When entrepreneurs Donna Dubinsky and Jeff Hawkins started making a new hand-held gadget called the Palm Pilot in the early 1990s, they thought they had a winning business proposition. Venture capitalists disagreed.

Palm Computing Inc.'s efforts to raise money from Silicon Valley's leading investors were "really pretty hopeless," recalls Ms. Dubinsky, who now works at a new startup. Although the Palm Pilot eventually became a big seller, Palm at one point made a humorous, in- house video lampooning its inability to raise cash. In it, John Doerr, a well-known venture capitalist, pokes fun at himself for dismissing hand-held computers as unworkable and using one as a cheeseboard, Ms. Dubinsky recalls.

Today, Mr. Doerr and his competitors aren't laughing at consumer electronics anymore. After years of investing in technology companies that supply businesses, they are paying lofty sums to fund dozens of consumer-focused startups that do everything from connecting digital devices in homes to making games for cellphones. Many venture capitalists will be out in force at next week's Consumer Electronics Show in Las Vegas, hoping to get an inside track on the next gadget that could turn into an investment opportunity.

The consumer-investing craze is being driven, in part, by the widespread availability of high-speed Internet connections in today's homes. That's opened up a low-cost delivery channel for Web services, such as photo-sharing sites, and inspired the creation of new gizmos for handling digital music and video.

Another factor pushing the venture capitalists: Business has slowed at start-ups that focus on selling old-style, licensed software, semiconductors and telecommunications equipment to businesses. These industries traditionally have delivered big returns to venture investors, but over the last few years, many big companies have reduced their technology budgets and aren't buying as much fancy software or telecom gear.

"Those [old] business models are forever history," says Jim Breyer, a managing partner with Accel Partners in Palo Alto, Calif. That can make consumers, instead of big businesses, a more viable target for venture-funded companies. Of the 12 new investments Accel has made this year, over half are consumer-related, Mr. Breyer says. They include companies such as Facebook Inc., a popular online community for college students, and Brightcove, an Internet TV service.

Consumer-device companies have long been considered risky investments, partly because they can incur high start up costs and tend to build up inventories of products that can be a big liability if their popularity cools. But those companies are snaring venture cash now, too.

Mobius Venture Capital and DCM-Doll Capital Management provided the bulk of the $11.5 million raised in late 2004 by Sling Media Inc., a San Mateo, Calif. company that makes a device that lets people watch shows from their home televisions on other broadband-enabled computers. That means a traveling executive could use his laptop, in an out-of-town hotel room, to watch his home baseball team play a game that wouldn't be shown on TV in another city. Sling Media's small, silver-colored product, called the Slingbox, which retails for about $250, is now on sale at more than 3,500 retail outlets across the country, says Sling Media co-founder Blake Krikorian.

Akimbo Systems Inc., another venture-backed company, sells a $70 box that connects TV sets to high-speed Internet services, allowing people to watch video content stored on the Web on their regular TVs. And Sonos Inc. sells a $499 "ZonePlayer," a music routing device that lets people play digital music all over their homes and wirelessly control it. Sonos has raised about $32 million in funding, including $10 million from BV Capital of San Francisco and Hamburg, Germany.

Intel Corp., whose corporate venture-capital arm has long been a force in Silicon Valley, helped get the ball rolling by announcing a $200 million "digital home" fund at the 2004 CES show. Companies in its portfolio include Mediabolic Inc., which makes software for connecting entertainment products together, and Intellon Corp., a company that makes computer chips used for communicating over power lines inside the home and between homes.

At CES next week, the National Venture Capital Association trade group is planning a "networking reception" for about 90 people at the show, the first time such an event has been held. And one venture firm, BA Venture Partners, is hosting a swanky dinner for 25 venture capitalists -- up from just 10 last year -- at the glittering Aureole restaurant at the Mandalay Bay hotel, says Sharon Wienbar, a managing director with the firm. The idea is to get venture firms together to share ideas and discuss new technologies and companies investors have seen at the show.

Ms. Wienbar says over the past two decades, there has been "an incredible cost compression in technology," with computers and other technology components becoming more affordable to the average consumer. "That has made it possible for lots of new technologies to get started at the consumer level," she says. Indeed, technologies like instant-messaging and "peer-to-peer" software started with consumers, not businesses, and eventually gained attention from large corporations.

As a result, venture capitalists are visiting places they wouldn't have dreamed of going to in the 1990s -- like electronics stores. "We're all spending our time talking to retailers like Home Depot and Best Buy and Radio Shack," says Janice Roberts, a managing director with Mayfield Fund in Menlo Park, Calif.

Along with Mayfield, firms like Mobius Venture Capital and even the august Kleiner Perkins Caufield & Byers work closely with retailer Best Buy Co., for instance, to understand consumer trends and even get the retailer's advice about investing in promising young companies. Their contact at Best Buy is a Minnesota-based executive named Marti Nyman, whose sole job is schmoozing with venture capitalists. Mr. Nyman says his task is to get to know promising startup companies so he can find "better, cooler products early" for Best Buy's stores. He worked with Sling Media, for example, to refine the SlingBox's packaging before that product went on sale in stores.

Mr. Nyman "really has forged a strong relationship with our firm that is very beneficial," says Randy Komisar, a partner with Kleiner Perkins. The investment firm benefits, of course, if its startups do well and actually get products onto store shelves or onto consumers' computer screens. Kleiner Perkins has discussed investments such as PodShow Inc., a "podcasting" company that delivers audio shows over the Internet, and Digital Chocolate Inc., an online-gaming firm, with Best Buy executives, according to Mr. Komisar.

Not all entrepreneurs are convinced that venture capitalists are doing enough homework, however. While he is impressed with his investors, Sling Media's Mr. Krikorian says many other venture capitalists still "just don't understand what the consumer business is about . . . it's not as simple as, 'throw a couple of guys in some cubes and let them start writing some software.'" Barriers to entry are greater, and risks are higher than with other types of technology companies. "It's a hard business," he says.