"What's going on... is the end of Silicon Valley as we know it."

That was Oracle's (NASDAQ:ORCL) CEO Larry Ellison speaking to The Wall Street Journal recently. He pronounced the computer industry mature, with efficiencies driving down prices both for hardware and software worldwide. Linux is not a flash in the pan, and outsourcing to Indian, Rumanian, and other highly educated but lower paid software developers is not a fad.

The oracle of Oracle augured, "The next big thing ain't computers... it's biotechnology."

Biotech -- and software
Let's see about that. Valley innovators and their companies win a huge share of each year's venture capital funding, and true, the news isn't great these days -- at least compared to the boom years. A recent Ernst & Young and VentureOne survey observed venture capitalists in 2002 making "selective follow-on investments and initial investments in key sectors, leaving the majority of eligible companies without further funding." The survey said that 24%, or 1,482, of the current pool of private companies backed by venture capital received follow-on financing in 2002, leaving 3,699 without.

Yet proving half of Ellison's thesis, biotech and software did relatively well. Of the 510 initial venture capital fundings last year, 91, or 18%, were software companies, dominated by communications/connectivity and business applications. The raw number is the lowest for these two software universes since 1996, but their share of the total is far greater than when there were 833 initial fundings.

The 51 biotechnology and drug discovery fundings were 11% of the total. That amount was only exceeded in 2000 and 2001, and as for software, biotech's 2002 total was a far greater percentage of overall initial fundings. Maybe Ellison's right that biotech is the plastics of our time.

I had the chance to check out a startup on the cutting edge of biotechnology -- nanobiotechnology -- in a recent visit to the Valley. Here begins my report on these two cauldrons of innovation. This week: nanobio.

There must be few places on earth that can compete with Palo Alto for spring weather, or with Stanford University for campus beauty. One recent beautiful night, Fool Community member David Nierengarten (davidMN) kindly drove me from my hotel down the palm-lined main drive among the Spanish-style buildings to the business school. David is a scary-smart and personable guy who holds a Berkeley Ph.D. in molecular biology, is an avid investor, and can marry the two in an easy-to-understand way. Perfect company.

I represented The Motley Fool on a panel entitled, "The Analyst Showdown: News and Views on Nanobiotech," served up with great élan by The Nanobiotechnology Forum, a non-profit devoted to "showcase real applications of nanotech in the life sciences." We're talking companies such as privately held Quantum Dot that toil at the nanometer level -- one-billionth of a meter -- to speed drug discovery and development or drug delivery, for example.

Laura Mazzola, Ph.D., heads the Forum, which brings entrepreneurs and their facilitators together in a schedule of fascinating events, provided along with many resources -- including a handy introduction to nanobiotech -- on the Forum's website. She and technology advisor Steve Mushero were responsible for inviting me, and I thank them very much for a stimulating time.

Over drinks and hors d'oeuvres, many people spoke of the difficulty in starting or growing a business today, when the IPO market doesn't provide a route to hefty financing. One startup CEO said he was a veteran of several startups, and sighed that he and his family had hoped not to repeat the experience. When I asked him about funding, he said his current company is self-funded, adding that with more cash, they could pursue not just one, but several equally good product opportunities. Those listening did a lot of sympathy nodding.

The panelists offered experience and diverse perspectives:

Scott Morrison, Partner, Ernst & Young,
"The Emerging Nanobiotech Industry: Lessons from the Biotech Experience"
Bryan Roberts, General Partner, Venrock Associates,
"Cutting-Edge vs. Bleeding-Edge Technologies in Nanobiotech"
Joe Raguso, Vice President, Strategic Partnerships, SRI International
"Nanobiotech Innovation: The Necessary Factors"
Stephan Herrera, Red Herring, "Surviving the Nanobiotech Hype -- and the Backlash"
Tom Jacobs (Me), "To the Nanobiotech IPO -- Then What?" (For some reason, they liked this better than my title, "Invest in Nanobiotech -- Are You Nuts?")

I'll leave Scott and Joe's excellent presentations to their slides available through the links, and hit the high points of the others. Venture capitalist Bryan Roberts offered us a detailed look at the science and scale of nanobiotech innovation. This included an example that one of Venrock's companies, the now-public lab-on-a-chip company Caliper Technologies (NASDAQ:CALP), worked at a cutting-edge small size, but that some development-stage companies today keep the heat on by working at even smaller, bleeding-edge sizes.

An engaging speaker, Stephan Herrera fascinated us with his look at the debate over genetically modified foods and how Monsanto (NYSE:MON) was only too late understood its problem. He warned that those involved with nanobiotech need to be prepared and proactive about potential public backlash, given the inflammatory potential of books such as Michael Crichton's Prey. I look forward to Stephan's forthcoming book, Closer to God: Peering Into the Weird Little World of Nanotechnology, just one of his ventures that show he won't skip a beat with the closing of Red Herring (my favorite magazine about innovation and entrepreneurs, and one I'll miss a great deal).

Taking The Motley Fool's side of the individual investor, I closed the panel with caution that because the IPO comes either at maximum market enthusiasm or maximum desperation for the company, it is rarely an opportunity for you and me. This included waving my arms and bellowing, "Danger, Will Robinson!" Risk takers were pointed to the Rule Breaker strategy that might fit the occasional new company -- if it's truly revolutionary.

It was great fun to talk with the crowd afterwards, especially the many who know and love the Fool. I especially enjoyed one money manager who reminded me that, actually, it's not the venture capitalists who take the risks, but their clients. Food for thought!

It may not have been as much fun for David because he had to wait to drive me back, and then head on to Berkeley. But he was a great sport, and we had lots to talk about -- as we already do regularly with other Community members on our Biotechnology discussion board. (P.S. If nano is more your thing than bio, you can enjoy our Nanotechnology discussion board.)

Next week, I'll finish the tour with an inside look at a startup in the hottest sector of software -- security. See ya then. And have a most Foolish week!

Tom Jacobs (TMF Tom9) announces that he is accepting venture capital and will consider a public offering. You can find his columns in his archive or via our main page's drop-down menu, and his stock holdings on his profile . Motley Fool writers are investors writing for investors .