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RockYou: Rumor of a $400 million valuation

In light of a stumbling economy, VCs say that deals around widget makers may begin to come down to Earth.

REDWOOD CITY, Calif.--Widget maker RockYou is rumored to have hired Morgan Stanley to raise a new round of financing that would give it a valuation of $400 million, according to a report from the tech gossip site Valleywag.

But venture capitalists here at the Dow Jones Web Ventures conference say that whether true or not, that kind of valuation is frothy, especially considering the faltering U.S. economy and the nascent business model for widgets. (RockYou makes Facebook's Super Wall application.) According to a couple of venture capitalists familiar with RockYou, the widget maker was looking for a buyer in recent months, so that option could still be on the table along with raising money.

No doubt, companies that make Web applications are popular investments. RockYou has previously raised $1.5 million from Sequoia Capital and Lightspeed Venture Partners. Rival Slide recently raised $50 million for a company valuation of $500 million, for example. But investments in widget makers may start to come down to Earth, those VCs say.

"I don't think these deals are taking into account the market," according to one VC.