Waiting for the Cream to Rise

At a conference where start-ups can strut their stuff, picking the cream of the crop is a hit-or-miss affair.
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BURLINGAME, Calif. -- There are good public companies and bad public companies. But every one of them shares a common distinction of success: having survived the crucible of fundraising, launching a product, hiring investment bankers and convincing the public to hand over its cash.

That's just not so with private companies, which are not normally the focus of this column. I spent Tuesday looking at tomorrow's public company at the request of fellow

Fortune

columnist Richard Shaffer. His New York-based

Technologic Partners

market research firm rakes in big bucks hosting conferences that help investors ferret out the next big thing. His charge to a panel comprising me and three professional investors Tuesday was to identify which of the nearly 100 mostly private companies at this two-day conference are most likely to achieve financial success.

The winners and losers will be of more than passing interest to stock-market investors. "The future of pervasive computing" was the theme of the conference here. So the goal, assuming one believes that we're going to be deluged with new devices, wireless services and digital toys, is to choose which technologies and companies will stick and which will fade into the ether.

And here's the rub that only an investing curmudgeon truly can enjoy: Most of these companies aren't going to make it. The same is true, of course, for today's publicly traded technology companies. But these are technologies from which truly great companies will evolve, as opposed to the flood of dot-com upstarts advertising their business plans during this year's

Super Bowl

. At a conference devoted to next-generation winners, however, it's easier to poke holes than it is to find obvious category killers.

"A lot of people in this room are shooting a lot of arrows right now, and we don't know which ones are going to hit," says Jerry Fiddler, chairman of

Wind River Systems

(WIND)

, the maker of an operating system for software embedded in all kinds of devices. "By the second or third generation, I think we'll have some really killer applications here."

But until then, and taking into account that the sum total of my knowledge on many of these companies comes from a 20-minute presentation, the obstacles are easy to spot.

For example, Mountain View, Calif.-based

Scenix Semiconductor

and Plano, Texas-based

Microtune

have really neat stuff in the works. But guess what? Emerging giant

Broadcom

(BRCM)

, the company with the leading intellectual property for the chips that go into cable modems and other digital devices, plays in similar markets.

FusionOne

, a start-up in Los Gatos, Calif., has developed a contact-management service that will allow users to hook up to its services using the Web from numerous devices or locations. But this is a really crowded field, with established contenders from

Phone.com

(PHCM)

and

Yahoo!

(YHOO)

to obscenely well-funded upstarts like

Contact Networks

.

In some next-generation companies, one can just feel tomorrow's heartbreakers, the companies with great ideas that ultimately never electrify consumers.

CellMania.com

, also based in Mountain View, has set up nationwide markets for selling complete wireless packages (phone, service, support) as well as providing information about the experience. Do people really need a site dedicated to cell phones, or will

CNet's

(CNET) - Get Report

reviews plus a local retailer be good enough for the masses? Similarly,

PocketScience

in Santa Clara, Calif., gamely is setting up a service available so far only on personal-digital-assistant devices from

Sharp

and

JVC

that brings low-cost email to PC-less masses. Sounds good, but high-end devices and services like

Palm Computing's

Palm VII and

Research in Motion's

(RIMM)

RIM Inter@ctive Pager 950 wearable two-way pager are geared toward the people who really want pervasive computing. The others can wait. Maybe forever.

I was invited here to predict successes, of course, not the opposite.

Handspring

has the markings of a runaway success. That's the company in Mountain View that has licensed the Palm operating system to make lower-priced handheld computers. Handspring, started by the founders of Palm, appears to be constrained only by its inability to meet the demand of early adopters. Investment bankers are drooling over its initial public offering, expected to happen sometime next year.

Another impressive upstart is

Halo Data Devices

, which is making tiny disk drives for devices like digital cameras, handheld computers and "smart" cell phones. San Jose-based Halo's CEO is Gordon Campbell, the serial entrepreneur and founder and president of incubator

Techfarm

, whose past successes include

Chips & Technologies

(bought by

Intel

(INTC) - Get Report

) and

3Dfx Interactive

(TDFX)

. His most recent triumph was the IPO of Internet-appliance server

Cobalt Networks

(COBT)

, of which he is chairman.

AvantGo

in San Mateo, Calif., appears ready to take off if it can just get a lot of people to use it. AvantGo sends various media products -- including

TheStreet.com

stories -- to users free of charge and to a variety of devices. One neat application: You can use AvantGo to check the status of a

FedEx

delivery.

The best part of all this is that some of my pans will be huge and some of my picks will flop. That's true across the entire world of investing but particularly valid for technology companies, whose segments change quickly.

A highlight of the day came when one participant, clearly frustrated and overwhelmed by information overload, asked Wind River's Fiddler what good to humanity would come from embedding computing power everywhere, including in our bodies (no joke!).

Fiddler articulately pointed out that embedded technologies tend to be more efficient and therefore cut down on energy consumption. To paraphrase his answer, however, the question is irrelevant. Applications like mobile services, cheap and intelligent devices and Internet-enabled pacemakers are coming. All that's left to decide is who makes the money.

Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

alashinsky@thestreet.com.

Edie Yates assisted with the reporting of this column.