Who would be a venture capitalist (VC) in 2001? Having got it so wrong in 2000, when the funding frenzy in the dot.com market even saw a portal launched for sheep farmers, early-stage investors must now try and regain some credibility and get their investments back on track.
But where, exactly, will their cash go in 2001? It is an eight billion-dollar question - the amount earmarked for VC investment in the technology market this year.
Siren voices are only too willing to offer advice. Wap? A mere stepping stone to third generation (3G) mobile services. And 3G? An expensive experiment that will cost operators, and investors, dear. Business-to-business (B2B) internet services? Well, look what happened to business-to-consumer (B2C). And so on.
One thing is certain: early-stage investors appear determined not to repeat the mistakes of the previous 12 months.
"People had too narrow a focus on one segment of the market," says Nick Wood, a director with New York-based technology fund, MetVP. "It's important that investors have a variety of technology investments. Not to do so invites unnecessary dangers."
Dan Conaghan, a director with NewMedia Spark (NMS), a UK-based VC group, agrees: "We will not be making any B2C investments this year. We need to rebalance our portfolio."
NMS has 55 investments and a £100m fund. It expects to make 15 new investments in 2001, 10 less than last year. However, the funding strategies the group and the industry adopt this year, says Conaghan, will mark a return to more conservative values.
"In 1999 and early 2000, there was a belief among start-ups and investors that the time from the start to a public flotation was a year to 18 months. Now it has gone back to four to seven years. It's very healthy for everybody - entrepreneurs stay to build the business and investors are long-term supporters."
The driving force behind VC investments this year will be those ventures employing core technologies. Having flirted disastrously last year on the peripheries of technology with B2C service businesses, the key words dominating VC vocabulary now are "proprietary", "defensible" and "patentable".
In other words, those start-ups that have built a business around a technology that will give them a head start over the opposition will be well placed for funding.
However, identifying the technologies that will be core to the future of a particular industry or service is the challenge, and it is here that the winners and losers will be decided.
For John Taysom, founder and co-chief executive of Reuters Greenhouse Fund (RGF), one of the largest UK corporate technology investment funds, the answer is to fathom the problem and then to find the venture that is addressing it. It is, he says, a uniquely European attitude.
"Silicon Valley is a trout waiting for the food to swim by; in Europe, you have to be a pike and go out and look for what you want. Here, genius flunks geography."
This view, that the region's future technology jewels are disparate and need seeking out, is one supported among Europe's burgeoning VC industry. It makes the task of identification all the harder, and points to an acceleration in regional partnerships, alliances and acquisitions.
"Europe-wide know-how is a must," says NMS's Conaghan, whose group has offices in four European cities.
However, NMS is taking its geographical reach and digging deeper into the region's technology psyche. "After the events of last year, we decided to take a step back and look at a five-year view of the technology space. We've been to universities across Europe talking to research departments. We're not expecting to see the next core technology, but we're gaining an insight into where research is taking us."
Mobile internet, broadband telecommunications and networking applications are the three areas on most VCs' agendas. To this, NMS would add data services, fibre optic technologies and applications for smart and SIM cards.
RGF prefers to invest in ventures that have a resonance with its parent company. Thus it usually considers start-ups that operate in the financial data, information retrieval and database services markets.
Areas it is currently studying for investment include patents and their potential for usage in a mergers and acquisition (M&A) market increas ingly driven by the capture of ideas. "We see great value in a database of patents and how that might be used in valuing M&A," says Taysom.
Other pertinent subjects include digital watermarking, "things networks do badly", connectivity between the virtual and physical worlds and a variety of XML (Extensible Markup Language) and other developments relating to the corporate arena.
MetVP, which has a $10m fund aimed at Europe, is targeting the environmental science, enterprise software and nanotechnology markets this year.
The absence of anything to do with the consumer market is marked. However, within these target markets, all three VC firms underline the importance of core competencies, strong management, identifiable applications and long-term sustainability.
Wise words, easily spoken after the puncturing of the dot.com bubble in 2000. It remains to be seen if the dose of reality will sustain such conviction as the technology market recovers.
