Monday, February 2, 2009

What's The Web 2.0 Bust Gonna Cost?

With all the talk of bailouts, busts and bankruptcies being quite so rife across corporate America right now, it seems reasonable to ask just how much money will be lost on Web 2.0 properties now the funds are waving many of them bye-bye?

Of course, that's a hard question to answer because no one knows how much money will still be made from the few darling properties that will successfully navigate the downturn (Twitter, Facebook, etc.). Nevertheless, for an idea just how exposed the VC industry is, take a look at this Silicon Alley Insider post. Turns out the top 20 firms investing in Web 2.0 properties have sunk north of $720 million into enterprises such as JibJab, and, yes, Facebook.

Whilst not an inconsiderable sum be any measure (except perhaps those applied as part of judging TARP) it's not outrageous, given that at least you can see how a couple of decent sized exits could return that sum and more, especially once valuations turn up again. But there's the rub. A couple of firms will make out big time, the other 18 here, plus the ones that didn't even get into the top 20, will likely lose a ton of money and all to no good effect. Unlike other start-ups that fail, it's hard to see anything of value remaining from a Web 2.0 property going under. They just vaporize, leaving nothing but a faint smell of singed dollar bills drifting out into the mild evening air.

Tough gig. But at least no one on Sand Hill Road will be asking the government to bail them out; failure is priced into the longer-term model, after all. And what's more, likely many of the same LPs that funded them last time around will do so all over again to see if, maybe this time around, lady luck decides to land on your lap and not that of the bloke in the VC office next door. After all, there's still that building wave of Clean Tech to be surfed for a while yet.

Party on, dudes.

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