Maybe it's the proverbial exception that doesn't prove the rule. But the publication of new statistics pointing to a slowdown in venture funding for Web 2.0 companies comes at a particularly antsy time in Silicon Valley.
Earlier Tuesday, Dow Jones VentureSource issued a good news-bad news status report on Web 2.0 companies. While funding in Silicon Valley last year grew 25 percent, the numbers don't look so hot when you consider that Web 2.0 deal flow doubled every year between 2002 and 2006. What's more, you need to subtract the $300 million that Facebook raised from Microsoft and others to get a more accurate picture.
So what gives?
In part, says Gina Chan, the research manager at Dow Jones VentureSource, chalk it up to current events. There's obviously a lot more caution among investors when it comes to writing checks. And the drumbeat of financial distress stories - Bear Stearns one day, a Carlyle the next - has spooked a lot of folks.
"The VCs rely on investment banks to help raise liquidity and help them through the liquidity event," Chan said. "This is going to affect what's been happening. Venture capitalists still have money to put in these companies. Whether they'll continue to put their money in remains to be seen. The majority (of Web 2.0 companies) remain dependent on online advertising, and with a slump in the economy, that could take a hard hit."
Pregnant words, because there is also trouble on that front. Another research company, eMarketer, on Tuesday lowered itsin the U.S. to $25.8 billion from the previous $27.5 billion it had forecast last fall. Something else to consider. In the competition for dollars, Web 2.0 isn't the hot sector any longer. That , which pulled in $3 billion in venture funding last year, up 43 percent from 2006. What with the price of a barrel of crude well about $100, that investment trend will only continue.
What will all this mean for the future of Web 2.0? Truth be told, I hate that term, but we're stuck with it until Tim O'Reilly or some other bright bulb comes up with a better moniker. Back to the funding question, this isn't a repeat of the bubble bust (or at least, not yet). Entrepreneurs will still do their thing, though one questions how many more widgets or social networks the world needs. It's tough to deny the impact of bigger macro-economic forces. While Web 2.0 has taken root, I wonder whether we've seen its high water mark.
But enough of me ruminating. What do you think? Take a turn with that question in the discussion forum below.