Breakthrough funding experts share what online business ventures they will be investing in for the future.

A far cry from the venture capital gold rush days before the dotcom bust, VC companies have never before been more frugal, more discerning, and more essential to the steady, long-term growth of the interactive marketing industry.

But where are VC companies looking for future investments? In what online sectors are they placing their bets for tomorrow's winners? And what business fundamentals influence those decisions?

Moderated by Kate Everett Thorp of Real Girls Media Network, Breakthrough iMedia Summit 2007 panelists Richard de Silva of Highland Capital and Tabreez Verjee of Global Asset Capital gave some insight into where many VC investors are putting their money, and along with that financing, where the online advertising and marketing industries are headed in the coming years.

Among the top five sectors many VC companies are keeping close tabs on as leaders in the next generation of the internet are social media, video, interactive marketing, mobile and user-generated content (UGC) sites.

Verjee pointed to UGC sites as being of particular interest to his company and many VCs for "small bet" investments because of the potential for phenomenal growth based on relatively simple, straightforward business models.

De Silva said his company, which was an early investor in Lycos and Ask Jeeves, is focused on a broad array of digital media companies as well as what it sees as a resurgence of the search market, which he believes has flattened and lost its innovation.

Of particular interest at this stage in the online space, VCs are interested in early stage companies -- small startups with great promise -- and expansion growth companies.

One example of an up-and-coming search company Highland Capital took under its wing is Quigo, a search marketing solution that is just now coming head-to-head with search giants Google and Overture.

The proliferation of social media has also generated interest from VCs because of the huge opportunities for brand revenue, and according to Verjee, consumer-based video plays are a very promising investment area if they are architected in a way that taps into the UGC phenomenon while also providing viable options for advertisers.

"Video is a compelling, premium medium for prime advertising opportunities and consumer engagement," Verjee said, using YouTube and MySpace as examples. "But with content and media companies, there is enormous fragmentation on how to monetize those business models. What is necessary is not just content creation, but being able to deliver that on a meaningful scale with tightly integrated brands."

Another very promising area that VCs are watching closely is interactive TV, which De Silva referred to as the web's Holy Grail. While slow to roll out, interactivity in the TV landscape and even the cable platform hold great promise for marketers and advertisers.

"There are also enormous opportunities around engagement with content and the promise of video content consumption," Verjee said, using YouTube as a passive example of this enormous potential for true engagement with content and advertising combined. "We see that as the next big wave."

While De Silva agreed, he also said that at present, he was disappointed with the online video sector and that true innovation in this space is still in its infancy. De Silva also expressed disappointment in the current state of innovation for the mobile sector and the limited content opportunities so far.

"Mobile carriers have been running the content up until now," he said. "And it's not very compelling." De Silva added that what is needed at this juncture are companies and people who are passionate about media and creating purposeful content for mobile.

"That is where mobile needs to go," he said. "There needs to be a group of media companies that can evangelize content and delivery, not the carriers."

Verjee said that Global Asset Capital is keeping a close eye on the mobile space, but had not yet "pulled the trigger" on mobile advertising.

Both panelists pointed to the importance of thoroughly researching a business concept before approaching a VC, partly because many business ideas come in clusters, and often several entrepreneurs will approach them with the same idea at the same time, and sometimes without even a solid business model.

There is also a current online trend among internet-based businesses where the business model is solid but has not yet realized its revenue stream, like in the case of MySpace or YouTube.

"But you have to be willing to make small bets in the early stages of investment, and eventually, [those companies] have to grow up and start producing revenue," De Silva said. "There are fantastic entrepreneurs out there who survived the 'bust' era," and they are the type of business owners many VC companies are putting their chips on to lead the innovation and creativity needed to spur the next generation of the internet.

One major unknown in the online space is the integration of repurposed TV content and the web, as seen in the recent rollout of Apple TV. And while Verjee expects the medium to transform the way consumers access TV and web content, from an advertising standpoint, he finds it so far questionable.

In the meantime, De Silva is confident in the growth of sponsored video content for maximum brand integration.

"Video is a powerful entry into what can be a two-way message between the consumer and advertiser," he said. "But at the moment, it is not yet fully integrated."

Gretchen Hyman is executive editor for iMedia Connection. Read full bio.