blogging.vc

In my presentation earlier this week I showed a graph for overall (not only Internet, but other sectors included) venture investment, which has remained relatively steady over the last few quarters. That’s definitely somewhat reassuring when looking at talk of another VC bubble, since overall investment numbers had increased strongly during the last boom.

I also pointed out that Internet Consumer companies have gained popularity for venture investors, as we see valuations and round sizes increasing and multiple competitors getting funded in a given segment. Unfortunately, I hadn’t been able to find good numbers on the share of Web 2.0 investment of the overall VC investment pie, and right now I just stumbled on that data:

During the first half of the year, investors poured $262.3 million into 49 “Web 2.0″ start-ups in the U.S., according to a report from industry tracker VentureOne, a unit of Dow Jones & Co. That’s a big jump from the $97.2 million invested across 24 deals in the first half of 2005. At the current rate, VCs are on track to more than double the $199.2 million invested in the space during all of 2005. […] Consumer-focused start-ups dominated investments in the Web 2.0 space during the first half of the year, soaking up $165.3 million across 27 deals. […]
Despite the activity, Web 2.0 deals represent only a sliver of the $13 billion invested in U.S. start-ups this year. The median deal size for Web 2.0 companies during the first half of the year is $4.4 million, 41% lower than the $7.5 median for venture financings as a whole.[…]
Source: VentureOne

Now that’s definitely a sharp increase, although I am a bit surprised that supposedly only 27 of the 49 so-called Web 2.0 companies are consumer-focused. I haven’t seen that many Web 2.0 companies that are not consumer focused, so I’d take these numbers with a big grain of salt. It’s also natural for the average financing amount for Internet companies to be lower than that of other sectors, since Internet companies tend to require less capital to get to product than for example Biotech or Semiconductor.

We definitely have a “hotspot” in the venture world around Consumer Internet these days, but we are not talking from founding to IPO in a few months and without making a dollar, then buring everyone’s retirement savings - hopefully this will never come back. Let’s see where we are headed - I am of the firm opinion that there is a lot of real business opportunities on the net and this will continue to be the case, but if sector gets too much attention it’s not good for investors (prices too high) as well as companies (many funded competitors make it hard to get market leadership). It is reassuring that although the sector gets a lot of PR hype, it is really only one of many areas of venture investing. However, it’ll be key for us here at BV how the Internet “sliver” develops since that’s where a lot of our focus is.