What's going on in the USA???

Though the VC resurgence is just gaining traction, there's at least one discernable trend: a shift toward early-stage investments.

In the second quarter, the top three funds raised were for early-stage investments, and overall early-stage funds accounted for $1.62 billion or 53.5 percent of the amount raised in the three-month period, according to Thomson and NVCA.

"[The move] is a very positive development for VCs and entrepreneurs," said Mark Heesen, NVCA's president. "After years of nursing existing portfolios that were selected to make it through the 'bubble,' those companies now are being acquired or going public. This is leaving VCs with needed time to transfer to funding new companies and new technologies."

Although it's not like 1999 where a business plan didn't need business fundamentals to get funded, startups still need a promising technology, a defined market, excellent management and a dedicated team, Heesen said.

These days, VCs are bullish on the semiconductor, wireless, security, specialized storage, top-of-stack networking and XML-based products markets.

But the shift to early-stage investments also means VCs have to work harder. BA Venture Partners' Mitchell said that section of the market will be competitive.

"You have to stay smart and sharp," she said. "We're getting to know more entrepreneurs in markets that are interesting to us."

For example, BA Venture Partners recently backed a company from Washington University in St. Louis. Missouri was not on most VCs' lists of fertile tech grounds during the boom.

The company is also differentiating itself from other firms, Mitchell said. VCs are trying to avoid the "lemming mentality" that caused so many to jump into the same companies and sectors in years past. She noted that some of the middle-stage deals were attracting a lot of investors and driving up the price, another reason to focus on early-stage firms.

That's not to say they won't team with other firms, but there's less urgency to strike a deal for the sake of not wanting to miss out.

In addition to working more closely with research colleges and universities, BA representatives are attending more conferences and workshops, and it is stepping up its PR efforts.

Atlas Venture's Fagnan is also looking in new places. For example, Atlas is scouting investments in Canada, noting that there are deep pools of IT talent there because of good schools and companies like Nortel . The Canadian government has shaped policy to encourage startups, he said.

He also said that VCs need to be knowledgeable about emerging markets like China and India, if not for investments but as possible markets for their companies' products.

"You cannot afford to be an opportunistic, serendipitous catcher's mitt and just take deals that flow through the door."

- By Colin C. Haley - Early Risers