VentureBeat

We’ve got more data showing that the love affair between venture capitalists and Web 2.0 startups has come to an end — or, at least, that the ardor is fading. Between July and September of this year, venture investment in the sector dropped precipitously, to its lowest point since the middle of 2006, according to Dow Jones VentureSource.

During Q3, there were 23 web 2.0 investments (basically, investment in companies that tap into the web’s social and collaborative capabilities) totaling $220 million. That’s about a 47 percent drop from the $435 million invested during Q2, and a slightly larger drop from the $442 million invested during Q3 last year. Of course, one quarter doesn’t make a trend. And even if it the drop continues, for now it has only fallen to 2006 levels, not dropped off completely.

Still, Web 2.0 companies hoping for funding should be particularly worried, since this data doesn’t show the effects of the recent financial turmoil (which hit at the end of September), such as the resulting liquidity issues among VCs. The latest MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association shows a similar drop in Internet investments, with much of the money moving to other sectors like cleantech and biotech. And even at the Web 2.0 Summit, which is going on this week, a lot of the discussion revolves around the recession — the outlook isn’t very positive.

[Photo:flickr/Seattle Municipal Archives]

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