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“Venture capitalists continued to favor the innovative activity of Web 2.0* companies, deploying substantial sums in the segment throughout 2006“.

“The global research showed that US$844.4 million was directed into 167 deals last year, more than twice as much money and nearly twice as many deals as occurred in 2005″.

“Investment in information services companies, including Web 2.0 startups, hit $979 million in the second quarter of 2007. The figure is 52% up on the same period last year and the highest figure recorded since the 2001″.

Read the press release from Dow Jones Financial Information Services and Duncan Riley’s blog.

Many articles discussing Web 2.0 highlight the growth of online services involving social networking and user generated content as well as business models fully or partially based on advertising revenues and even donations. The same underlying concepts and technologies happen to be applicable to online collaboration tools and services addressing specific enterprise verticals such as real state, travel, professional networking and online content of all kinds. 

Between 2002-06, 40% of all Web 2.0 deals took place in the Bay Area, which is now accounting for just 20% based on data from the first half of 2007. VC investment in Web 2.0 companies is experiencing a fast growth in Europe and Israel. Last year, the median size of a financing round was $6M in Europe and $5M in the U.S. and China.

It should be noted that some Web 2.0 enterprises involve modest investment levels as they do not initially require large capital investments in technology infrastructure, making it somehow easier to jumpstart a business, which also means exposure to competition from fast followers. In any case, some of this year’s investments involve late-stage companies, which is a positive sign. Nonetheless:

“We may be seeing a plateau in the number of Web 2.0 companies investors are willing to back in the US - at least until a clear liquidity market arises”.

Dow Jones VentureOne’s director of global research Jessica Canning as quoted by Altassets.

When I was looking for information for this post, I came across Matt Marshall’s blog talking about a previous study conducted by Pricewaterhouse Coopers and the National Venture Capital Association. They had indicated that $786M were invested in Web 2.0 enterprises in the last quarter of 2006, growing to $870M in the first quarter of this year. However, PwC acknowledged that they might have to make adjustments to their definition of a Web 2.0 business as their list of companies included some infrastructure vendors, instead of just focusing on direct-to-user online services. The following link will take you to Matt’s blog on the VentureOne and Ernst & Young report which displays additional charts and statistics.

As far as Mobile 2.0, everyone appears to agree on this business’ potential (e.g. on demand and personalized location based services delivered to your mobile device wherever you are) while experiencing some frustration in a market held back by limitations imposed by poor mobile interfaces and the changing dynamics of an emerging value chain:

“As for investment opportunities, Rory O’Driscoll, director at Scale Venture Partners, painted a sobering picture of the situation so far.  Companies that have spent $200 million to build up their business are selling out for $500 million, which doesn’t represent a great return for VCs.  On the other end of the spectrum, mobile 2.0 firms are developing extremely capital efficient business models, possibly offerings VCs much better returns”.

Read Joseph Weisenthal’s comments on Moconews.

José de Francisco  Chicago, 27 September 07  

“The Top 10″ at the time of uploading this post: [1] Design Concepts: Future Car; [2] Intellectual Property And Innovation In Virtual Worlds; [3] Virtual Ventures = Prediction Markets + Crowdsourcing; [4] Ideagora, a Marketplace for Minds; [5] Innovative Mobile Phones: Objects Of Desire; [6] Project Ergofuturo: ErgoTrans (1991 Product Concept); [7] Mobile Blogging (6): Use Your Phone As A 3G Modem; [8] “Visual Futurist: The Art & Life Of Syd Mead”; [9] Crowdsourcing At IdeaConnection.com; [10] InnovateUS And Prediction Markets