The Expanding Role of Venture Capital
This is shaping up as a good year for venture capitalists. Not since 1999—what seems like an eternity before the Internet bubble burst in 2001—has the outlook been quite as positive for raising new capital. While funding for traditional business remains steady, the flurry of activity in the Web 2.0 sphere is extraordinary. Retailers and manufacturers should keep an eye on the investments being made in this space, since they could greatly affect the way you, your partners and your customers conduct business.
The two areas that have seen the most action in 2006 and 2007 are social networking and advertising. Metadata handlers DoubleClick and aQuantive are among the most highly valued companies acquired this year, mainly because they develop technology that changes the way Internet users are tracked as they surf the Web. The social networking arena came to prominence with NewsCorp’s acquisition of MySpace and continues with sites such as Facebook, which rely on users to build their “friends” network, a feature that promises unbridled potential when it comes to product and services promotion.
It is against this background that venture capitalists have begun to move into high gear. They are focusing on two types of technologies: expansive and disruptive. The expansive type is an extension upon a particular type of business model or platform. The disruptive model favors technologies that can upset or overturn existing ways of doing business. The Google/DoubleClick merger is an excellent example of the expansive model, while the massive funding input into the Internet television site Joost is a good example of the disruptive model.