Digital Media

Y Combinator on Monday announced that it has raised a $2 million venture fund with the aid of Sequoia Capital and angel investors.

In making the announcement, Y Combinator noted that it plans to increase the number of start-ups it funds to 60 a year, up from 40.

For Web services and software start-ups, that may bode well. Y Combinator focuses its investments on those two sectors and funds companies that are in their early stages.

As it notes, one unusual twist to this venture firm is its reliance on the strength of entrepreneurs' ideas, rather than on their business plans to support the ideas.

Y Combinator said it is ramping up its investments at a time when others are scaling back:

It's a big step for us to raise outside money. Till now, we'd only used our own. But we didn't want to let the bad economy make us conservative. Instead of hunkering down to wait out the recession, we want to expand to take advantage of it.

Y Combinator also noted that the quality of surviving start-ups is of a higher caliber during these economically trying times.

With the added funding in hand, Y Combinator extended its deadline for start-ups to apply for funding to March 25.

(Credit: Dan Farber/CNET Networks)

Marc Andreessen is adding venture capitalist to the growing list of titles he wears in the tech world, which includes serial entrepreneur, angel investor, and browser technology pioneer, according to a report in peHUB.

Andreessen is launching the venture fund with Ben Horowitz, a former Netscape veteran and co-founder of Opsware, two companies that Andreessen co-founded, the report states.

The venture fund is the latest evolution to the angel investment relationship Andreessen and Horowitz share. Last year, for example, the pair were angel investors in mobile video service Qik and virtual world company Metaplace.

And Thursday night, Andreessen made an appearance on the Charlie Rose show, in which he discussed his role as an entrepreneur, investor, and now a venture capitalist.

Andreessen is launching a venture capital fund at a time when VC investments into start-ups has taken a hit, falling 71 percent in the fourth quarter to $3.4 billion, over the previous year.

Nonetheless, Andreessen does have a track record for creating companies that have gone public or been acquired for big bucks, from the former browser pioneer Netscape to the .

Picture this: more venture funding for an advertising-related start-up operating in hard economic times.

Apparently, Tremor Media has gotten just that--to the tune of an $18 million third round of funding, according to a Silicon Alley Insider report.

Meritech Capital Partners led the round in the Web video ad network company, with existing investors Canaan Partners, Masthead Venture Partners, and European Founders Fund participating, according to the report.

Tremor Media, which provides advertisers with in-banner and in-stream video advertising on various publisher sites, has raised a total of $37 million in venture funding, SIA notes.

Tremor's funding comes as other Web video advertising players are looking to teach retool their delivery methods. Yahoo, for example, is gearing up to offer images and video as part of its paid search advertising results.

Venture capital investments in IT companies plunged 40 percent to $2.18 billion in the fourth quarter, their worst level in a decade, according to figures released late Friday by VentureSource.

The data further confirms concerns entrepreneurs have already been raising about a funding pullback by VCs over the second half of the year and dire warnings by the VCs themselves, such as Sequoia Capital's infamous R.I.P. PowerPoint presentation.

IT Venture capital dropped to $11.64 billion for all of 2008, down 14.5 percent from the previous year, according to VentureSource. During the past year, IT investments posted growth in the first quarter and a slight decline in the second, but significantly dropped off in the second part of the year, VentureSource said.

Software companies, which continue to capture the largest slice of IT venture investments, dropped 16.4 percent during the year, to $4.73 billion in funding.

Venture investments in communications and networking start-ups fell 32.3 percent to $1.68 billion in 2008, while investments in semiconductors dropped 23.5 percent to $1.25 billion year over year. Electronics and computer companies, meanwhile, saw venture investments fall 15.5 percent over the previous year, reaching $1.31 billion.

Despite the doom and gloom of 2008, the Web-savvy information services sector posted a 16.9 percent year-over-year gain in venture investments last year--to the tune of $2.67 billion. While that sector managed to shine through most of the year, venture investments did fall off 30.5 percent to hit $513.2 million in the fourth quarter.

Vacation home rental site HomeAway announced Tuesday it received a substantial $250 million fourth round of funding.

HomeAway, which has raised $405 million to date in private equity, received its latest round from lead investor Technology Crossover Ventures, along with existing investors Institutional Venture Partners and Redpoint Ventures.

HomeAway's $250 million third round represents the largest U.S. venture stake for an Internet company over the past eight years, according to Venture Source.

Companies that tend to raise sizable venture rounds in excess of $100 million tend to be in capital intensive industries, such as networking company and telecommunications company , compared with Internet companies that require less capital to operate--and hence have comparatively smaller funding rounds.

HomeAway plans to use the proceeds from its latest round to make additional strategic investments, as well as eliminate all its debt and bolster its marketing efforts.

Over its brief three-year history, the company has grown through acquisitions of other vacation rental sites such as CyberRentals.com in the U.S., Holiday-Rentals.co.uk in the United Kingdom, and Germany's FeWo-direkt.de.

"We are very pleased to secure this major round of funding, particularly during the current financial crisis that is increasingly restricting access to capital for many companies,"" Brian Sharples, HomeAway's CEO, said in a statement.

Venture capitalists' confidence level took another hit in the third quarter, marking the sixth-consecutive quarterly decline for the Silicon Valley Venture Capitalist Confidence Index, which was released Wednesday.

The index fell to 2.89 points, nearing the midway point of a 5-point scale, with 5 ranking the highest confidence level.

According to Mark Cannice, associate professor of entrepreneurship and the founder of the University of San Francisco's Entrepreneurship program and author of the index, the faltering confidence level stems from several factors:

The unprecedented deterioration of macro economic conditions and the resulting impact on the venture capital business model were cited most often by this study's responding venture capitalists as the factors that negatively impacted their confidence in the near term environment for growth ventures.

While the lack of IPO exits has adversely impacted the (liquidity events) of the VC business model this year, the precipitous decline in the value of stock portfolios of some limited partners (e.g., pension fund asset managers) will likely limit the amount of capital committed to venture funds in the near term.

Since the first quarter of 2007, when the index stood at 4.38 points, the level of VCs' confidence has edged down every quarter. And in the last four quarters, the index has hit new lows since it was created in 2004. The index was derived from a September survey of 33 San Francisco Bay Area venture capitalists.