In the heady days before the bottom fell out of the market for technology stocks, Patrick Llewellyn might have been a creation straight out of the New Economy textbook.

As a boutique investment banker, who helped young technology companies wend their way towards an almost inevitable listing on the Australian Stock Exchange, he was in intense demand.

But these days things are much quieter for Mr Llewellyn, investment manager for NexTec, a Sydney-based consultancy and investment bank. And in that lies the lesson that times have changed for Australian IT companies looking for financing.

"We all struggled to make a living here last year raising money for IT companies," he says. "A lot of blood has been shed." Whether or not 2002 will turn out any differently remains to be seen.

Even as their compatriots in the US rebounded late last year, Australia's listed technology sector suffered under the weight of continuing pessimism.

"A lot of people are still like, 'Nah, don't want to touch technology with a barge pole,'" says Alex Milton, an analyst with Macquarie Equities in Sydney.

But there are also hopeful signs, some analysts believe, of looming rebounds in both the listed market and the often more inscrutable worlds of private equity and venture capital.

For one, a number of listed IT companies have been posting profits and establishing themselves as good, seemingly fundamentals-driven businesses with what look like healthy futures and cash flows.

KAZ Computers, the IT services company which now leads the publicly-listed pack with a market capitalisation of A$425m as of early February, has forecast a net profit of A$22.2m for the current financial year after reporting a profit of A$11.7m last year. It has also managed to continue growing its business. In January it announced the A$200m acquisition of privately-held Aspect Computing which was partially funded through a A$78m placement made with Australian institutions.

Altium, an industrial design software company with a market capitalisation of about A$260m as of early February, reported a net profit of A$12.6m last, up from A$8m the year before. But both companies' shares slumped in the last few months of 2001 as part of the sectoral trend.

Since September 11 the S&P/ASX 200 index, the Australian Stock Exchange's benchmark index, has risen almost 20 per cent. In the same period, the S&P/ASX 200's information technology sub-index slumped almost 20 per cent. The most commonly given reason for the downturn is institutional disinterest in the sector.

There are companies - KAZ is one - that draw occasional institutional interest. But a lack of both scale and liquidity in the sector mean most Australian institutional investors have all but abandoned it.

Market capitalisations above A$200m (US$102m) are rare and Australian IT stocks as a result are often lumped into small cap portfolios. The S&P/ASX 200's information technology subindex had a total market capitalisation of about A$3.1bn in February, a minuscule portion of the S&P/ASX 200's total capitalisation of about A$653bn.

"It's not a case of whether to be overweight or underweight," says Mr Milton. "To a large extent [Australian IT shares] fall off the radar screen altogether."

There is hope, Mr Milton argues, that Australia will in the next five years gain a handful of technology companies with market capitalisations of A$1bn or more.

But until then, he says, the sector is likely to remain of most interest to retail investors and, chances are, unloved even with valuations significantly below their American and European counterparts. While many NASDAQ shares trade on price earnings ratios of 25 to 35 times, Mr Milton says, IT solutions and services companies such as KAZ now trade on p/e ratios of 15 to 20 times in Australia.

The picture is slightly more hopeful for companies seeking venture capital.

One survey of Australian venture capitalists released in January found that almost half were hopeful about the future and believed 2002 would see a loosening up of capital.

Moreover, with the advent in recent years of a number of specialist technology venture capital firms in Australia, people in the industry say there is already at least some money available for companies looking for financing.

But the parameters have changed. Australian venture capitalists are now looking for more mature companies with established client lists and promising cashflows.

"People investing are looking at companies that have some indication of solid sales potential and a strong backing partner," says David Keightley, managing director of Mediaware Solutions, a Canberra-based software company which has been searching for venture capital.

"There is some funding available. But it is very dry and it is very conservative and cautious. I wouldn't be surprised if some people were saying it isn't there at all."

There are those in the venture capital industry who argue that caution in the Australian industry pre-dated the 2000 tech downturn. The only thing that has changed, they say, is that venture investors elsewhere have now become equally cautious.

But then venture capital funds in Australia are still only a relatively recent occurrence - it was not until the mid-1990s that tech-focused venture capital companies emerged locally.

Even today, says Andrew Green, chief executive of the Australian Venture Capital Association the exposure to technology remains relatively small.

Of the approximately A$6bn in funds managed by the 53 members of AVCAL, for example, only about A$1bn is invested in technology companies.

Part of the reason for that, Mr Green argues, has been a tax system which made offshore investments in Australian funds unattractive.

But there are hopes that tax changes due to take effect July 1 will encourage investment in Australian venture capital funds by overseas fund-of-funds vehicles.

AVCAL argues those changes alone will double foreign venture capital investment in Australia from approximately A$1bn to as much as $2.1 billion over the next five years.

"That may not sound like much," Green says. "But it's an extra A$200m a year and that's funding for an additional four or five companies. It's a significant breakthrough for Australia."