According to the Economist magazine the IT sector – including digital media – should avoid the worst of 2009’s predicted economic downturn, providing digital entrepreneurs with an opportunity to develop their propositions.

NMK spoke to Nic Brisbourne, a partner with venture capitalist group DFJ Esprit and a dedicated industry blogger, to gauge his view on where the market is going in the coming year and how digital firms should best look for funding. While realistic about the amount of investor money available over the next couple of years, he is upbeat about innovation within the digital sector.

How do you see the market for digital media VC investment in the next year?

Specifically within digital media we can expect investment to favour companies with paid-for goods and services at the expense of advertising-based models.  

How does this compare to the last couple of years?

I expect venture capital investment generally will slow considerably over the next year and digital media will be no exception. The investment rate has halved in the United States over the course of 2008 but Europe has yet to follow suit. My guess is that it will.

What lessons has the industry learnt from the dotcom bubble?

I think the main one is that importance of being realistic about your prospects and of taking your medicine early.  

Will incentives such as Channel 4’s 4iP service spur the digital VC market on?

Initiatives like this make an important contribution to the innovation ecosystem here in the UK, but I doubt this is large enough in monetary terms to make a big difference to the VC market.

What technologies and services are VCs most interested – and least interested – in at this time?

The areas we have been focussing on most are – in no particular order – online video, next-generation advertising models, restructuring the music value chain, virtual worlds and next-generation search and discovery. That said we will look at lots of companies outside these areas as well. The European market is small enough that if you are too focused there isn’t enough deal flow. 

What’s your advice to digital start ups looking for investment in the coming year?

Allow more time than you might previously have thought for fundraising, and be prepared to show good progress in the business throughout the process. 

Any further comments on the industry?

We’ve rightly focused on the challenges of the next year or two but it is important to remember that this is just a cycle. The good times will return, and given the average lifecycle from start-up to exit is seven-plus years most companies will face a downturn at some point in their lives. Many of the best companies are started during downturns.