Web 2.0 investors look beyond the U.S.

While investments in Web 2.0 start-ups continue to grow, investors are looking for new ideas coming from companies outside the United States.

For the first half of 2007, venture capitalists poured $464 million into 101 Web 2.0-focused companies around the globe. That's a 14% increase from the first half of 2006 – an increase driven by investments in start-ups outside of the United States., according to data complied by Dow Jones VentureOne and Ernst & Young.

VentureOne defines Web 2.0 companies as those that “have a business model that revolves around a dynamic interface facilitating participation through such methods as user-created content, networking and collaboration,” according to a spokesperson for the company. “Applications include podcasting, tagging, blogs, social networking, mashups and wikis. Technologies used in these applications include: AJAX, RSS, SOA, CSS, XHTML, Atom and rich Internet applications."

VentureOne attributes the rise in funding Web 2.0 companies outside the United States to the possibility that investors are pulling back on such investments in American companies until liquidity options are presented.

In the meantime, 20 European Web 2.0 start-ups enjoyed $52 million in investments during the first half of the year; nearly half of those deals were with companies in the United Kingdom. That figure is twice what was invested during the same period last year. Five French Web 2.0 companies received $16 million, while Belgium, Ireland and the Netherlands each saw their first investments in indigenous Web 2.0 companies, according to the research.

Israeli Web 2.0 companies also saw a boost in investments during the first half of year, raising $15 million in five venture-capital deals. That’s up from the $5 million raised in two deals during the 2006 calendar year.

These investing patterns mark a change from what had become the norm in the Web 2.0 world.

From 2002 to 2006, 40% of all Web 2.0 deals were done with companies in Northern California’s Bay Area; during the first half of 2007 that figure was cut in half, according to VentureOne.

In addition to investing outside the United States, venture capitalists are eyeing domestic regions other than San Francisco. For example, New England Web 2.0 companies received $102 million in 10 deals during the first half of the year.

Most of the deals made in U.S. Web 2.0 companies so far this year involve Enterprise 2.0 products, VentureOne says. These are defined as products that use new technologies such as mashups and online collaboration to improve traditional business functions. For example, enterprise Web 2.0 software provider n2N Commerce received $30 million.

Meanwhile, the majority of deals made with non-U.S. Web 2.0 companies have a consumer focus.