Wednesday, September 27, 2006

VCs start to like web 2.0

A Dow Jones research subsidiary has just published a report on Web 2.0 venture capital funding, and it contains a few interesting finds. Out of $13 billion in VC investments in the first half of 2006, only $262 million went to Web 2.0 companies and projects, yet it represents a significant growth for that particular niche.

First of all we’d like to comment a bit on what is believed to be Web 2.0-based venture. Many people do think and believe that any of the following should be considered Web 2.0-like “a dynamic interface facilitating participation through such methods as user-created content, networking, and collaboration. Applications used include podcasting, tagging, blogs, social networking, mashups, and wikis. Technologies used in these applications include: AJAX, RSS, SOA, CSS, XHTML, Atom, and rich Internet applications."

In earlier publications on this blog, we pointed out that no technological aspect solely names a project Web 2.0, but in our view the conceptual vision also brings web 2.0 nuances and in some instances is even more important than simply putting AJAX functionality on your home page.

This year is on pace to double or maybe even triple those amounts, and the average deal size has grown from $3.9 million to $4.4 million and the trend shows that since 2002 the VC deals with web 2.0 companies continues to grow year after year.

What is interesting here to be noted is the fact that more and more web 2.0 ventures are getting bought out from larger companies rather than going public - known to be the normal approach by the Venture Capitalists.

What we know so far is that no prominent and popular web 2.0-like company is currently publicly traded on NASDAQ and perhaps any of the next years might change that fact.

Unlike in the nineties when any even-little-promising web based company was going public it seems that today’s successful business strategy is to do acquisitions, mergers and buy outs rather than going for an IPO.

What makes us think this way is that we have witnessed many super popular web sites from the web 2.0-era getting acquired over the past 2 years instead of pursuing an IPO on their own. Even now we are up to several highly expected acquisitions such as YouTube’s and Facebook’s.