Venture capital as an asset class is a cup full to the brim and spilling over. With so many new firms founded and bloated funds raised during the bubble, VCs spent more than $20 billion last year in the United States alone. If you’ve got an idea, chances are 10 other teams have thought of the same one, and they’re probably pitching a business plan to rival venture firms this afternoon.

“The economics of early-stage investing are so crowded,” says Terry Garnett, a former VC at Venrock Associates and recent co-founder of venture buyout firm Garnett & Helfrich. “Except for certain firms that will still do well, the results are just going to be so questionable.”

To escape the glut of venture money flooding tech hotspots like Silicon Valley and Tel Aviv, former VCs like Mr. Garnett and his partner David Helfrich are founding new firms that rethink the venture model. Others, like William “Boots” Del Biaggio of debt and equity firm Sand Hill Capital and Humphrey Polanen of Sand Hill Security, are changing the way they do business to take advantage of new market conditions and increased regulation. And some unusual firms that have been around for a while, like late-stage specialists Meritech Capital Partners, are looking more prescient than ever.

It’s not as if giants like Sequoia Capital and NEA are going to quit the early-stage game anytime soon. But as the technology industry comes of age, the mantra of innovative technology and vision is morphing into a focus on products, customers, and revenue.

“VC has strong participants that continue to lead new, innovative investments,” says Alex Slusky, founder and managing partner of Vector Capital, which just closed a $350-million fund invested in buyouts, spin-offs, and recapitalizations. “But the industry has matured, and the greater opportunity is around the kinds of deals that we do, not about finding the next great startup.”

Private-equity groups like Texas Pacific Group (TPG) and Silverlake have made headlines lately with high-profile, multi-hundred-million-dollar deals like the SunGard buyout and financing IBM’s Lenovo investment. Yet large hedge funds and private equity were spooked by the bubble and have since largely shied away from VC, leaving open territory in areas like late-stage VC, debt, recapitalization, and smaller buyouts.

In Israel, where most banks and investment houses have abandoned small- and mid-cap technology companies, Yuval Cohen left Jerusalem Venture Partners to found Fortissimo Capital, an Israeli counterpart to Vector, which had its first close of $60 million last May and is shooting for an $80-million final close.

“We had a feeling there was going to be large dealflow, and it proved to be very correct,” says Mr. Cohen, whose first deal was a $21-million investment into Tel Rad, the country’s largest telecom equipment provider. “We get a lot of inquiries and see a lot of potential deals,” he adds.

Just as many did decades ago when they built their own billion-dollar startups, VCs are now innovating themselves—the difference is that instead of creating new technology, they’re redesigning and revamping the asset class itself.

·          Going Into Debt: Sand Hill Capital takes an unorthodox route to betting on promising startups.

·          Painlessly Public: Sand Hill Security can take a company public in nine weeks instead of nine months.

·          Fashionably Late: A tepid IPO environment means good news for late-stage investors at Meritech Capital.

·          Great Expectations: After completing just one deal, veteran VCs Terry Garnett and David Helfrich’s young venture buyout firm is the buzz of Silicon Valley. How will they live up to the hype?

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