• Red Herring, Wednesday, March 19, 2008 11 AM

Web 2.0 investment reached record levels last year, as venture capital firms poured $1.34 billion into 178 Web 2.0 deals in the U.S., according to a new report from Dow Jones VentureSource. Guess who got the most money? That's right, thanks to Microsoft's $240 million investment, Facebook topped the list with $300 million in venture funding in 2007, or 22 percent of the sector's total haul for the year.

Even though the amount invested increased 88 percent (again, thanks in large part to the Microsoft-Facebook deal), the VentureSource report shows that the rate of deal growth actually slowed. From 2002 to 2006, the number of Web 2.0 deals doubled every year, but last year the rate slowed to 25 percent. In all, there were 178 Web 2.0-related deals in 2007, up from 143 in 2006.

Jessica Canning, director of global research for Dow Jones VentureSource, said the results indicate that the sector may be maturing. Meanwhile, Canning warned that, "2008 could be a make-or-break year for many Internet companies with business models relying on advertising." She said a tanking economy coupled with a slowdown in click-through rates for online advertising could pose a challenge, makes it more difficult for companies to find an exit through an IPO or acquisition by a larger entity, which is often the goal of venture capital firms in the first place.

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