blogging.vc

I saw this article in VentureWire, a newsletter for VCs, yesterday:

Start-ups dabbling in the so-called Web 2.0 space raised $844.4 million in 2006, more than double the previous year, highlighting the gold rush for the next YouTube.
However, while an industry report issued today confirmed that investors are undoubtedly flooding into these start-ups across the globe, the data indicate that Web 2.0 companies overall aren’t commanding bloated valuations like some speculate. In fact, median pre-money valuations actually fell 14.6% to $5.98 million from $7 million in 2005, according to the joint study from Ernst & Young LLP and Dow Jones VentureOne. (…)

I am not surprised that a lot of money is going into Web 2.0 companies, although I have no clue how VentureOne determines a “Web 2.0 company” (maybe they check whether the logo is listed here?). Also note that almost $26B (!) of VC money were invested in 2006 across all sectors (including biotech, semiconductor etc. which typically require much more capital than Internet) - therefore Web 2.0 is still a small piece of the entire VC pie, but certainly attracts enormous attention in the media.
However, I am not sure whether valuations are going down…the article offers some contrarian views on this, and I feel like it’s a good example on how you should not trust statistics: Many of the Web 2.0 companies that get funded today are either very early stage and/or have low capital requirements, which typically translates into many angel deals, smaller, early rounds and therefore lower valuations on average. Hence, if you want to invest in the same stage company today compared to a year ago, my guess is the valuation will be higher. Yet hopefully not as high as Geni’s $100M price tag, which was certainly not exactly a bargain…