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Web 2.0 Investments Reached $844 Million: SurveyMarch 21st, 2007 at 6:58 pmBy Leo Blanco
Worldwide investments in “Web 2.0” start ups has doubled from 406.2 million in 2005 to $844.4 million in 2006, according to the annual survey conducted by VentureOne, a unit of Dow Jones & Co. and Ernst & Young. “Web 2.0” is coined phrase by O’Reilly Media referring to the second generation of Internet services stressing the power of collaboration and sharing of information among online users. Popular technologies associated with this are weblogs, social networking, podcasts, wiki as in wikipedia, and RSS feeds.
Recognized as the hottest segment in the venture capital market, Web 2.0 investments registered a 108 percent growth last year. The number of ventured-financed companies has risen from 95 to 167 in 2006. Despite its tremendous upsurge, Web 2.0 is hunted by numerous criticisms and complaints that there are few profitable existing business models in the market today. Likewise, venture capitalists in Silicon Valley agree that finding feasible, lucrative trends and business models remains elusive given the fast-changing market dynamics.
Redpoint Ventures partner Christopher Moore believes the major challenge lies in finding the ideal business model that will propel Web 2.0. This issue was raised during the two-day conference sponsored by Dow Jones called WebVenture, a venue where Web 2.0 startup companies negotiates with venture capitalist to solicit financial support. Responding to growing concerns that Web 2.0 will likely be a repeat of the dot-com boom-to-bust cycle, VentureOne global research director Stephen Harmston responded, "The data does not indicate that we are entering bubble territory. What we are seeing is robust activity aimed at a still-emerging business area."
In terms of geography, the survey revealed that U.S. accounts for four-fifths of investments, totaling $682.7 million and divided among 126 firms. Twenty Web 2.0 investments in Europe share $100.5 million and another $61.5 million for 21 companies in China. Despite growing interests in this investment, the actual spending portrays a different scenario. According to VentureOne, Web 2.0 startup companies have a median valuation of $6 million before financing both in US and abroad, representing only one-third of $18.5 million average overall investment recorded last year in US.
Given this trend, Moore predicts Web 2.0 companies will come in $10- to $20- to $30- to $50-million acquisitions. Omidyar Network, Benchmark Capital, Sequoia Capital, and Draper Fisher Jurvetson are the biggest investors in Web 2.0 startups.
Leo Blanco is a contributing writer for TMCnet. To see more of his articles, please visit his columnist page.
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