The year 2005 brought more joy to Amit Singh and Balraj Singh than 2000 when they founded Peribit Networks in Santa Clara, CA. Juniper Networks acquired Peribit— a player in the growing market for Wide Area Network (WAN) and data center acceleration—for a whopping $337 million.

The acquisition signifies the growing trend of large players to combine different solutions in fewer devices leading to a rapid consolidation in the market for network technologies.

Many entrepreneurs like the Singhs may see their wish come true this year if they follow the venture capital money. Interest in old market business models and applications has waned and startups that offer enterprises innovative and secure solutions are attracting big money from the VCs. “It is hard for venture backed startups to compete against incumbents like the Cisco in the U.S. and Alcatel in the Europe. Startups working on the fringes of the technology developed by these companies has turned out to be an absolutely good market,” says Arvind Purushotham, managing director, Menlo Ventures.

In 2005, VCs invested $1.4 billion in 160 companies in this space, though it tanked to an eight-year low point, according to PricewaterhouseCoopers’ MoneyTree Survey. The venture capital community will continue to invest in areas that will have impact in 2006 and beyond. Next-generation social networking and search, compliance based technology, enterprise architecture, mobilization of almost everything, and convergence of technologies and devices are areas that most VCs are currently looking at.

Jo Tango, general partner at Highland Capital Partners advises entrepreneurs, “Take the opportunity that takes the friction between the buyer and the seller. I would take the opportunity that takes the friction out of a supplier of the data and the consumer of information.”

What interests the VCs is the enterprise spending on network. According to the survey, the worldwide spending on network is expected to reach more than $21.7 billion by 2007.

Enterprises are trying for technologies that will allow them to get the most out of what they already have or that will let them try out new ways of conducting business—without getting to spend a lot of money, leading to convergence. Convergence will happen, as enterprises demand more integrated solutions that simplify business processes, making them easier to implement and manage. In other cases, new technologies will help functionality that may have been initially designed as a stand-alone product, but gains significant value when offered or delivered in a combined product.

“There has been a convergence of many different services on a single IP network. We have seen voice and data in the enterprise environment and voice, video and data in the service provider’s side,” says Kolluri.

Marriage between varied equipments is good as long as it doesn’t hit back. Result: Every technology has its day and as convergence happens, it makes applications insecure and a lot of serious threats are piggybacking on application layer traffic. Another result: such threats lead companies to design products that disallow all the threats to come back and avoid newer ones to enter the network. “Given these trends, I see that better applications needs are to be designed into the application network,” says Kolluri.

Stringent regulatory norms have also opened up opportunity for network entrepreneurs to provide innovative solutions. Enterprises have started realizing that the days of ignoring compliance regulations are over. Compliance issues could break companies’ fortunes badly.

Purushotham says, “Companies working in the compliance space received lot of VC attention in 2005 and will continue to do so over the next few years because network users are pumping money to make networks as secure as possible.”

Consumption of data within the enterprise continues to explode. As this happens, enterprises are demanding newer ways of data utilization and increased performance. On the e-commerce side, there is little tolerance for latency. On the business intelligence side there is movement of real time latency. Also with remote offices there is a need for more file acceleration and data movement. “Given all these expectations, when customers say now, they want it now,” says Tango.

“Enterprises are looking at latency and good throughput,” adds Purushotham. Sure, an entrepreneur out there is working his way to cash in on the opportunity!