This month’s $5.5-million first round for PodTech wasn’t a big sum as fundraisings go, but therein lies a tale. Yet, with Venrock Associates, US Venture Partners, and Silicon Valley angel investors all chipping in, it amounted to the single biggest podcast-related funding for 2006.

A 22-year-old just got nearly twice that to move a wireless medical device into production (see 22-year-old CEO Raises $10M).

The fact is, venture capital funneling into podcast technology is tapering off. It dropped 15 percent, from $21 million in 2004 to $17.85 million in 2005. And 2006 is off to a slow start, about $6 million so far, down about 30 percent from the year-ago quarter. Granted, podcasting hasn’t accumulated enough funding datapoints to establish a definitive trend, but VCs are proving very cautious placing their bets.

User numbers, 42 million worldwide, tell a different story. Research firm eMarketer projects users to grow in the United States to 10 million in 2006, 25 million in 2008, and 50 million by 2010. Junkies, i.e., those who download one or more podcasts a week, will account for a third of them. Audience trends suggest a nice knock-on effect for podcast ads and sponsorships. Sales there, according to eMarketer, will rise from this year’s $80 million to $150 million in 2008, and $300 million by 2010.

TV Too Expensive

“Traditional ways of reaching customers with television and radio are costing more and more money and becoming less and less valuable because their audience is declining,” says Paul Matteucci, a USVP partner who will become a board member of Menlo Park, California-based PodTech as part of the deal. “The opportunity to get rid of the middleman and deal directly with customers and prospects is very attractive.”

Problem is, anyone with a $10 microphone and a computer can be a podcaster. Radio stations are launching selections of on-air content, as are media personalities. The medium is just like the blogosphere: a largely anonymous ocean, inhabited by archipelagos of social networks, and a handful of large brands trying to build their own islands of content.

But given time, the market will get rational and we’ll know the peas from the pods, according to podcasting pioneer Chris Pirillo, best known as the founder of a series of online publications at Lockergnome.com. Larger target groups, namely people older than the millions of early adopters, will rise up and vendors—eager to take advantage of podcasting’s advertising opportunities—will rally behind shows that keep listeners coming back.

One of Mr. Pirillo’s complaints is that there’s “no Google AdSense model for podcasting,” referring to Google’s automated text ad placement service. That’s because it’s harder to pick out the relevant terms in podcasts because speech recognition is harder to do than combing ASCII text. “If somebody figures that out, they’ll probably make a billion dollars,” Mr. Pirillo says.

His gripes, in fact, are being addressed. BBN Technologies and TVEyes—companies that got their starts doing speech recognition for Fortune 1000 and military clients—have both unveiled podcast search engines.