Everyone's Investing in B-to-B
By Michael V. Copeland

(Business 2.0) – Like miniskirts, thin ties, and Madonna, business-to-business startups go in and out of fashion. And with consumer plays like MySpace, Oodle, and Zazzle attracting plenty of funding during the past few years, B-to-B is poised for another comeback. Private equity investments in companies offering business products and IT services increased 9.4 percent and 7.6 percent respectively in the fourth quarter of 2005, while consumer firms saw a 17.8 percent decline during the same period. "We're very bullish on the enterprise," says Jim Goetz, a partner with Sequoia Capital.

One reason: Consumer-focused software from Google and others has shown companies what they're missing. Goetz's firm recently invested in Clearwell Systems, which offers Google-like search for corporate e-mail. Meanwhile, business-to-consumer startups have been hot for so long that their valuations have skyrocketed. "There are better deals on the enterprise side," says Gordon Ritter of Emergence Capital Partners.

It doesn't hurt that business demand for technology is expected to pick up, according to Credit Suisse First Boston analyst Jason Maynard. He predicts an acceleration in corporate IT spending beginning later this year and lasting well into 2007.

Sequoia's Goetz says most of the funding will go to familiar categories: mobile workforce support, database management, and business intelligence. But the new crop of startups promises to deliver real benefits through open-source alternatives, Web-based services, and consumer-proven technologies. "This time around," Goetz says, "it's about substance over style."

Ready for Business

Startups targeting corporate customers.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.