From her riverfront headquarters in the Red Hook section of Brooklyn, aspiring media mogul Michelle Darne is about to be christened the "Gay Martha Stewart."

She didn’t choose the label herself, but Darne doesn’t mind the publicity that has drawn investors and advertisers to Out of the Box Publishing & Media Ventures, her burgeoning publishing-radio-television-empire geared to gay parents and gay couples raising families. She certainly doesn’t mind the comparison to Stewart, whose success she hopes to emulate.

But the most novel thing about Darne might be that, in today’s arid private equity climate, her business exists at all. According to a PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree Survey, venture capital (VC) investment plummeted last quarter, down 52 percent from the previous year. With investors fleeing from even of biotechnology and life sciences, the more reliable sectors in the post tech-bubble burst, business models like Darne’s — media companies dependent on the scarce commodity of advertising dollars — are being avoided like the plague.

"She’s defying the rules," said Kristopher Brown, a partner with the New York firm Reboul, MacMurray, Hewitt, Maynard & Kristol, who put together Darne’s financing after she kept the company and its flagship high-end glossy magazine, AndBaby, afloat for 18 months on her own money. Brown said she is proof that for good companies with exciting ideas and skilled management, there is plenty of money around.

"There is still good innovation going on in America, still people coming up with good ideas," said Brown, who said he sees much more optimism and activity in the market than the figures indicate.

After an extremely sluggish period that hit bottom after Sept. 11, Brown said the first half of 2002 has been one of the busiest times he’s ever had. A Fortune 50 client of his with a venture arm is currently involved in 12 deals, ranging from $500,000 to $7 million, he said.

In fact, with valuations at rock bottom lows, there are great deals to be had.

Venture funds never stopped raising money, but they did stop investing it, Brown said. Now, those pools of capital are being cautiously funneled into companies producing medical devices, pharmaceuticals, genetics technology and certain consumer products.

'Evolutionary, Not Revolutionary'

David Geliebter, a partner with Carrot Capital in New York, said his firm is looking at wireless networks and advances in medical technology and consumer product--innovations on services and products that people already need, use and buy.

"We like things that are evolutionary, as opposed to revolutionary," he said.

For example, just last week Carrot Capital invested $500,000 into NovOculi, a company that is developing an "incisionless" corrective eye surgery technique that improves upon the popular LASIK procedure, which has already freed hundreds of thousands of people from eyeglasses.

NovOculi was the brainchild of a team of graduate business students, and Geliebter said much of this innovation is coming from college campuses.

"These are companies with very low valuations, not companies claiming to be worth hundreds of millions of dollars," he said, advising private investors to seek out science and technology innovations on their local college campuses and get in early. "The future Dells and Federal Expresses will be found on college campuses. That’s where investors who want to be in the private equity market should go," he said.

Carrot Capital also was one of three venture funds that just put $5 million of B-round funding into Motia, which is developing wireless semiconductors that, Geliebter said, will improve the performance of wireless services. The firm is producing flat antennas that may enable, for example, automobiles to have access to 500 television channels and pay-per-view movies.

However, Geliebter said that money to entrepreneurs has dried up as investment has moved downstream to more advanced stages of funding.

"We’re one of the few companies excited about seed stage," he said.

Players vs. Posers

In the heady days of the mid-nineties, venture funds attracted investors who "were not sophisticated enough" to be in the market, Brown said. A traditional VC is a long-term investor who expects to wait 5-7 years to see a return and also expects to provide management expertise and guidance to the company. Those that expected to recoup their investment through a fast IPO have been flushed out.

"Funds that were promising fast IPOs are in trouble," Brown said. "The big, more established, funds are laughing at their demise."

Also out of the game, Brown said, is the "guy who got some stock options and committed $150,000 to a friend’s VC fund." Many of those investors lost chunks of their wealth in the stock market and can’t meet their obligations.

Many failing entrepreneurs report that after they got their funding, they never heard from their VCs again. Geliebter said these investors were looking to make "stock deals" and didn’t understand that their role was to buy and grow a company. "Money is only so good. If you can’t help and provide more than money, you might as well invest in the public markets," he said.

Entrepreneurs have also learned this lesson. Instead of burning through hundreds of millions of dollars, many companies, he said, are now "bootstrapping themselves with a few million and succeeding."

"The serious entrepreneurs realize they have to build a business," he said.

Which brings you to Darne, who launched AndBaby on $420,000. She's offering advertisers a direct line to the affluent, fiercely brand-loyal and largely untapped gay family household market (estimated at roughly 5 million families), and managed to achieve national distribution and the kind of publicity and market penetration that usually requires millions of dollars.

"I get calls from VC's who would never do a project like this," Darne said. "At the end of the day, we're the only game in town to reach that segment of the market," she said.