Investors still have an eye for Web 2.0 developments, but interest is growing more for overseas companies than those in the United States.
Investors put $464 million into 101 deals worldwide in the first half of 2007, a 7 percent increase over investments made in the first half of 2006, according to data released by Dow Jones VentureOne and Ernst & Young LLP.
Overall, the number of global Web 2.0 deals climbed 14 percent in the first half of the year. The increase was attributed to a rising interest in Web 2.0 in Europe and Israel, as U.S. investments were virtually unchanged from the first half of 2006 with 67 deals and $357 million invested.
“Certainly, the blockbuster growth of Web 2.0 technologies has impacted every sector in the U.S. from media to retail to hospitality and consumer products,” said Jessica Canning, director of Global Research for Dow Jones VentureOne. “But we may be seeing a plateau in the number of Web 2.0 companies investors are willing to back in the U.S. — at least until a clear liquidity market arises. In the meantime, more investors are turning to Web 2.0 plays in emerging markets in Europe.”
The data showed that $52 million was put to work in 20 European Web 2.0 deals in the first half of 2007, roughly double the deals and investments seen in the same period last year. What’s more, Israeli Web 2.0 companies had their best showing to date, raising $15 million in five deals in the first half, up from two deals and $5 million invested in all of 2006.
Within Europe, the United Kingdom posted the most activity in the first half with a record seven deals accounting for $22 million invested. France is also on pace to have a banner year, as it saw five deals raise $16 million in the first half of the year. The data also showed that Belgium, Ireland and the Netherlands each saw their first Web 2.0 deal completed in the first six months of 2007.
“From 2002 to 2006, literally 40 percent of all Web 2.0 deals were located in the (San Francisco) Bay Area. But in the first six months of this year, that figure dropped to just 20 percent and seems to be related to the presence of fresh investor blood in the space,” added Canning. “It seems many longtime stalwart Web 2.0 investors have filled their portfolios with Bay Area companies and are stepping aside, giving new investors opportunity to scour for promising deals in less-saturated regions.”
The U.S. region that saw the biggest pick-up at the expense of the Bay Area in the first half of 2007, according to the data, was New England, which saw $102 million invested in 10 Web 2.0 deals. That is 65 percent more than what was invested in 12 New England Web 2.0 deals in all of 2006 and slightly more than what was invested in Bay Area companies in the first half of this year.
Another region to see a surge in investor interest was Southern California, as VCs put $59 million to work in eight Web 2.0 deals in this region, well on pace to best 2006’s full-year total of $64 million invested in 13 deals.
The data also revealed that several of last year’s biggest Web 2.0 investors participated in far fewer deals during the first half of 2007. For example, in 2006, Benchmark Capital was the sector’s top global investor, having participated in 16 Web 2.0 deals, many based near its home in Menlo Park, Calif.; through the first half of 2007, it backed just three deals with only one in the Bay Area. It was a similar story with Omidyar Network, Kleiner Perkins Caufield & Byers and Storm Ventures.
Most of the U.S. deals completed in the first half of 2007 focused on the so-called “Enterprise 2.0” area-companies that use Web 2.0 technologies such as mashups and online collaboration to improve traditional business functions — while deals in China, Europe and Israel had a distinct consumer bent to them. Among the largest Web 2.0 deals of the first half was the $30 million first round for enterprise software provider n2N Commerce.