The venture capital model isn't broken, it is just evolving. That was one of the messages at yesterday's Zino Zillionaire Investment Forum, where bankers, investors and lawyers discussed the rapidly changing landscape and the impact that new environment is having on startups.

The chat was especially interesting, since I was already working on a piece for TechFlash about the challenges facing the industry. It was a short panel, but some interesting discussion points emerged.

Silicon Valley Bank's Geir Hansen, who made the evolution comment above, noted that total venture dollars will most likely shrink by half from where it was a few years ago. His firm is still lending in the Seattle area, with about 300 new borrowers this year. But he also said that "it is harder to find companies" since they are suffering in the economic downturn.

"What we have seen recently is with less money available from the VCs, companies that have been able to raise money from VCs 18 to 24 months ago are now approaching the angel community," Hansen said.

As capital dries up, Cascadia Capital's Hugh Campbell noted that investors are spending more time talking about getting companies to break even. There's a "hyper focus on path to profitability," he said.

Ric Merrifield, a principal architect at Microsoft, added that with the rise of the Internet some interesting niche businesses have emerged. And that's changed the landscape in terms of the expectations of investors.

"A $50 million business now is a pretty interesting if you can get your money back in a short period of time," said Merrifield. "Those nichey little businesses that you wouldn't have looked at two or three years ago are now pretty interesting. And if somebody comes in with the expertise and the passion to say: 'I know this business, I know this space, I've got an idea and a team and we can win in this niche and have it be a $50 million in five years' that's a lot more interesting to investors than it was even two or three years ago."

[Flickr photo via KevinDooley]

Related article: "11 important tips on how to avoid startup disasters."