• by Laurie Sullivan  @lauriesullivan, January 5, 2009

Investments for venture capitalists got squashed in 2008, and the outlook for initial public offerings (IPOs) and mergers and acquisitions (M&As) doesn't look much better for this year. But at least one VC firm still plans to make investments in 2009.

Jeremy Liew, managing director at Lightspeed Venture Partners, said the Menlo Park, Calif. VC will look to invest in companies focused on gaming, virtual goods, Web 2.0 and advertising, and those with solutions that monetize international traffic.

While startups can expect fewer investments in the first two quarters, by the end of the year run rates should return to those seen in 2008, according to Liew. "The challenge with investing now is there's a lot of uncertainty about the recession we're in, how long it will last and how deep it will be," he said. "Consumers with more time on their hands and less disposable income will look for the most entertainment for least amount of money."

Many will find that entertainment in video games for Microsoft Xbox 360, Nintendo Wii or Sony PlayStation 3 game consoles.

The firm made 18 investments in 2008--12 full and six seed, according to Liew. In the past, Lightspeed made investments in Blue Nile, Brocade, Bling Nation, and Waveset, among others. Similar to past years, in 2009 the company will look for "high-quality management teams pursing big markets with defensible technologies or approaches."

Money will flow, but startups this year will see tighter scrutiny on "realistic expectations for revenue growth given the economy, and to ensure that companies are adequately funded if the recession is longer or deeper than we all hope." This will have implications for valuations and funding amount.

Although Liew doesn't see a missing technology that--if it emerges-- could dramatically change online advertising for social media in 2009, he does believe the industry lacks standards that will "meaningfully rock" the online advertising world. In 1997, banner ads allowed companies to make money. It wasn't until the right standard-- CPC text ads--was developed that search advertising took off. Now search is bigger than display advertising, he said.

"CPC text ads work well for search because they monetize the purchase intent that is inherent to search," Liew said, suggesting the industry remains in a similar position with social media advertising, which means looking for the correct standard. "I think we're starting to move toward a standard with engagement advertising, which are sold and priced according to how often users affiliate themselves with a brand."

For example, this means rating the movie "Australia," "friending" a Scion, Nike skins on profile pages, or giving friends a virtual gift of Vitamin water. During the next few years, Liew said, brands will adopt standards that make it easier to buy and sell social media ads.