion in 750 companies during the second quarter, up from $4.9 billion in the first. This isn't surprising, says John Taylor, vice president of research with NVCA, because the second quarter traditionally sees more investment activity.

The majority of the funding went into early-stage or late-stage deals, although NVCA expects to see more investments in early-stage companies going forward as investors look for fresh businesses to invest recently raised funds in.