One of the only venture capital firms investing in start-ups developing new Internet services is 3i, the world's largest venture capital firm. I spoke recently with Sanford Miller, managing director of 3i, about the trends he's seeing in the ISP industry. Here are excerpts from our conversation:Q. What is the outlook for ISP start-ups in the U.S.? Is the market turning around?A. We like it as a niche, but as a broad market, I don't see where it's a highly value-added play. I think there is going to be continued margin pressure on the mass part of the ISP market. So we wouldn't invest in ISPs on a broad basis.Q.\u00a0 Overall, 3i made nine investments in network start-ups in the first quarter of 2004, according to the MoneyTree survey compiled by PricewaterhouseCoopers, the National Venture Capital Association and Venture Economics. Why is 3i actively investing in the network industry right now?A. We're the largest venture firm in the world, although most of our investments are in Europe. We're interested in expanding what we are doing here in the U.S. Even through the last couple years, we have kept up a steady pace of investment and found some attractively priced deals. As far as investing in the network area - I don't know how you could avoid it if you are a tech investor. I don't know of anything more central than networking, software and the semiconductor business. We're active in all three.Q.\u00a0 Only 11 network start-ups received first-round funding last quarter, according to the MoneyTree survey. These numbers are the lowest in a decade. What, if anything, do these numbers say about innovation in the network industry? Are there fewer good ideas or less money to support good ideas?A.\u00a0 I don't think there's any lack of innovation. Part of the issue is that there were so many companies started before [the dot-com bust.] There are already innovative companies that have benefited from a fair amount of investment in terms of taking an idea into a more concrete stage. We're better off funding the best of those companies than another wealth of start-ups pursuing the same things.Q. What are the most promising areas in networking for start-ups?A. The two big areas that we'll be investing in are communications over IP - whether that's video, voice or data - and wireless.