How to Become a Millionaire: Start a Web 2.0 Company

Posted on 22. Mar, 2007 by in Business

web20.jpgChances are, if you’re reading this blog – or any blog for that matter – you have probably come across a “Web 2.0” company. The definition of a Web 2.0 company is still debated, but in general you can spot a Web 2.0 company by its features. Web 2.0 companies often employ one (or all) of the following features in its website:

  • social networking
  • wikis
  • communication tools – like chat clients or SMS tools
  • it’s constantly in “beta”
  • the name usually ends in “r” and doesn’t use any vowels

Ok, so maybe the last two points were a little tongue-in-cheek, but some of the most famous Web 2.0 companies have been Flickr, YouTube, Twitter, Digg, and Del.icio.us – but there are literally hundreds of them out there – with new ones popping up every day.

But a new study released by Ernst & Young and Dow Jones VentureOne at the Web Ventures Conference in California revealed that $844.4 million of Venture Capital (VC) funding was directed into 167 deals last year, more than twice as much money and nearly twice as many deals as occurred in 2005.

You can read the entire synopsis here, but here are some of my favorite parts:

The research shows that on a global basis, Web 2.0 is still in an early stage and there remain relatively few liquidity exits for companies in this space, although there have been particularly noteworthy ones like Google’s (NASDAQ: Goog) US$1.65 billion acquisition last year of YouTube. In addition, because of the nature of this kind of business — which does not seem to require a tremendous amount of technology infrastructure — the research shows that individual deals are relatively modest.

The US dominated the Web 2.0 market, with 126 deals and US$682.7 million invested, an 83% increase in deals from 2005 and a 136% increase in capital. On a sub-regional basis, the San Francisco Bay Area was the busiest region in the US for Web 2.0 deals and was home to more than half of all financings last year. The New York metropolitan area, Southern California and New England also saw tremendous growth in deal flow and investment over 2006.

From the investor perspective, the low capital requirements, potential high return and the faster time from development to revenue are the primary drivers of the increase in venture capital investment in the Web 2.0 segment. In addition, success stories such as YouTube have had a positive impact both on entrepreneurs and investors.

It’s interesting to note, however, that while money is being thrown around like there’s no tomorrow, the experts claim that we are not entering into the dangerous “bubble territory.” Personally, I think it’s a little premature to say that. Sure Web 2.0 is hip, cool, full of AJAXy goodness, and has a lot of strong followers (how many people visit YouTube each day?), but there are very few companies that have turned their innovative web idea of novelty app into some sort of revenue-generating product or service. There’s only so much money you can make off of Adsense and other online advertising, and these Web 2.0 companies are going to have to develop revenue-generating plans. As far as I can see, the VCs seem to be jumping on board the Web 2.0 companies a little too fast, worrying more about being late to the game that making sure that the company is actually going to provide a return from the general population. Right now, it appears the most promising revenue is coming from Web 2.0 companies aimed at servicing the B2B market.

I love the Web 2.0 revolution and the amazing web development that we’ve seen from it – but turning that revolution into a sustainable business model is going to prove to be difficult for most.


Improve the communication in your business through this web hosting and email hosting service today!

2 Responses to “How to Become a Millionaire: Start a Web 2.0 Company”

  1. Francesco DeParis

    16. May, 2007

    If you are looking for startup funding, start looking somewhere else. As unlikely as it seems from the outset, I think traditional media companies (TMC) will ultimately rule the web 2.0/New Media space. TMCs will surely become the next VCs.

Trackbacks/Pingbacks

  1. JasonGuthrie.net » Blog Archive » How to Become a Millionaire - Revised - June 13, 2007

    […] I wrote a little while ago on BeancounterBlog.com how to become a millionaire by starting a Web 2.0 company. Well, after a news article I read today at http://www.nytimes.com I think I’m going to change my recommendation on how to become a millionaire. […]

Leave a Reply