The sector is once again the top recipient of venture capital funding, after losing out to biotechnology for two quarters in a row, according to a new survey.
Software companies snared $956 million during the first quarter, compared with $843 million in the same quarter a year earlier, according to the MoneyTree Survey conducted by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.
The gain bodes well for the tech industry, which has been hit hard since 2000.
Software was able to climb back to the top, after having been unseated by biotechnology for the two previous quarters.
"Venture capital activity is picking up overall in the last several quarters, and technology was a nuclear core of that activity," said Tracy Lefteroff, global managing partner of venture capital at PricewaterhouseCoopers.
In the software sector, start-ups offering content management, supply chain, work flow management, security and antispam applications garnered interest from investors, Lefteroff said.
While no single software category was the sole driver of the increase in funding, there was a clear leader in telecommunications investments.
Wireless was the main driver of an increase in venture funding for telecommunications, as investments rose to $547 million in the quarter, compared with $478 million a year ago.
"There were 11 new companies funded in the telecom sector, and all of them were in the wireless area," Lefteroff said.
Information technology services, along with the computers and peripherals industry, also posted increases in first-quarter funding.
The IT services sector received $251.7 million in investments in the quarter, up 20.6 percent from a year ago, while start-ups in the computers and peripherals sector received $179.3 million, a 43.6 percent increase over last year.
But Lefteroff warned against labeling the computers and peripherals sector a hot area, because the amount invested in that area is small, compared with the amount of venture capital spread across all industries, which reached $4.6 billion in the first quarter, up from $4.2 billion a year ago.
Companies that received their first round of funding accounted for 19 percent of the $4.6 billion raised in the quarter. That was roughly the same level as the previous quarter.
Software start-ups, however, landed nearly one-third of all first-time financing rounds, accounting for $279 million--a 50 percent increase over the previous quarter. The telecommunications industry picked up $81.9 million, or 9 percent of all first-time funding rounds in the quarter.
In sizing up the future of VC investments in tech companies, Lefteroff said the market's reaction to Google's long-anticipated IPO will help spur more VC investment in tech companies.
"Liquidity events are the lifeblood of venture investing," Lefteroff said. "Once we see the public markets have an appetite for technology companies, more of them will go public. And once they go public, the VCs will have liquidity, and that will encourage them to invest in more companies."