There's been a story today that virtually every blog has been tiptoeing around but not addressing, except for Drama 2.0, but we know how much he likes to rub our noses in any possible popping of the bubble. The story, as Reuters tells it, is that venture capital into Web 2.0 start-ups is slowing down.

In the Dow Jones VentureSource report cited, they point out that VC for Web 2.0 companies only grew by 25% in 2007, from 143 to 178 deals, when it had doubled in each of the previous four years. Add this to the current economic situation involving the subprime mortgage market, auction-rate securities, and, well, the U.S. dollar acting like a meteor lately, and people just may start running for their towels.*

I'm generally a pessimist, but I really don't think that the reality is as stark as it seems. Numbers are only as good as how you look at them, and if you even break down the difference between 2006 and 2007, using the stats they cite, there would be 71 more deals in 2006 than in 2005, compared to 35 more deals in 2007 than in 2006. The number doesn't look quite as drastic then, does it? Going back one more year, there would have been what? 35 more deals in 2005 than in 2004? Where is the bad news here? Even if the line flattens, that means that it's still going at the same pace, which is hardly a portent of doom.

What's more interesting is where venture capital is going. While the mantra repeated is that Silicon Valley is still THE place for start-ups. Look deeper into the report as John Cook did and you'll notice something interesting. Facebook's $300 million accounted for 22% of the Valley's Web 2.0 investment dollars. Take Zuckerberg and crew out of the equation, and you'll find that both the amount of money as well as the number of deals in the Bay area dropped in 2007.

So where is the VC on the upswing? Well, the Pacific Northwest, for one. Deals there doubled (to 13) and investment dollars quadrupled. Among the top deals last year, Zillow, Jive, and MyStrands are all in the land of Amazon. Four others listed in the top deals are in Massachusetts, and two are in Colorado. Web 2.0 isn't over, but maybe it's getting a larger and more stable base by spreading out into a wider area with more variety.
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