10 biggest network venture capital deals from Q2

Venture capital investments in network companies rebounded slightly in the second quarter, three months after funding levels reached an historic low, but venture experts said the industry is far from making a true comeback.

U.S. venture capitalists invested $1.2 billion in networking companies in the second quarter of 2009, up from $982 million in the first quarter, according to the MoneyTree Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA).

Workday, a software-as-a-service ERP vendor, led the way with $75 million in new funding, while the rest of the top 10 featured technologies such as flash storage, security, routing and switching, semiconductors and data warehousing. (The full top 10 list is at the end of this article.)

Q1 2009 was the first quarter since 1996 in which investments for network companies fell below $1 billion. But the increase to $1.2 billion is not statistically significant and does not indicate a return to form, says Tracy Lefteroff, a global managing partner of Pricewaterhouse Coopers.

"It's just flat," he says. "I wish I could tell you there was light at the end of the tunnel."

Despite the increase in money, there were actually fewer deals in the most recent data, with 224 second-quarter deals compared with 230 in the first quarter.

The market for IPOs and mergers and acquisitions has largely dried up, and as a result investors are wary of funding new companies. EMC recently agreed to purchase Data Domain for $2.1 billion, but Lefteroff says that was more of an isolated event and that he doesn't expect a major reversal of fortune in the network industry for at least another year.

Network venture funding is on pace to reach $4 billion in calendar year 2009. When asked what level of funding would be considered healthy, Lefteroff looked back to 1997, when network companies received $6.9 billion in what he called the last normal year before the dot-com bubble.

"You'd have to get above that $7 billion to say 'we're on our way back up,'" he says.

Some companies are raking in the cash, however. Here is a list of the top 10 network venture capital deals in the second quarter. Network companies include computer software, hardware, peripherals and services; data, Internet, satellite and wireless communications; Internet software, e-commerce, digital imaging, computer graphics and other network-related technologies.

1. Workday, Pleasanton, Calif.
Description: Software-as-a-service platform offering enterprise resource planning tools.
Funding: $75 million
Investors: Greylock Partners, New Enterprise Associates, and Workday CEO and co-founder Dave Duffield.

2. Fusion-io, Salt Lake City, Utah.
Description: Storage company that sells PCIe cards that are loaded with flash memory and inserted directly into servers.
Funding: $47.5 million
Investors: Dell Ventures, Lightspeed Venture Partners, New Enterprise Associates, Sumitomo Corporation, undisclosed firm.

3. LifeLock, Tempe, Ariz.
Description: Security vendor that helps consumers navigate the tricky process of avoiding identity theft.
Funding: $40.1 million
Investors: Kleiner Perkins Caufield & Byers