Tuesday, March 18, 2008

Study: New England Web 2.0 space soaring

By Christopher Calnan

Investment in New England Web 2.0 deals nearly doubled last year compared with 2006, while national investment levels flattened and Silicon Valley dollars declined, according to new data released today by Dow Jones VentureSource.

Venture capitalists last year invested $158 million in 20 local businesses that are based on the latest Internet technologies, compared with $79 million and 15 businesses in 2006, the data shows.

Dow Jones officials said the Web 2.0 investment boom nationally may be peaking.

Total investments reached $1.34 billion with 178 Web 2.0 deals during 2007, up nearly 88 percent compared with 2006. However, $300 million raised by social networking company Facebook skewed the total by generating 22 percent of all the sector's funding during 2007, officials said.

From 2002 to 2006, the number of national Web 2.0 deals doubled every year compared with a 25 percent increase last year and the previously Internet-active Northern California area posted a decrease in the volume of Web 2.0 investments, the data shows. The Bay Area saw 74 deals in 2006, compared to 69 last year and a 3 percent decline in investments from the $431 million invested in 2006, according Jessica Canning, Dow Jones VentureSource's director of global research. Canning said, in a release, "It's clear that the real growth in the Web 2.0 sector is happening outside of the Bay Area."

Web 2.0 is an umbrella term used to describe the second wave of the World Wide Web. It is not technology specific, but typically refers to growing trends in user-generated content and thin-client computing.

In New England, the two companies that attracted the largest Web 2.0 financings during 2007 also experienced financial problems.

The $30 million funding of n2N Commerce Inc., a Cambridge-based retailing website developer that closed its doors in January after losing its sole customer, was the largest local Web 2.0 of the year.

Eons Inc., the Boston-based social networking website operator that attracted $22 million in financing last year, laid off 24 workers, about one third of its staff, in September 2007 to refocus its business strategy.

Other New England Web 2.0 investments last year included $11 million for uLocate Communications Inc., a Framingham-based company, and a $10.5 million investment in EveryZing Inc., a Cambridge-based online search company founded as PodZinger Corp.

During 2005, venture capitalists invested $3.5 million in a lone New England Web 2.0 deal, according to Dow Jones.