Private investment in European technology companies hit 6.8bn euros (£4.10bn) last year, with a 70 per cent rise in the number of transactions undertaken to almost 4900, according to a report published by PricewaterhouseCoopers (PwC) in June.

But the Money for Growth report, which looked at European venture capital (VC) and private equity investments in the technology industry, also highlighted a shift in the VC landscape, with potentially serious implications for those looking to go it alone.

"If you want to create a dotcom, you're 12 months out of date," warned Robert Conway, PwC's global financial advisory services leader. "The dotcom era has gone - certainly in the business-to-consumer (B2C) space, and pretty much in the business-to-business (B2B) market. Unless you have a very strong story, market investors are being highly selective. You have to go forward, instead of riding on the crest of a wave that's already ebbed."

"In B2C it's all about branding, and you need an awful lot of money to create another Amazon. Unless you know the industry sector very well and have identified where you can create a niche, you're probably too late," he added.

To make matters worse, there's still a huge gulf between the funding available to European companies and their cousins across the Atlantic. The US injected three times as much VC money as Europe into technology-specific organisations last year. Over the last 12 months, Europe has sunk $1bn into internet stocks, while the US invested an equivalent amount during the first quarter of 2000 alone.

Conway denies that any reluctance on the part of VCs to invest in dotcoms has been aggravated by the recent flurry of well publicised crashes. "It's a question of good business economics that there are only two or three players that will be successful in any one market," he said.

There's still an enormous amount of venture capital available to the technology sector, however, and Conway believes that the current climate provides a more realistic picture of a startup's chances of success. "VCs are looking for proven concepts. You need to be able to demonstrate that it's going to make money, that you have identified your customers and have a product at beta stage," he said.

And Keith Arundale, the report's director, certainly does not feel that it is all doom and gloom. "Early indications from the US, the arrival of new large funds in Europe from US players, our own pipeline of technology opportunities and initial public offerings waiting to happen, do not indicate that the technology trend is declining," he said.

Even so, the recent sharp fall in technology stock valuations has added a few extra hazards and roadblocks for technology companies and their investors making the leap from business plan to flotation. It's now a case of playing smarter and being able to identify new and exciting opportunities.

The bottom line, Conway says, is that quality, outstanding technology and underlying business fundamentals remain the key to success. "The story for UK technology firms is you can't be successful on the back of an idea anymore," he concludes.