Yesterday, I attended the Kelsey Group's Interactive Local Media/SES Local conference. Based on the turnout, there are many companies trying to get a piece of the online local marketplace, which is still in the early phases. But the Internet giants like Google Inc. (Nasdaq: GOOG), Microsoft Corporation (Nasdaq: MSFT) and Yahoo! Inc. (Nasdaq: YHOO) are gunning for dominance.

So, what are venture capital investors looking for?

Well, there was a great forum on the topic. The panelists included: Nick Veronis, managing director at Veronis Suhler Stevenson; Kara Nortman, vice president of M&A at IAC; and Mark Gorenberg, a partner at the VC firm Hummer Winblad Venture Partners.

"For entrepreneurs looking at local," said Veronis, "this is great timing. The market is hot and the valuations are robust."

He is bullish on so-called mobile phone coupons. "We are seeing much higher conversions with mobile coupons," said Veronis. "It's also convenient. So, coupons may skip the desktop."

But, according to Nortman, this doesn't mean that traditional valuation metrics no longer apply. "When we look at acquisitions of online properties," she said, "we look at cash flows. The cash flows may come in year 2 or 3 – but there needs to be a case that online users can be translated into cash."

Interestingly enough, this week IAC announced that it has invested in a Web 2.0 social networking site, MerchantCircle. "We like that the company has a viral model and a strong user base of over 300,000 merchants."

Also, if you want to check out other recent early stage fundings, visit DealProfiles.com.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements.