For most venture capitalists, validating a target market is often achieved by reviewing analyst reports, trade association research or customer surveys. A growing number of VCs, however, are finding that they need not search any further than the front pages of their daily newspapers.

There is an increasing interest in the venture community in homeland security technologies. These range from bio-technologies to combat anthrax and small-pox attacks to automated video-surveillance systems for intruder detection at ports. The common link among the technologies is the boom in interest in their application following the terrorist attacks of September 11, 2001.

Although it is possible that much of the venture capitalist's attraction to homeland security technologies may be motivated by patriotism, many look at the more-than 1,000 percent appreciation in the stock price of explosives detection technology provider InVision Technologies Inc. of Newark as sufficient justification. InVision's success, combined with a potential customer - the Department of Homeland Security - with a $110 billion budget, has motivated a significant number of venture firms to develop an investment focus in this area. In the relatively narrow area of knowledge management software alone, research group INPUT estimates that federal government spending will increase at a compound yearly growth rate of 9 percent to $1.3 billion in fiscal 2008 from $820 million this fiscal year.

Venture capital industry interest is strong. Venture capitalists from Osprey Ventures, California Technology Ventures, Sky Venture Capital, and Kline Hawkes & Co. participated in a conference call organized by the National Venture Capital Association on the topic of venture investing in companies focused on homeland security. A workshop in May organized by the International Business Forum on "Venture Capital Investing in Homeland Security Technologies" packed a hotel ballroom in Washington, D.C., with dozens of VCs from Silicon Valley to New York.

The conference was chaired by Jason Rottenberg, president of MILCOM Technologies, a company that creates technology companies in partnership with defense contractors, commercial companies, federal laboratories and others.

Another leading player in venture investing in homeland security is Paladin Capital Management. The Washington, D.C.-based firm is making investments from its $250-million Paladin Homeland Security Fund, LP. It is focused on investing in companies that have solutions to reduce the vulnerabilities of "critical infrastructure, either by preventing a potential attack, defending against an attack in progress, or coping with and successfully recovering from the ramifications of an effective attack."

Among venture capitalists putting money into security technologies, several consistent investment themes emerge.

Dual-use technologies are critical. Successful venture investing involves mitigating, not exploiting, risk. By ensuring a company has a quality team and proprietary technology, a venture capitalist works to reduce the "execution risk" that accompanies any investment. Similarly, homeland security VCs reduce execution risk by investing in technologies that will have a market in both the public and private sector. An example is Maitland, Fla.-based MeshNetworks, Inc. The company's MeshNetworks Scalable Routing protocol is a mobile ad hoc networking solution. The company is working with the City of Medford, Ore. and the Orange County, Fla., Fire Rescue Department, but has also sold an OEM license to Capinfo Company Ltd. , the designated provider of telecommunications products for the Beijing Olympics in 2008.

Investing in two-way management teams is key. Assembling the management team for a homeland security technology company is a bigger challenge than in other startups. It is critical to assemble a team that can perform in both the commercial and government arenas. MILCOM's Rottenberg observed, "Federal agencies and commercial enterprises are clearly different customers. A successful company has to have experience selling to both. You have to be careful, however, in recruiting management. Finding an individual with DOD procurement and acquisition experience and the right temperament and expectations to work in an entrepreneurial startup is not a simple task."

Getting help from friends is a good idea. Strategic alliances play a critical role in the success of homeland security technology companies. The nation's prime contractors, including Lockheed Martin, Northrup Grumman and Accenture, secure the majority of federal defense and information technology contracts.

It is unlikely an emerging technology company will win projects from the Department of Homeland Security or Defense Department. These agencies typically rely on the prime contractor to assemble complete products and services, which may incorporate a startup's technology.

Venture capitalists will often look for a "teaming agreement," a formal partnership to pursue government business opportunities, between a startup and a prime contractor as evidence of the startup's ability to work with and secure business from prime contractors and the federal government.