Seeking Cash.

• Author: GOEBEN, ROBERT VON
• Position: Venture capitalists - Industry Overview - Statistical Data Included

So, what Are Venture Capitalists Funding?

Venture capitalist have put out a shingle saying, "We've got money, send us your business plans." As a result we get hundreds, even thousands of submissions. Even as I type this, Outlook is impatiently chiming in the background, announcing the arrival of another carefully crafted executive summary, full of promising company strategies and carefully honed financial projections. And then comes another and another and another ... .

You get the picture.

Mind you, I'm not complaining--quite the contrary. The day the flow of new ideas dries up, I'm out of business. As heavy as the deluge gets, I actually get nervous when there aren't 50 new, bold-faced unread e-mails in my inbox (which usually signals a problem at my ISP that, after an hour of "support," is usually fixed and the deluge starts again). I actually like learning about new business ideas and meeting smart, enthusiastic entrepreneurs. But how does that one special plan cut through the clutter?

The most frequently asked question for a VC is "What are you looking to fund?" This is an especially important question today since seemingly few venture capitalists actually are making investments. But look under the covers, and you'll see funding still happens, but the criteria for what kinds of businesses get money is still a mystery. And in the post-dot-com-crash era, the answer is even more elusive.

WHAT A DIFFERENCE A YEAR MAKES

While many in the technology world still are reeling from the sudden change of fortunes since last year, nowhere has the anti-dot-com shift been felt more than in the heady world of venture capital. One senior valley venture capitalist had a unique view on the late '90s competition to toss money into startups. "Whenever we passed on a deal, my partner would ask me if I thought they would get funded elsewhere," the venture capitalist remembers. "I told him that, of course it would--everything gets funded!"

Not anymore.

NO MORE AUTOMATIC FUNDING

Since 2000, the technology market has seen venture capital funding dry up considerably. Or, in the parlance of the industry, it has "become more selective." According to National Venture Capital Association, the $10.6 billion raised in venture financing during the second quarter of 2001 constituted a 61-percent decrease in the amount invested compared to the second quarter of 2000.

But there lies the VC irony: an industry becoming significantly more selective at the same time that it...