Funded Web 2.0 Startups Largely HQ'd in Northern California

It's not surprising, but an analysis of December's funded Web 2.0 Startups shows that a majority are headquartered in Northern California. 19 of 34 companies, or 56%, are located in Silicon Valley or environs. Southern California is a strong second making almost 75% of Web 2.0 startups California-based.

We'll be tracking this data monthly from now on to see how representative this geographic distribution is, and if/how it evolves over time as the Web 2.0 industry matures.

Web 2.0 Startups Raise $110+m in December

In the first month that we've tracked Web 2.0 angel and venture funding (Dec '06), these startups reported 34 transactions totalling $110m. Only 18 of these transactions disclosed an actual funding amount. We estimate that if amounts had been disclosed for all 34 deals the total raised for December would have exceeded $150m.

This table shows the breakdown by round, and between disclosed and reported deals.

At this stage it's difficult to put these amounts in perspective, both because of the impact of the holidays, and the fact that this is just a single data point. In coming weeks we will publish additional months of data to help provide context.

Here is an Excel workbook listing the December transactions. If you see issues with any of this data or know the actual amount for undisclosed transactions, please leave a comment or send me an email.

Our methodology for categorizing Web 2.0 companies is here.

Our primary source for this data is silicontap.com (subscription required). We relied on TechCrunch and VentureBeat for validation, additional details, and breaking news.

'Web 2.0 VC Funding Report' Methodology

I've looked around the Web, but can't find a good, timely and transparent source of how much money Web 2.0 companies are raising each month. So I set out to build and maintain this database myself. In the next few posts I'll start a regular feature of this blog by publishing a funding report for December '06 and January '07.

This post describes the methodology and assumptions I follow when tracking this data. Some may quibble with the approach I've taken. But I'm trying to be totally transparent (between publishing these assumptions and a detailed deal list I will post each month), allowing you to make tweaks to match your own Web 2.0 world view.

I'm also totally open to discussing and (possibly) changing my methodology -- or adding/omitting specific companies. Leave a comment if you think I'm off track and we can discuss it.

Sources:
silicontap.com provides a majority of the raw data I use. This is a great service that costs just $24.95/month. I highly recommend it, especially if you need details on the companies, VCs or deals (which I won't expose). I supplement it by combing through a number of blogs that follow Web 2.0, especially VentureBeat, TechCrunch, alarm:clock and GigaOm. If you know of other good sources, please leave me a comment.

What’s a Web 2.0 company?
This is likely to be the most controversial aspect of my methodology. As you know everyone seems to have their own definition of 'Web 2.0'. I've compared mine to other popular/well respected sources (like Tim O'Reilly - father of the term, and wikipedia) and feel like I'm fairly mainstream, though maybe a little 'narrower'. For example I focus on 'applications' and exclude infrastructure (hardware, software, development tools) even if it is primarily used to enable Web 2.0 applications. Of course, regardless of the definition it comes down to a case-by-case judgement that I make on each company. And there are definitely many shades of gray.

So here's my definition:

Any private company that is developing modern ‘2nd Generation’ web applications or app-like services featuring one or more of these characteristics:
* User generated content/collective intelligence (submitted content, reviews, comments, tags)
* Rich user interface (usually AJAX or Flash)
* Community/social networking
* Rich media (video or audio) content or tools, if user generated or if produced primarily for distribution over the Internet.
* APIs, mashups, feeds, use the web as a platform

How is the ‘estimated’ funding level calculated?
I calculate an average funding level, by round, for the ‘disclosed’ deals, omitting significant outliers. I then cut these amounts in half, assuming that undisclosed deals are probably much smaller than disclosed deals. I then apply these amounts to the undisclosed deals and add them to the disclosed amounts for the grand total.

Geography:
US-centric. The companies, VCs or most of the customers are located primarily in the US.

What is Web 2.0 Success?

In this blog I will try to cut through the hype and clutter to identify the successful Web 2.0 companies, products and strategies – and hopefully parse out some lessons we can learn from them.

A regular feature of the blog, and my initial focus, will be tracking success in fundraising. This is one of the early, big hurdles a Web 2.0 company must get over, and only a small percentage of them do.

I looked around and couldn’t find a timely and detailed source venture funding data focused specifically on Web 2.0 companies, so I decided to build it myself. The plan is to be the first to publish this data and analysis on a regular basis (monthly to start). In the next couple of posts I’ll describe my data collection methodology and publish the initial Web 2.0 funding results for December '06 and January '07.