Dow Jones VentureSource: Facebook Accounts for 22% of All Web 2.0 Funding
in U.S.; Silicon Valley Losing Appeal as Investors Look Elsewhere
SAN FRANCISCO, March 18 /PRNewswire-FirstCall/ -- The Web 2.0
investment boom may be peaking. That is according to new data announced
today by Dow Jones VentureSource at the Web Ventures conference in Redwood
City, Calif., that shows venture capitalists pumped a record $1.34 billion
into 178 Web 2.0 deals in the U.S. in 2007, up nearly 88% over amounts
invested in 2006. However, one company-social network Facebook, which
raised at least $300 million -- accounted for 22% of all funding that went
into this sector in 2007.
The data also reveals slowing deal growth. From 2002 to 2006, Web 2.0
deal flow doubled every year, but 2007 only saw deals increase 25% to 178
from 143 deals in 2006. Nearly all of this growth happened outside the San
Francisco Bay area, the longtime home of Web-related innovation and
investment.
"On the surface, the numbers look fine for the Bay Area-$720 million
invested in 72 deals -- but take Facebook's $300 million out of the
statistics and you see a very different picture," said Jessica Canning,
Director of Global Research for Dow Jones VentureSource. "Web 2.0 deals in
the Bay Area actually dropped from 74 deals in 2006 to 69 last year and
investments were down 3% from the $431 million invested in 2006. It's clear
that the real growth in the Web 2.0 sector is happening outside of the Bay
Area."
U.S. Web 2.0 Investment by Region, 2006-2007
2006 2007
Deals Investment Deals Investment
(MM) (MM)
Bay Area 74 $431 72* $721*
New England 15 $79 20 $158
Southern California 10 $41 14 $115
New York Metro 9 $18 25 $58
Pacific Northwest 6 $35 13 $140
Southeast 6 $24 7 $47
Mountain (CO, AZ, UT) 4 $7 7 $31
Texas 3 $10 2 $4
North Carolina 2 $3 2 $10
*Includes Facebook
Facebook, based in Palo Alto, Calif., raised $240 million from
Microsoft in a highly publicized corporate round as well as at least $60
million more from individual investors last year. The next-largest Web 2.0
deal was the $44 million first round for Ning, also of Palo Alto, which
lets users create their own niche social networks.
Deals Sizes Stay Relatively Small But Valuations Jump
Despite these larger deals, Web 2.0 companies still remained a
relatively inexpensive investment for venture capitalists. According to the
data, the median deal size for these companies reached a record $5 million
in 2007, up from $4.1 million in 2006. This is still far behind the overall
$7.6 million industry median for a venture capital deal in the U.S. in
2007.
"The beauty of Web 2.0 companies is that they can do so much with so
little. A few million dollars and they're not only up and running but
attracting eyeballs and advertisers," added Ms. Canning. "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, investors are placing a higher value on Web 2.0 companies. The
data shows that in 2007, the median pre-money valuation for a Web 2.0
company reached a new high of $10 million, up from $6 million in 2006.
Still, that's well below the overall $16 million median pre-money valuation
seen for venture-backed companies in 2007.
For more information about Dow Jones VentureSource or to set up a free
demonstration, call 877-522-8663 or e-mail privatemarketssales@dowjones.com
.
Note to editors: VentureSource has adopted a strict methodology for
categorizing Web 2.0 companies, reviewing them on a case-by-case basis to
determine if they meet specific criteria. Companies included in this study
have a business model that revolves around a dynamic interface facilitating
participation through such methods as user-created content, networking, and
collaboration. Applications 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.
The investment figures included in this release are based on aggregate
findings of VentureSource's proprietary research. This data was collected
by surveying professional venture capital firms, through in-depth
interviews with company CEOs and CFOs, and from secondary sources. These
venture capital statistics are for equity investments into early-stage,
innovative companies and do not include companies receiving funding solely
from corporate, individual, and/or government investors. No statement
herein is to be construed as a recommendation to buy or sell securities or
to provide investment advice.
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