By Michal Lev-Ram

HALF MOON BAY, Calif. – The next big thing in venture capital is small investments, according to a panel of Silicon Valley investors who appeared at Fortune’s Brainstorm Tech conference on Tuesday.

“There’s no IPO market to speak of right now, big companies like Google (GOOG) and Microsoft (MSFT) are doing far fewer deals than in previous years, so where are the exits coming from?” asked Adam Lashinsky, Fortune senior writer and the panel’s moderator.

The answer, said venture capitalists like Dana Settle, a partner with Greycroft Partners, is investing in companies that don’t require much capital to get going – and therefore don’t require investors to hold out for large-scale acquisitions.

“It’s a different game now – we’re not looking at companies that require $20 million anymore,” said Settle. “But there are big opportunities for smaller funds, and there are a ton of companies that just don’t need that much capital.”

Andrew Braccia from Accel Partners – an early investor in social networking company Facebook – added that the key to investing in a down economy is to find companies that are sustainable.

“These are companies that can stand on their own regardless of the market,” said Braccia.

While Danny Rimer, a partner with Index Ventures, agreed that the IPO market is dead, he also said that there are other ways to make an exit.

“If you build a company with value you will find an exit,” said Rimer, whose firm sold four companies since the beginning of this year, including an Oslo-based startup called Trolltech, acquired by Nokia in June.

“At some point the clouds have to part and there will be a rationale for an IPO market again,” said David Siminoff, a general partner with venture capital firm Venrock.

But the near future may not be all that bright for some.

“At least from the perspective of media [companies], it doesn’t look good for many years,” said Quincy Smith, CEO of CBS Interactive (CBS), which just closed a $1.8 billion acquisition of online media company CNET.