SAP AG's $6.8 billion purchase Oct. 7 of Business Objects SA was the latest deal for a large business intelligence provider and has venture capitalists feeling very smart. At least 19 deals for BI vendors have been announced this year, among them Oracle Corp.'s $3.3 billion purchase of Hyperion Solutions Corp. and Tibco Software Inc.'s $195 million acquisition of Spotfire Inc. Spotfire had previously received $25 million in financing from the Sprout Group, Pequot Capital Management Inc. and other investors. Business intelligence, or analytics, is one of the hottest software sectors as corporations realize the value of analyzing customer data and behavior to bolster their revenue streams. According to AMR Research Inc., expenditures in the BI sector will hit $23.8 billion this year, growing 3.6% from 2006.

This M&A furor is luring investors to BI startups, which develop technology that will likely be coveted one day by technology giants such as Microsoft Corp. and IBM Corp. VCs have plunked down $200 million in the sector this year.

"It was a very easy process," says Ken Rudin, co-founder and CEO of on-demand BI startup LucidEra Inc., of his company's two funding rounds. In August, Rudin's San Mateo, Calif.-based firm, which helps clients analyze everything from revenue generation to sales leads to competition, raised $15.6 million in a second round from Crosslink Capital of San Francisco, Matrix Partners of Palo Alto, Calif., and Menlo Park, Calif.-based Benchmark Capital. LucidEra has attracted $22.6 million to date. Rudin says the A round was completed in under two months from start to finish and the B round was wrapped up in about half that time.

Crosslink general partner Peter Rip says his firm invested in LucidEra because of the rising demand for software-as-a-service business analytics technology. "BI is one of the last greenfield opportunities for taking an existing category and turning it into an on-demand model," he says.

Similarly, in October 2006 London-based InforSense Ltd., an eight-year-old maker of embedded BI software, received $10 million in a second round from U.K.-based Fleming Family & Partners Private Equity Ltd. and a few other investors. "We turned away some of the people who were interested in investing," says Dave Menninger, the company's vice president of marketing. InforSense's undisclosed first round came from Imperial College in London. The company has raised £12.5 million ($25.4 million) to date.

Bellevue, Wash.-based SeaTab Software Inc., another provider of hosted BI software, has attracted $14 million over two rounds from Emergence Capital Partners of San Mateo and Trident Capital of Palo Alto and Westport, Conn. Its latest $9 million round came on Oct. 10.

Oco Inc., a third player in the on-demand BI arena, offers both data integration and business intelligence technology to its customers, more than half of which are retailers, says president and CEO William Copacino. High-profile customers include Dunkin' Brands Inc. and Welch Foods Inc. Oco got its start with an undisclosed amount of angel funding and in January raised $14.5 million from Highfields Capital Management LP of Boston. The Waltham, Mass., company expects to be profitable in early 2008.

"They're just starting to scratch the surface," says Richard Grubman, a senior managing director at Highfields, about Oco. He says his firm invested in Oco after Copacino, a former seasoned executive at Accenture Ltd. responsible for managing BI and other consulting practices, joined the startup in January.

Copacino says Oco is an attractive acquisition target but it is "not looking actively for a buyer at this point."

Other niche startups are also luring VC dollars. JasperSoft Corp., a provider of open-source BI software, has attracted $35.3 million in financing to date and in August closed a $12 million Series D round from Scale Venture Partners of Foster City, Calif., and other investors.

Vice president of marketing Nick Halsey labels these startups as the "second generation of business intelligence." Early products focused on data warehousing, while the second generation is available to new markets via new delivery models, such as on demand and open source software. "The business intelligence market is exploding," Halsey says. "Our goal is to become a profitable, successful, BI leader with very happy customers. After that, we'll see what happens."