Even with our struggling economy, venture capitalists are actively exploring investments in online retailers and technology vendors. Venture capitalists are particularly attracted to the latest e-commerce trends that utilize mobile commerce, online video and other rich media, and social networks.

Paul Goodrich, managing director of the Seattle-based venture capital firm Madrona Venture Group and one of the first backers of Amazon.com Inc. states, “We’re very bullish on consumer-facing businesses over the next five to 10 years. We see a lot of upside potential. But we’re not likely to look at a consumer-facing business without an Internet strategy.”

Investors can benefit from hindsight in today’s relatively mature e-commerce industry—something they couldn’t do before. Such experience helps them better determine what will produce profits over the long term. Venture capital in the early days of e-commerce was largely directed at the promise of Internet technology itself and anyone involved with it, experts say. “In the late ‘90s, investors were backing people using the Internet to try to fundamentally change how retailing was done,” says Bill Bass, former head of e-commerce at Lands’ End and Sears, Roebuck and Co., and now co-founder and CEO of Fair Indigo, a 2-year-old retailer of organic and fair-trade apparel. Fair Indigo has raised more than $5 million in venture capital, most of it in July from Highfields Capital Management.

But today, he and others say, investors want to see how prospects can build a brand and a profitable business. “Venture capitalists are looking at retailers who are smarter at retailing,” says Mark Jensen, who advises capital-seeking retailers as national director of the venture capital services group at consulting and accounting firm Deloitte LLP. Smart retailing, he adds, means providing a shopping experience that gets consumers hooked on what a retailer has to offer.

“Venture capitalists today are open to hearing an online retailing idea, but it has to be a new concept, it has to be smooth, and it has to entice customers in a way different from other online or store retailers,” Jensen says. “To get venture capital, you have to be able to demonstrate that you have an approach to the marketplace to attract customers rapidly and a way to keep them.”