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By contrast, areas of technology that require much less time in development are continuing to gain attention. One area that is attracting interest these days is RFID technology, which uses radio frequency identification tags that work like bar codes to track merchandise more precisely. The technology is hardly cutting edge; it has been ready for market for several years. But an international consortium has now established standards for RFID systems and is working with more than 30 companies to roll them out for large supply-chain management applications in the next year, creating lucrative opportunities for startups such as ThingMagic in Cambridge, MA, and Rockville, MD–based Matrics, which was acquired by Symbol Technologies for $230 million.

Other technology sectors finding favor with venture capitalists:

Mobile applications: entrepreneurs and venture capitalists are creating and funding companies that are developing new applications and services for cell phones, MP3 players, and other mobile devices; recent startups have concentrated on games, video, photo and music sharing, and location-based services. One example is AudioFeast, which offers portable Internet radio service for MP3 players and mobile devices and raised $10 million in a recent round of financing.

Business on the Internet: the growing number of computers online and higher broadband penetration into households is helping business on the Internet to finally begin to fulfill its promise. And with Internet powerhouses like Google, Amazon, and Yahoo doing well, venture capitalists are feeling confident in Internet companies again. “Twenty-four months ago, they couldn’t get any love from venture guys. Now they’re beating down their door,” says Tim Connors of U.S. Venture Partners. LinkedIn, a social-networking company in Mountain View, CA, secured $10 million in second-round financing in October; and Snocap, an online music copyright management company in San Francisco founded by the creator of Napster, got $10 million in December.

Anything having to do with IT security: though chief information officers are still on tight budgets, what money they are spending often goes to security. Viruses, worms, and spyware are on the rise, and entrepreneurs have leaped at the chance to make a buck off the fears they inspire. “It’s an area that’s been funded like crazy, but it’s a problem that hasn’t been solved,” says Jeff Andrews of Atlas Ventures. Lending even more urgency to the development of security-related technology is the increase in government accounting regulations. Companies are under growing pressure to keep better track and control of all their documents, and they need new software and systems to do it. CIOs have no choice but to buy new technologies that enable them to comply with new government regulations.

Biotech startups: people will always get sick. Health-care costs continue to soar, and the drug pipeline remains constricted. So investors are turning to biotech, and especially to drugs for cancer, inflammation, and neurological and infectious diseases. Jazz Pharmaceuticals of Palo Alto secured last year’s biggest venture capital financing round, $250 million, to commercialize drugs for neurological and psychiatric disorders. PharmAthene of Annapolis, MD, received $50 million in financing in October to develop therapeutics for bioterrorism agents.

Technology Review editors Gregory T. Huang, Corie Lok, and David Rotman contributed to this report.

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