NEW YORK -- After months of dot-com doom and gloom, venture capitalists are growing more upbeat about technology investing. Sort of.

Despite the ongoing technology shakeout, nearly 90% of venture capitalists believe that now is a good time to be investing in the sector, according to a recent survey by Deloitte & Touche.

But that hardly means they think all of the bad news is over. About 77% of venture capitalists predict further "down rounds" -- in which start-up companies receive less financing than in previous funding rounds - over the next six months, the survey found.

Most venture capitalists also expect a further 10% to 33% of all venture-backed companies to close shop in the next six months.

And venture capitalists don't view themselves as immune to the shakeout. About 78% of those surveyed predict that between 10% and 33% of venture-capital funds will fail.

"There's tremendous opportunity in early-stage technology investing, but people are still smarting quite a bit," David Clark, a partner at Deloitte & Touche, said in an interview. "The days of plunking down large sums of money on an unproven business and being able to do an IPO to generate enormous returns were aberrant. Now it's back to business the old-fashioned way."

Reaching Bottom

Though sentiment is still somewhat gloomy, there is a sense among venture capitalists that the market has found a bottom.

For the first time since Deloitte & Touche began the Silicon Valley portion of the survey in January, venture capitalists said they do not expect the overall economic climate to worsen or exit valuations to decline. An exit valuation is the value at which a venture firm exits from its investment, such as through a merger or an IPO.
Only 40% of venture capitalists expect further declines in exit valuations, compared with 79% in the second quarter, the survey found.

That factor, along with strong expectations that investment exits through mergers and acquisitions will continue to dominate, indicate that "the value parameters of strategic acquirers are stabilizing, and point to possible increases in transaction volumes," the report said.

"But people need to bear in mind that these are relative statements," said Mr. Clark. Many venture-capital funds are likely only to get "salvage value" for their investments, a far cry from the huge sums garnered during the go-go Internet era, he said.

In a sign that things may improve, however, 41% of venture capitalists now expect to spend the majority of their time on new investments, rather than focusing on sick portfolio companies, the survey showed.

Many venture-capital firms have "completed the process of clearing their portfolios of companies that not going to make it," said Mr. Clark. "Based on that, they are able to look outward and begin reviewing new investment opportunities."

Astute investors should benefit from the drop in valuations and reduced competition that have followed the burst of the dot-com bubble.

"The change in venture capital is not unlike the real-estate market in New York. You no longer have to show up with your checkbook sight unseen," Mr. Clark said. "It remains as risky a business as ever, but for those who know their spaces and have available capital and the support of their limited partners, there is an opportunity to get back in this market."

Deloitte & Touche's "Silicon Valley and East Coast Venture Capital Confidence Survey" surveyed more than 2000 venture-capital executives managing funds with assets in excess of $50 million.