Silicon Valley remains the hotbed of Web 2.0 activity, but the hipness of start-ups with goofy names is starting to cool in the face of economic reality.
Dow Jones VentureSource on Tuesday released numbers of venture capital activity in Web 2.0 companies and declared that the "investment boom may be peaking."
Venture capitalists put $1.34 billion into 178 deals in 2007, an 88 percent jump over 2006. But once you strip out the $300 million that Facebook raised from Microsoft and others, the numbers don't look as bullish.
The pace of deal flow, or the number of fundings, has slowed, particularly in the San Francisco Bay Area. Deal flow in 2007 went up 25 percent to 178 deals, but nearly all of those occurred outside the Bay Area, where the number of deals slipped downward.
"Web 2.0 deals in the Bay Area actually dropped from 74 deals in 2006 to 69 last year and investments were down 3 percent 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," Jessica Canning, director of global research at Dow Jones VentureSource, said in a statement.
Breakdown of VC deals in Web 2.0 in 2007 and 2006
(Credit: Dow Jones VentureSource)The second largest deal in 2007 was a $44 million first round for Ning, a service co-founded by Marc Andreessen that lets people build their own social-networking sites.
The New England region saw 20 deals valued at $158 million in 2007. Southern California had 14 fundings worth $115 million, while the New York Metro area had 25 deals worth $58 million. The Seattle area had 13 worth $140 million in 2007.
The median size deal has gone up to $5 million, but that is still a relatively cheap investment for venture capitalists. Start-ups can get off the ground efficiently by using open-source software and inexpensive hosting services.
But even with the relatively low capital risk, particularly compared with clean tech, Canning said that many Internet companies still have unproven business models that rely on future advertising revenue.
"2008 may be a make-or-break year for many Internet companies with business models relying on advertising," she said. "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."
Tioga Energy on Wednesday said that it has received $10 million in initial funding to launch its solar power services business.
The company is one of a handful that is trying to bring project financing to organizations that want to avoid the large capital outlay associated with solar electricity.
Tioga Energy will work with partners to install panels on commercial and government buildings. Once installed, it will own the panels and handle the ongoing maintenance.
The idea behind these contracts, called purchased power agreements (PPAs), is that the customer pays for the energy generated by solar panels at a prearranged price, while the service provider owns and operates the panels.
Investors include NGEN Partners, Draper Fisher Jurvetson and Rockport Capital Fund.
Many industry experts contend that this financing model is critical to the adoption of solar energy because of the large up-front costs.
Other companies that offer solar electricity services include SunEdison and MMA Renewable Ventures.
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