Web 2.0 fever?!

On HYSTA 2006, John Doerr made a remark that "do less insignificant web 2.0 companies and do more green tech". When asked "how do we, as engineers, to catch the wave of green tech", he answered, "pick up a chemistry textbook and learn it, it is not very complicate to pick up that knowledge." This is the second time I heard from him on pitching green tech. Last time, he was interviewed in an web technology conference and he spent most of his time talking green tech. The interviewer had to push him by saying,"see, most of audience here paid several thousands dollar ticket to hear your opions on the trend of web technology, could you talk more about the internet?".
Well, I understand John Doerr. His boss, Tom Perkins, has explained how VCs work. They pick up an industry, build the buzz words, invest some companies, sell them. When the industry becomes crowded, they move to the next target. Especially for the VC firm as big as KPCB, they have the clout to build the buzz. As stock traders spy on Warren Buffett, a lot of VCs spy on KPCB. When KPCB started the firm as a pioneer venture capitalist firm, it was started having the largest fund in the world, although it had only sevearl millions dollars then.

Anyway, today there is a report on Web 2.0 deal in the first half of 2006 fomr Dow Jones VentureOne. Below are some key observations:

49 Web 2.0 companies have been funded in the first half of 2006, garnering $262.3 million in equity capital. That compares to 51 deals and $199.1 million invested into similar companies in all of 2005, indicating activity is likely to double last year's level.

• While the investment levels are growing, so far the data shows that Web 2.0 is a relatively small portion of the market. For comparison's sake, a total of $13 billion was invested in 1,213 U.S. venture-backed companies in the first half of this year. The deal size remains smaller as well. The median size of a Web 2.0 financing round this year is $4.4 million, compared to $7.5 million for a venture financing overall.
• some 65% of the Web 2.0 deals so far this year have been seed- and first-round deals. Last year, there were even more: 75% of the deals were for these early-stage financings. But in a sign that these companies also are maturing, seven later-stage deals were completed in the first two quarters of 2006. That compares to zero later-stage deals in any of the last three years.
• More than half the companies (25) receiving investments in 2006 were generating revenue, including three which were identified as profitable. None of the financings in 2005 went to profitable companies. Those revenue generating companies also received 61% of the total investment.
• In terms of recent financings, consumer focus appears to be king: the majority of the Web 2.0 rounds funded this year (27) were listed as IT consumer services companies, receiving $165.3 million. This industry segment dominated the Web 2.0 activity last year as well, representing about half of the total 51 deals and garnering $78.3 million of the total capital.
• The most active investors in Web 2.0 this year include Accel Partners, General Catalyst Partners, and Draper Fisher Jurvetson. When compared over a longer period -- since 2001--the most active investors include those three along with Sequoia Capital and Omidyar Network.

My summary: web 2.0 companies could be bootstrapped; the investment might be small because of open source software, the return could be huge, Skype, YouTube?!