Venture Capitalists Love Tech -- Here's How to Compete

Whether you're a software start-up that sells to Fortune 500 companies or a Web 2.0 business, chances are you're raising eyebrows.

Technology companies of all kinds are attracting willing investors, but the darlings of this trend are Internet-related companies.

Propelled by the success of Facebook and GoogleGOOG, this sector is soaking up 2/3 of all technology dollars, says Tracy Lefteroff, global managing partner of the venture capital practice of PricewaterhouseCoopers.

Who Does VC Want Now?

Web 2.0 companies are hot investments because they don't take much capital to build, rely on user-generated content and are scalable, says Sarah Tavel, an analyst with New York-based venture capital firm, Bessemer Venture Partners.

BVP invested in Wikia, an early-stage company that hosts wiki communities.

Companies peripherally related to the Internet, such as Wayport, which provides Internet access in hotels, have also attracted dollars.

Lastly, clean technologies, such as companies that provide alternative fuel, take up to 10% of venture capital money, says Lefteroff.

Who Will VC Want?

Companies that focus on data transmission and the ability to communicate will be next to attract investor attention, says Kirby Cochran, head of Castle Arch Capital.

"The difficult part of telecommunications has always been to allow for large bandwidths of information in broadcast quality," explains Cochran.