Venture capitalists are always looking for the next big thing. And the competition is intense to get a piece of the hottest start-ups in Silicon Valley.
This year marked the return of a strong IPO market for budding technology companies. Twitter stole the headlines and its stock raced to a new high Thursday bringing its market cap to above $38 billion after the close that day.
Twitter shares have gained more than 170 percent since debuting back in November. Twitter and several other offerings brought back buoyancy to Internet IPOs, setting the stage for an aggressive tech investment market in 2014.
But here in Silicon Valley, there is renewed talk of bubbles, frothiness and that technology valuations may be getting ahead of themselves. And while there are concerns about some consumer Internet valuations, in several other sectors companies are waiting to go public until sustained revenues can be shown to investors.
As we head into 2014, venture capitalists in Silicon Valley see at least three hot trends for tech in the new year: cloud computing, cybersecurity and life science investments.
Scott Kupor is a managing partner at Andreesen Horowitz, founded by Netscape founder Marc Andreesen and Ben Horowitz. Kupor likes CipherCloud, a company funded by his firm, which protects data in the cloud.
“People are worried about the security of their information when it’s living in the cloud. CipherCloud allows them to effectively encrypt that information when it’s out there. A normal employee can get the information appropriately, but if anybody tried to hack into the system, then all they would find would be encrypted data,” Kupor said.
CipherCloud already boasts more than 1.2 million users for its cloud security software service, and the company has raised $30 million, so far.
And security is a big issue not just in the cloud. Cybersecurity for businesses large and small as well as consumers is a huge area of growth, according to several venture capitalists.
Venky Ganesan is a managing partner at Menlo Ventures and his group is banking on the cybersecurity theme through a company called BitSight, which rates a company’s computer security on a daily basis and can tell just how vulnerable an enterprise is to fraud, hacking and security breaches.
“BitSight is like Moody’s. It essentially gives a score for every company and allows you and the company to know and measure their security,” Ganesan said. “Over time, BitSight helps companies mitigate any security risks they may face.”
BitSight raised $24 million from Menlo Ventures and several other venture investors.
While security is a huge area for investment growth, there is growing optimism for life sciences and biotechnology ventures.
Brian Singerman is a partner at Founders Fund, the venture group founded by Peter Thiel and Sean Parker, and he thinks 2014 will be a big year for what he calls “real tech.”
Singerman sees big money flowing toward ventures focused on artificial intelligence and life sciences.
“Life science will go through a renaissance in 2014. We will have biotechnology companies run for a fraction of the cost. The cost of experiments will go down. The costs of parts will go down. There will be true technology advancements in that sector,” Singerman said.
Founders Fund has a variety on investments in its portfolio, including in Natera, a company specializing in prenatal testing, which looks for chromosome conditions that could impact the baby’s health.
While venture capitalists are well-known for pumping their own investments, some are worried that Silicon Valley could be heading into another dot-com bubble. With surging valuations and a raft of new tech IPO offerings, there are concerns that the current trajectory can continue.
“What I try to say about technology is that first you have the investors, then you have the imitators. Then you have the idiots. And when the idiots show up, the bubble is in full flow. We are still in the inventors slash imitators phase. So I think we have a long way to go, because there are no signs of idiots, yet,” Ganesan said.
But Singerman isn’t as bullish. He has serious concerns about the valuations of several consumer Internet companies.
“Consumer Internet apps are an area where we have stayed away from as of late. There are still phenomenal things to be done in the space. But we see that as largely running its course, and the amount of froth in that space is extremely high,” Singerman said.
2014 is expected to see a steady stream of technology IPOs with Alibaba, Box, Dropbox, Coupons.com, Lending Club, Opower and Zoosk among the companies with a chance of making it to the public markets.
This article was written by CNBC’s Josh Lipton and Mark Berniker and is reprinted by permission.