smalltown.jpgDespite the meltdown and slow death of a local community news site BackFence, the local market continues to draw interest.

Last week, the hyperlocal news and blog site, Outside.in, raised a $1.5 million second round of funding and a month ago, American Towns raised $3.3 million. Yahoo and Google, despite offering more sophisticated local results, haven’t yet created vibrant communities. Yelp, another locale listing site, hasn’t sewn up the market either.

Today, Smalltown, a site that helps small businesses in a few Bay Area towns create a presence on the web, said it has acquired a small site called Local2Me for an undisclosed amount. Local2Me has been around since 2000 and is essentially a Yahoo! Answers for small communities in the Bay Area. People ask questions — mostly about local businesses — and neighbors offer advice, free of charge. At around 8,000 active users, Local2Me is tiny, but this small, dedicated user base has produced a fair amount of content that fits in with Smalltown’s focus on local merchants.

The deal’s scale was also tiny, and may be indicative of the slow pace at which the hyperlocal market seems to move. It’s not yet clear how these companies will generate the kind of returns that venture capitalists tend to expect.

Smalltown is based in San Mateo, and last year raised $3 million from Formative Ventures.

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