Where to go with Web 2.0

What's the Scoop:
Venture Capital firms are continuing to review and invest in web 2.0 firms but the initial honeymoon is over. According to the PriceWaterhouseCoopers MoneyTree report and VentureSource summaries, VC investments in Web 2.0 fell almost 50% in Q3 of 2008.
While investments were still made it is important to keep in mind some fundamentals that social and collaborative technologies need to evince to be considered mature products.

What to Look For:
Here is a quick and dirty list of qualities a VC should look for in a Web 2.o company while performing technology due diligence and assessment:
  • Sustainable Technological Advantage - the idea (like sharing RSS feeds) has to be great but the IT implementation has to one that cannot be easily replicated. This is what happened to MySpace, someone came right in and made a good idea great and now has all the marketshare. New innovations will take Web 2.0 to the next level, ideas such as unifying all internet message boards via a universal Unique ID ala Klostu.
  • Convergence - varying sectors of technology are overlapping in new ways and Web 2.0 is truly positioned to benefit. Here is a sector that already has a market share captured (hello Facebook, LinkedIn) now if that can create a hybrid with say, video games, they will have people playing online games - live with all their friends! Another possibility is the HR software market where firms are starting to have Social Networking recruitment extranets - if they plugged into LinkedIn they could have a pre-qualified & dynamic recruiting platform ready to go. Basically Web 2.0 is pregnant with possibilities, 1+1=3
  • Mobi - what can I say that everyone is not already aware of? bring the web 2.0 to the Mobile Web ala twitter is a huge win for a potential company. That is the future of the web so any "2.0" needs to look to the mobile web and focus on robust architecture as well as compatibility with disparate device platforms.

As the Web 2.0 summit closed last year these are the some of the technical edges that should be revealed in a technology-focused due diligence review on any firm worth investing in. Otherwise, they are already dated and will not yield a successful investment.

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