Playing FavoritesJust what type of company is the apple of a venture capitalist's eye?

While economic atrophy has given pause to risk-loving venturecapitalists, software remains a soft spot for many investors.Venture funding slumped to its lowest level in four years in thethird quarter of 2002; still, software companies enjoyed a 28percent boost compared to the same period a year ago. That increaseamounted to $1.2 billion in venture capital for the sector,according to consulting firm Ernst & Young and research firmVentureOne. Altogether, software companies accounted for 35 percentof venture capital in the quarter.

"Software companies are easier to fund because theydon't have a lot of inventory risk," says John Copeland,founder, chair and chief scientist ofLancope, a networksecurity firm in Atlanta. His company received $5.5 million in VCfunding last April. Having a solid sales record helps, too,Copeland says: "Our funder wanted a product that was proven inthe marketplace, [not] just a company with a great idea."