Dozens of financiers seeking to profit from new technology ventures crowd into a sun-drenched suite at the law firm of Morrison & Foerster 39 floors above midtown Manhattan. Standing behind a lectern in front of the room, pointing to a PowerPoint presentation partially washed out by the sun's glare, James Haft has just 15 minutes to persuade these investors to fund his nascent venture. The fact that the core business of the startup--U.S. Condo Exchange, or USCondex--is selling condos doesn't seem to bother the crowd of angel investors and venture capitalists looking to make money off of IT.

USCondex, which bills itself as the eBay of the condo industry, is the type of business many investors will bet on these days: a provider of business and consumer services in which the Internet serves as a foundation. Haft doesn't describe USCondex as a realty brokerage or a technology company, but as a media and digital venture that employs an array of acronym technologies--XML, SQL, ASP, RSS, and PHP, to name a few--as the platform of its business.

More money is made from using technology than creating it, USCondex CFO Haft says. Photo by Sacha Lecca

The payoff for tech investors today is in the exploitation, not the creation, of technology. "At the end of the day, there's far more money made from people who figure out how to use technology than create it," says Haft, CFO and co-founder of USCondex. "It's not the sheer technology that's interesting, but the know-how in a business sense to create a compelling venture."

What many had dreamed would happen during the go-go days of the Internet boom in the late 1990s is being realized now: the creation of viable IT-based businesses that exploit the Internet platform. Back then, investors pumped billions of dollars into Net-based ventures only to see their equity evaporate into the ether of the dot-com implosion. Now, with tens of millions of consumers having broadband access, and open-source tools such as XML and Really Simple Syndication, businesses that were a mere pipe dream a five years ago can become viable.

Funds received by Internet ventures accounted for nearly half of all venture investments in the United States in 2005, according to Dow Jones/VentureOne, which tracks venture-capital investments. VCs pumped $7.64 billion into Net-based ventures in the first nine months of 2005, up 16% from a year earlier. That's still below the levels of the heyday of the Internet explosion when more than $8 of every $10 invested in new ventures went to Internet-based companies. In 2000, more than $77.5 billion of the $94.6 billion that VCs invested went to Internet companies.

Use Of Technology

The fastest-growing segment of the Internet market is E-commerce sites, which experienced threefold growth during the first nine months of 2005 compared with the same period the year before. Still, E-commerce investments represented a mere 4% of all VC Net investments. The second-biggest growth area, business services, leaped 14.5% in a year. In both sectors, it's the use of technology that's spurring interest, not the technology itself.

That doesn't mean investors shy away from companies that develop cutting-edge technology. Newbie Internet software and database companies raised nearly $3.2 billion in the first three quarters of the year; that's 42% of all Net investments. Yet a year earlier, when software and database businesses raised virtually the same total amount, that represented half of all VC Internet investments.

"Not that investments in Internet ventures guarantee a big return--no such assurance exists--but the risk has been mitigated. New ventures face four risks: technology development, funding, market penetration, and the ability of partners to get along. Ironically, the easiest risk to take out of many tech investments is technology. A common characteristic of many of these ventures is the use of proven technologies.

Silicon Alley Venture Partners invests in companies at which time-tested technologies are used. A prime example is Critical Mention Inc., a Web-based TV search and monitoring service that lets users search, track, and view critical video clips from television news. Among the proven tech services the venture has incorporated into its CriticalTV service are a customized delivery of Web-based news using a network of journalists who gather information from Lone Buffalo Inc.; a dashboard that aggregates and analyzes data on brands, companies, people, and relations from Cymfony Inc.; and market-intelligence tools from Biz360 Inc. that provide real-time insight to large corporate and government decision makers. "There's nothing new there," SAVP principal Hugh Cullman says. "It's a combination of [technologies] put together in a novel fashion that provide a unique product differentiated in the market."