"Can it get worse? Is it getting better? If anyone has any definitive answers please let us all know," says Gary Halliwell, CEO of Hurwitz Group. Hurwitz Group has been taking interest in investment trends, particularly in early stage private equity activity. Early stage investment in enterprise software in June and July picked up after hitting a low in the first quarter of 2002. This trend continues through the beginning of August, and third quarter investment looks set to surpass Q2. It's too early to tell if this is an inflection point, but with Q1 investment at $238 million there really wasn't much room for further decline.

Enterprise software early stage investment trends:

Q3 2001 $586 million
Q4 2001 $494 million
Q1 2002 $238 million
Q2 2002 $399 million
Q3 2002 $302 million
(July and August to date)

The geographical distribution of investments in enterprise software over the past 12 months shows that California, with an economy larger than all but five countries in the world, is well in the lead, followed by Massachusetts at approximately one third of the level of investment in California. Great Britain is Europe's leading location for enterprise software investment over the past 12 months, closely followed by Texas, and then New York. New investment activity in Israel in the last year has been relatively high and seems to be concentrated in security and systems management technologies. Activity in France has shown a relatively high amount of investment in customer relationship management (CRM) and supply chain management (SCM) solutions, which can be attributed to regional market derivatives of these application solutions.

Geographical distribution of enterprise software investment over the past 12 months:

California

$666 million

Massachusetts

$190 million

Great Britain

$175 million

Texas

$133 million

New York

$99 million

Israel

$75 million

France

$66 million

Ireland

$56 million

Hurwitz Group figures that early stage investment is a good directional indicator of where the software market is headed. The good news is that investment is up over two quarters … if only this were the way we measured a recovery.

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