Posted on March 19, 2008
Filed Under VC Insanity |
Common sense is back in vogue. From the about the Facebook hype to the Old Media isn’t dying to the growing consumer and advertiser dissatsifaction with user-generated content, it’s clear that common sense is starting to make a comeback, perhaps fueled in part by the best antidote to a kool aid-induced high - a stark economic reality.
Yesterday produced a sign that even those who typically lack common sense (venture capitalists) may be starting to recover from their stupors: Dow Jones VentureSource released 2007’s Web 2.0 funding figures which suggest that the Web 2.0 “investment boom may be peaking.”
$1.34 billion was invested across 178 Web 2.0 deals in 2007, marking an 88% increase over 2006, but Facebook’s $300 million heist accounted for 22% of the funding. When Facebook is excluded, “the numbers don’t look as bullish” as pointed out by Martin LaMonica at News.com.
According to Jessica Canning, director of global research for Dow Jones VentureSource:
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.
Who woulda thunk that a viable business model that generates revenue is required? And who woulda thunk that the biggest financial crisis in decades would become a problem for Internet startups?
Thinking VCs are worried VCs. In his article “Fear and doubt spread in Silicon Valley,” The San Francisco Chronicle’s Tom Abate points out that the IPOs and acquisitions that investors rely on to “achieve liquidity have been drying up for months.” That’s cause for concern for VCs who need exits to make money from portfolio companies that, well, don’t make money.
Perhaps most interestingly, Dow Jones VentureSource found that if you’re a Web 2.0 startup, Silicon Valley may not be the best place to be. The number of deals in the Bay Area decreased slightly and two companies (Facebook and Ning) accounted for $344 million of the region’s $721 million in Web 2.0 funding. Meanwhile, startups in bizarre places such as New York, Boston, Southern California and Seattle saw more rapid growth in total deals closed and average deal size.
In short, it looks like the Silicon Valley clique is going to have to rework its pitch to gullible entrepreneurs: a shitty lifestyle coupled with a Sand Hill Road ATM machine whose daily withdrawal limit is being lowered is a tough sell to anybody with an IQ above 90.
Clearly, however, those with IQs over 110 aren’t thinking about starting or funding a Web 2.0 company these days. After all, who needs another generic social network, Digg wannabe, YouTube clone or widget maker? It’s time to move on to the next big thing: saving the world with “green” technology, an area where VCs invested just over $3 billion last year.
Of course, those with IQs over 130 have good reason to be a little bit skeptical about that bubble too. So where have they invested? Commodities like oil and gold. After all, there’s big money to be made when you play ball in a real world dominated by .
Update: a major Web 2.0 blog has finally covered this news. Somehow it seems like this story has received much less attention from the A-list Web 2.0 blogs than it deserves. Wonder why? You do the math.
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