By Thomas Lee
Minneapolis-St. Paul Star Tribune 
Published: 11.12.2006

Call him Doug Berg 2.0. The founder of Techies.com, a once-high-flying job portal that crashed and burned during the stock market shakeout of 2001, is back, armed with a promising Internet startup, millions of dollars in venture capital and truckloads of perspective that eluded him during the crazy days of dot-com mania.

“I learned a lot of life lessons: not to go too far, too fast,” said Berg, referring to his failure at Techies. “I highly doubt that will happen again. Back then, Wall Street was funding ideas. Now Wall Street is funding companies with solid revenues.”

In many ways, Berg’s new company, HotGigs Inc., which he founded three years ago, demonstrates how investors are again directing venture-capital money toward early-stage startups with solid business plans and stable revenue.

HotGigs, whose Web site matches companies seeking contract labor with staffing firms and independent consultants, received $5.2 million in first-time financing from Updata Partners, a venture capital firm in New Jersey. HotGigs is based in Minnetonka, Minn.

Venture-capital investment in seed and early-stage companies totaled $1.2 billion in the third quarter, up 10 percent from the previous quarter, according to a MoneyTree report. Such firms accounted for half of the $1.5 billion that went to first-round deals.

Internet companies made out especially well, capturing $1.1 billion in venture-capital money, a four-year high, and accounting for 17 percent of total investment.

“There is an appetite for companies like HotGigs that exhibit a certain amount of customer and revenue traction prior to venture capital funding,” said Conor Mullett, co-founder and general partner of Updata.

After the dot-com bubble burst in 2000-01, venture firms put money into the later-stage companies they’d already sponsored to keep them going until the market improved enough for a public offering, buyout or other “exit strategy.” That dried up much of the funding for early-stage companies, which have been scrambling until recently.

With the large-cap stock indexes at record highs and well-financed private equity firms looking for deals, investors are again looking at promising startups, said Dan Carr, president of the Collaborative, a Minneapolis group that assists entrepreneurs.

“The proven entrepreneur is getting funding again,” Carr said. “People see a higher return possibility that’s worth the added risk. You are starting to see innovation rewarded.”