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IntroductionAs the internet has matured into a mainstream phenomenon, a new breed of startup companies has emerged in the consumer internet space. These companies have taken advantage of the viral nature and network effect of the internet by developing applications to enable content creation, collaboration, and sharing among users. Collectively, these internet applications make up what is known as Web 2.0. [1] The payoff for the entrepreneurs creating these applications and the investors funding the innovation can be substantial. For example, Facebook.com was started by 3 college friends back in 2004. Three years later, the site has an active user base of 30 million people, has turned down billion dollar acquisition offers, and is said to be considering an IPO in the near future. [3] With the barriers to online innovation so low, and the potential payoff so high, a new investment model has emerged to take advantage of the changing dynamics.
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