Betting on Web 2.0
The social network Facebook raised last year as much money—$300 million—from venture capitalists in two deals as did the next 10 deals combined. That's 22 percent of all capital raised in 2007 for Web 2.0 ventures, according to Dow Jones VentureSource.
Though venture capitalists pumped a record $1.34 billion into 178 Web 2.0 deals in the United States last year, up nearly 88 percent from 2006, the rate of such deals is slowing. From 2002 to 2006, Web 2.0 deal flow doubled each year, but that percentage increased by only 25 percent to 178 from 143 deals in 2006.
Despite these larger deals, Web 2.0 companies remained a relatively cheap investment for venture capitalists. According to Dow Jones VentureSource, the median deal size for these companies reached a record $5 million in 2007, up from $4.1 million in 2006. Still, that's trails the overall $7.6 million industry median for a venture capital deal in the U.S. last year.
"The beauty of Web 2.0 companies is that they can do so much with so little," Jessica Canning, Dow Jones VentureSource director of global research said in a statement. "But 2008 may be a make-or-break year for many Internet companies with business models relying on advertising. The slumping economy, coupled with a slowdown in click-through rates for online advertising, is going to pose a real challenge to their ability to generate revenues and position themselves for an exit."
Even so, Dow Jones VentureSource says, investors place a higher value on Web 2.0 companies. The data reveal that in 2007, the median pre-money valuation for a Web 2.0 company reached a record high of $10 million, up from $6 million in 2006. But that's far below the overall $16 million median pre-money valuation seen for venture-backed companies in 2007.
After Facebook, the top providers raising another $300 million included:
• MyStrands, $49.25 million, behavior-based discovery technology services (through two deals).
• Ning, $44 million, platform for online social networks.
• Metaweb Technologies, $42.5 million, Web infrastructure technology that offers an open, shared database of world information.
•Zillow, $30 milllion, consumer online realty information mashup.
• Metacafe, $30 million, online video entertainment site.
• n2N Commerce, $30 million, cross-channel, on-demand e-commerce software for multi-channel retailers.
• Veoh Networks, $25 million, online TV broadcast system..
• Reunion.com, $25 million, social networking services.
• Fabrik, $24.9 million, developer of data storage solutions for homes and small businesses.
