Bubble 2.0? Only $455 million in Web 2.0 VC Deals Thru 3rd Quarter This Year!

As VC firms keep pouring money into Web 2.0 startups in hopes of funding the next MySpace, BusinessWeek Online questions if the frenzy getting out of hand—again?

VCs have put a total of $455.5 million into 79 of the so called Web 2.0 companies (Internet companies in businesses such as social networking and online video) during the first 9 months of the year, more than twice the amount that was invested in the first three quarters of 2005, according to a study released on Nov. 7 by market researcher VentureOne. 

By comparison, in the third quarter of 2006 alone, venture capitalists invested $6.2 billion in 797 deals in U.S., according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data by Thomson Financial

More than $1.63 billion has been invested so far this year into 198 consumer technology companies headquartered in the U.S. -- nearly matching the total amount invested in all of 2005, according to VentureOne.

Sequoia Capital, a prominent Silicon Valley VC firm put $11.5 million into YouTube, and ended up reaping about $500 million after the $1.65 billion Google acquisition. Sequoia has been one of the most active investors in Web 2.0 companies, having put money into 14 such deals between 2001 and this year. Only Draper Fisher Jurvetson and Benchmark Capital have had more, with 15 each, according to VentureOne.

"For every one that works, another 100 will fail," predicts a VC investor.

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