How To Pick Winning Startups in Crowded Tech Fields? Specialize, VC Says

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diminished compared to the pioneering days of the sector—unless the startup has a runaway brilliant idea.

As an example, Holleran points to financial management software. That’s a market well-served by “good and meaningful companies,” he says—Netsuite, Intuit’s Quickbooks, and Xero for smaller businesses. He doesn’t plan to back startups in that area.

When asked what business strategies still offer attractive openings for Web-based software developers, Holleran points to his firm’s portfolio companies, including ServiceMax and San Francisco-based customer relations management startup Insightly, which uses a freemium model to build up its user base.

The other companies in Cloud Apps Capital’s portfolio that have made a public debut are Vancouver, BC, Canada-based social media management company Hootsuite; San Francisco-based Dasheroo, which offers a business dashboard through a freemium model; and San Diego-based GoFormz, which transforms a company’s routinely used paper forms into digital documents for mobile devices. Then the data can more easily be extracted and analyzed.

In spite of his reservations about saturated areas of the Web-based software sector, Holleran says startups with good strategic plans can still find paths to success.

“It’s a very large market today, and it’ll be even larger tomorrow,” Holleran says.

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Bernadette Tansey is Xconomy's San Francisco Editor. You can reach her at btansey@xconomy.com. Follow @Tansey_Xconomy

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