(FORTUNE Small Business) – For most of last summer ramesh Harjani and Jae Moon scoured Silicon Valley looking for signs of life. Their new company, Bergana Communications, which makes chips for wireless handheld devices and laptops, needed an initial shot of funding. But as they made the rounds of venture capitalists in the Bay Area, Harjani and Moon stared at a lot of closed doors. Then, in September, Bergana found an opening. Mobius Venture Capital (formerly Softbank) agreed to invest. Three more VCs soon followed, and Bergana now has $14 million.

Sure, that would have been chump change during the venture-cap-crazy '90s. But it's real money in this recession. It's also a sign that things are looking up, at least in the investment world. While there aren't any official numbers yet, there is emerging anecdotal evidence that VCs are starting to invest again. The sectors that stand to gain: tech, the health-care and biotech industries, and even nontech consumer businesses, which have not seen much VC cash since 1997. And according to Ken Andersen of VentureWire, a trade publication that tracks venture investments, though the total amount that venture capitalists will invest in companies this year probably won't top 2001's low figures, the number of companies that will receive funding will likely be higher.

That's good news. Many VCs believe that recessions are, ironically enough, great times to start--and fund--companies (see "The New Risk Takers," page 28). The price of buying in goes down, and the quality of entrepreneurs goes up. What's more, there's better access to resources like law, accounting, and PR firms, and there's more available talent to hire. Plus there's less competition in a given field. "When you invest now, there aren't 15 other companies as competitors, but three or four," says Tom Dyal, a partner at Redpoint, which has put money into four new companies this winter. "Investor psychology has changed in the past few months. People are finding reasons to invest as opposed to reasons not to."

Who's seeing the money? Mostly startups, or at least companies that can convincingly bill themselves as such. Amit Chawla worked as a vice president of marketing at a three-year-old company that was able to get funding only after it was reborn as a new company. IPVerse struggled for months, looking for financial salvation from every possible avenue. It was forced to shut down late last summer. That's when Chawla banded together with several of his co-workers to buy the rights to IPVerse's product, a software-based switch for voice traffic, and started anew as NexVerse. "The capital structure [of IPVerse] was a problem," explains Chawla. "Any new investors coming in wouldn't have been able to get a decent amount of equity because there were already investors who owned a big piece of the company." Not the same problem for NexVerse. In December, Chawla raised $15 million from a troupe of topnotch investors like Levensohn Capital Management, Norwest Venture Partners, Kleiner Perkins, and Battery Ventures.

For now, the narrow focus on new companies isn't likely to change. The reasons: New firms aren't hamstrung by previous mistakes. And since startups typically spend 12 to 18 months developing a new product, many products won't start hitting the streets until the first half of 2003. By then, many VCs are betting, the economy will have recovered. "Timing is everything in this business," says venture capitalist John Boyle of Worldview Technology Partners.

As always, VCs are backing industries based on what they hope is going to happen in the next several years. And despite all its recent bad press, wireless communications is a hot pick for the future. Global spending on wireless infrastructure will jump from $99.4 billion in 1999 to $120.4 billion in 2004, according to the Yankee Group. "The rate at which cell phones are being deployed worldwide continues to increase," says Promod Haque, a partner at Norwest Ventures, which recently funded a wireless-equipment company, Megisto, in Maryland.

The health-care and biotech sectors are also attracting big dollars. After shedding their life-sciences operations in favor of doing more Internet deals, VCs are getting back into the area with gusto. Fred Dotzler, a partner at De Novo Ventures, attributes this renewed interest to greater awareness about the demographics of aging and the historic mapping of the human genome. Dotzler recently invested in Paracor, a company that makes implanted devices to treat heart failure, and in Renovis, a relatively small biotech company that does drug development for neurological and psychiatric conditions, such as spinal-cord injuries and schizophrenia.

Consumer businesses are also getting attention after being shunned in favor of flashy Internet deals. Chip Adams at Rosewood Capital in San Francisco estimates that there are now only about 15 VC firms that do nontech and non-biotech investing, but he predicts that number will increase. "We're seeing a lot of good ideas come through our door," says Adams, who is in the process of funding a retailer in the Hispanic market.

None of this is to say that raising money from venture capitalists is a walk in the park. Some view today's climate as a welcome return to normalcy, where money goes only to the strong, and a company must prove to its investors that it is truly worth funding. That, say veteran entrepreneurs and venture capitalists, is the way it should be. "It should always be hard to talk someone out of $20 million," says Mark Housley, CEO of optical-networking company Glimmerglass. Luckily for him, he did just that several months ago.