Thanks to broadband internet and smart new materials, high technology is back in favour - and venture capitalists are ready to invest.

Venture capitalists are pouring millions into the best information technology companies they have ever seen. The experience of the management teams, the quality of the intellectual property behind the technology, and the credibility of the business plans are unprecedented. John Dyson, investment principal at Melbourne's Starfish Ventures, which has a $123-million fund, says: "We are seeing deals of the highest quality we have seen in the past 10 years."

With a bird's-eye view of the hottest developments in IT, venture capitalists are bullish about the sector, which is growing strongly thanks to an increase in technology spending by businesses.

Incubators funded by the Federal Govern-ment's $36-million Information and Com-munications Technology (ICT) Incubators Programme and the venture-capital companies that specialise in IT investments have the best view of new technology. The ICT incubators provide business advice and seed capital to new IT or communications companies, and help them find more money. Venture-capital companies invest in early-stage companies and help them expand, generally into global markets.

Companies that can solve environmental problems are flooding on to the market. New environmental deals for the Sydney venture-capital company Allen & Buckeridge are so recent they have not been publicly announced (see box).

The chief executive officer of Allen & Buckeridge's emerging technology fund, David Landers, says: "I believe that energy, power and clean or alternative environmental technologies will be to venture-capital companies what semiconductors have been in the last 20 years." That is, very lucrative.

Adelaide's ICT incubator, Playford Capital, is investing in water technology, and its chief executive, Amanda Heyworth, says businesses are pushing demand. "Companies can see there is a business payoff."

Despite intense competition and some dominant multinational companies, security technology features heavily in the portfolios of incubators and venture-capital companies. A general partner at Sydney's Technology Venture Partners (TVP), Allan Aaron, says; "Security is a market where we see investment opportunities because the dominant players are acquisitive." TVP has a $145-million fund and specialises in IT investments.

Advanced materials are attracting dollars. These materials are based on nanotechnology, which involves working with matter on an ultra-small scale. One nanometre is one-millionth of a millimetre; a single human hair is about 80,000 nanometres wide. Until now, venture capitalists have shunned nanotechnology as too early for commercialisation. Landers says: "Governments have established [nanotechnology] as a priority. We look at nano as the common thread across advanced materials, energy and power, and environmental sciences."

Small, fast and mobile - these are the investment mantras. New devices are either hand-held or linked to mobile phones. Games and entertainment on mobiles are a big theme of investment, particularly casual games, such as chess or solitaire. Alan Milwidsky, a director of ICT incubator ADI, which manages $7 million, says: "Mobile technology, which is really messaging, is hot. One reason is that in Australia we use the net, but in Asia the mobile is dominant."

There is a strong trend away from companies whose success depends on quickly garnering international markets rather than intellectual property (IP). Milwidsky says: "Australian investors don't look closely enough at IP. They are fixated on the business plan."

A director of Allen & Buckeridge, Bob Christiansen, says his company trawls though the universities for ideas. "When we kicked off our pre-seed fund, I expected our phone to ring off the hook," he says. "It didn't. It took us going out and working at the coalface, meeting researchers."

Milwidsky says investor forums, which showcase new companies and ideas, reveal a resurgence of interest in devices and hardware. "Software has come back in a device or a box. Investors want something physical."

Internet businesses are also making a comeback, riding the wave of broadband uptake by business and consumers. Even the e-tailers, badly tarnished in the dot-com crash, are returning. The managing director of the government-backed Sydney seed investment company Divergent Capital, David Nelson, says: "Australian retailers have been slow to embrace the internet." Referring to the highly successful American online bookstore, he adds: "The chance to be the Amazon of Australia is still open."

Software that is hosted on the internet, and sold on a pay-per-use basis, is also back. The model was tried, and failed, in the first technology boom because dial-up internet was too slow and unreliable. A co-founder and joint director of Queensland's InQbator, Rick Anstey, says: "The uptake of broadband is much greater in 2005. Anyone that comes to you with an online business model now has more chance of success."

Location technology is jargon so new that there is no definition of it on the internet. The chief executive of Canberra's ICT incubator, Epicorp, Roslyn Hughes, says it is a next-generation global positioning system that can be used indoors and out. "Initial markets for this are logistics, asset management and control, and measurement in

big infrastructure projects." Radio frequency identification, a technology that has not taken off in Australia, provides signals that are used by location technology.

Software deals will still get investors excited if they are tightly focused on industry sectors. Starfish Ventures has financed software that controls inter-bank electronic payments. Epicorp is financing a company with software that takes data and renders it as a three-dimensional diagram. Divergent Capital, which has $10 million under management, is backing enterprise resource planning software for the wine industry. Its managing director, David Nelson, says niche industry software and internet businesses are the two main areas of investment for

his fund.

Venturesome technology

Mooter Media

Improves results for companies using internet advertising. Investor: Allen & Buckeridge

Lync Software

Security protection for devices such as thumb drives (tiny hard drives that plug into a USB port) and PDAs. Investor: Playford Capital

Agrilink

Continuous online monitoring of soil moisture, and software to help analyse the data and make decisions. Investor: Playford Capital

Micromet

Manages irrigation according to the weather, stopping when it rains. Investors: Nanyang Ventures, Innovation Capital.

SpamMATTERS

Allows spam recipients to support ISP-driven legal action against spammers.

Investor: Technology Venture Partners

Fultec

Protects broadband connections from electrical power surges. Investor: Uniseed

Cleveland Biosensors

Silicon-chips that identify and monitor water contaminants. Investor: InQbator

Start Corporation

Creates and sends electronic airline tickets to mobile phones, allowing passengers to be processed by walking through a turnstile. Other products that support transactions by SMS. Investor: ADI

Hotshed

Online commerce systems and e-tailer dStore. Investor: Divergent Capital

3RD SENSE Australia

Gaming company that focuses on those who prefer short sessions with games.

Investor: Divergent Capital

Distra

Software to track inter-bank transactions. Investor: Starfish Ventures

Edentiti

Allows individuals to protect private information and give access to organisations and to other individuals when needed. Investor: Epicorp

NOT NAMED

Water purification system using ultraviolet light to purify effluent. Investor: Allen & Buckeridge

NOT NAMED

Alternative power system using vibration. Investor: Allen & Buckeridge

SOURCE: BRWIn high tech and red hot (November 3), BRW reported incorrectly that Allen & Buckeridge had invested venture capital in Mooter Media. The investor was Nanyang Ventures.