SAN FRANCISCO -- In the freewheeling 90s, entrepreneur Matt Glenn had little trouble raising venture capital for three different Silicon Valley start-ups that were quickly snapped up by eager buyers.
"Money seemed like it was free back then," said Glenn, now 31. "In retrospect, I was young, dumb and pretty clueless."
In 2001, venture capital suddenly wasn't easy money anymore.
Through the first nine months of 2001, venture capitalists invested $31 billion, a 63 percent drop from the record pace of 2000, according to data compiled by Venture Economics for the industry trade group. The 2,653 startups in which they invested over those months was about half the total from the prior year.
The financial landscape has shifted so dramatically that Glenn doubts his latest start-up, Allegro Networks, would have attracted an additional $50 million in venture capital last month if not for its recent hiring of Dave House as chief executive.
House, 58, infused San Jose-based Allegro with the experience of a respected leader who has successfully navigated previous downturns in the volatile tech industry.
"The mindset has really changed," said Glenn, who founded Allegro with seven other partners in 2000. "Venture capitalists are looking for a reason NOT to give entrepreneurs money these days."
With House on board, venture capitalists didn't seem worried that Allegro makes and sells telecommunications equipment - probably the high-tech industry's hardest hit sector over the past year.
To be sure, the products behind the people still matter.
Venture capitalists say they will continue to invest heavily in technologies that help make the Internet run better. With a multi-routing product that promises to deliver information more reliably at lower prices, Allegro fits the bill.
Start-ups involved in biotechnology, nanotechnology and wireless devices also are drawing more interest.
The market's fascination with genomics helped Avalon Pharmaceuticals, a Gaithersburg, Md. biotech firm, raise $70 million from venture capitalists this month. Avalon is using genomics to try to identify and develop drugs for treating cancer and other diseases.
Since Sept. 11, investors are also interested in data storage and security. Panasas Inc.'s plans to develop a more reliable data storage network for businesses helped the Fremont startup attract $24.5 million from venture capitalists shortly after the attacks.
Veteran leadership also helped Panasas's cause. The company's CEO is Rodney Schrock, a former Compaq Computer executive who more recently served as president of troubled search engine designer AltaVista.
It was yet another example of why new ideas presented by old, familiar faces seem to have the best chance of getting venture capital in the coming year.
"Having a little gray hair is back in vogue," said Damir Perge, CEO of Futuredex, a venture capital networking service in the Silicon Valley. "And a lot of those young entrepreneurs that were getting funded a couple years ago are either back in school or working for somebody else."
Venture capitalists could get away with funding inexperienced entrepreneurs a few years ago because they knew the start-ups would be able to cash out in 12 to 18 months by selling to another company or making an initial public offering of their stock, said Geoff Yang, a partner with Redpoint Ventures.
Given the current market turbulence, Yang estimates start-ups will need five to seven years before they can line up an IPO or attract a deep-pocketed suitor.
The emphasis on experience seems logical to House, who came to Allegro after serving as CEO at Bay Networks, a computer networking giant sold to Nortel for $9.1 billion in 1998. Before that, House spent 22 years at Intel Corp., where he developed the "Intel Inside" marketing campaign.
Venture capitalists have never suffered a year as bad as 2001, when they were forced to decide which of their existing start-ups merited additional money - and which to cut loose.
As investors in the public and private markets bailed out of technology companies, the values of venture capital portfolios plummeted.
In the year ending June 30, the average venture capital fund plunged by 18.2 percent, according to the National Venture Capital Association, the industry's biggest trade group.
The carnage is far from over.
Because they aren't governed by the same securities regulations that force publicly held companies to recognize their losses more quickly, venture capitalists could be licking their wounds for several years.
Despite the rough times, some venture capitalists believe this is a better time to invest than the go-go days of the late 1990s.
Such optimism stems largely from entrepreneurs' willingness to give up larger stakes in their companies for considerably less money than a few years ago. What's more, startups that manage to raise venture capital now will likely face less competition than during the dot-com boom because far fewer companies can even raise enough money to get off the ground.
"Ironically, someday this may be looked upon as a great time to start a company," said Yang of Redpoint Ventures. "But it takes a special type of person to run a start-up now."
On The Net:
National Venture Capital Association: http://www.nvca.org