Web 2.0 at its peak? Venture investments hit $1.34 billion

U.S. investments in Web 2.0 companies reached an all-time high of US$1.34 billion in 2007, almost double the previous year's total. But one company -- Facebook -- accounted for a full 22% of that windfall, and the total number of investments seems to be leveling off after several years of meteoric growth, Dow Jones VentureSource said in research issued Tuesday.

Facebook took in $300 million, including $240 million from Microsoft, the biggest Web 2.0 venture capital deal of the year according to VentureSource. (Some industry watchers, such as the organizations behind the Moneytree Report, do not consider the Microsoft-Facebook transaction to be a true venture deal, however, because it's one vendor investing in another.)

Coming in a distant second was Ning, a Palo Alto company that lets users create their own niche social networks and which raised $44 million from venture capitalists.

Total investments by dollar rose heavily the last five years, from $79 million in 2003, to $232 million in 2004, $309 million in 2005, $716 million in 2006 and $1.34 billion in 2007.

But there are signs that the total number of companies receiving investments is leveling off.

"From 2002 to 2006, Web 2.0 deal flow doubled every year, but 2007 saw deals increase 25% to 178 from 143 deals in 2006," Dow Jones VentureSource reported. "Nearly all of this growth happened outside the San Francisco Bay Area, the longtime home of Web-related innovation and investment."

Web 2.0 companies are a good investment for venture capitalists because "they can do so much with so little," research director Jessica Canning of Dow Jones VentureSource says in a news release. "A few million dollars and they're not only up and running but attracting eyeballs and advertisers."

Investors can get in on the cheap, relatively speaking. The median investment for Web 2.0 companies in 2007 was $5 million, less than the country-wide median of $7.6 million per venture deal.

2008 could be a "make-or-break year" for many Internet companies that rely on advertising, because of a slumping economy and slowing click-through rates for online advertising, according to VentureSource.

Here's a look at the top rounds of funding for Web 2.0 companies in 2007:

1. Facebook: $240 million on Oct. 25

2. Facebook: $60 million on Dec. 3

3. Ning: $44 million on July 11

4. Metaweb Technologies: $42.5 million on Dec. 31

5. Zillow: $30 million on September 2007

6. Metacafe: $30 million on Aug. 16

7. n2N Commerce: $30 million on Jan. 31

8. Veoh Networks: $25 million on Aug. 31

9. MyStrands: $25 million on April 11

10. Reunion.com: $25 million on May 21