Tech start-up scene poised for revival

(continued from previous page)

Warren Packard, managing director at venture capital firm Draper Fisher Jurvetson. In the absence of revenue, a company's headcount was used as a means to measure its value, he said.

The same frenzied pressure to dominate a segment of the market no longer squeezes entrepreneurs, allowing them to "take time to build a business," Packard said.

Though the pace may have slowed, the start-up scene seems poised for a revival of sorts. For one thing, venture capitalists have been refilling their tanks. Venture capital funds raised $17.3 billion last year, up from $10.6 billion in 2003. The increase signals that VCs are creating new investment coffers as funds built five years ago or so are drying up, said Mark Heesen, president of the National Venture Capital Association trade group.

Fundraising by venture funds, 2000-2004

Heesen said VCs are deliberately starting smaller funds than they had during the Internet boom--they might be $400 million as opposed to $1 billion. This, he explained, allows VCs to avoid throwing money at "me-too" companies. Even so, the recent fundraising bodes well for start-up activity. "It will begin a new cycle," Heesen said. "The next cycle will mean that more early-stage investment will be done." He added that some portion of the new funding will go uncounted in official statistics, as VCs try to keep their companies in "stealth mode."

Another factor behind the start-up surge is the return of angel investors, said Roden, who is managing director of The Angels' Forum, a group of 25 private equity investors. Angel investors, who typically pony up less than $1 million to nascent companies, had retreated from the start-up scene during the tech downturn as their investments lost value, Roden said.

Energy, open source and podcasting
Among areas that are "hot" these days for start-ups are the consumer Internet realm and energy, said Sam Jadallah, general partner at venture capital firm Mohr Davidow Ventures. Jadallah's firm has invested in Jadoo Power Systems, a company near Sacramento, Calif., that makes fuel cells for professional video cameras and other machines.

"We also see open source as a pretty vibrant space," he said.

Packard cites as promising turf the "mobile space"--including Wi-Fi and WiMax technologies. The relatively new content-delivery