When Baidu, a Google look alike from China went public, it sent the cash registers ringing and stunned many a Wall Street analysts. With rumors of Google intending to acquire Baidu wafting around the circuit, the Chinese search engine continued to assert its dominance in China over Google. Amidst all the hoopla around Baidu, 15 innovative Internet companies quietly inked millions in venture funding. It is striking to note that these Internet companies with innovative ideas and executable business concepts could be the second coming of the Internet known as the Web 2.0.

With investments in companies like reply.com, jobster.com, engage.com, SimplyHired.com and CafePress.com there seems to be a positive re-invigoration of interest in the Internet economy. This new approach brings in communities and social relationship into the foray. What has changed since the dot-com bust? Why VCs are interested in Internet companies again? To find some answers we spoke to three innovative online companies that have sent some interest down the VCs radar.

It was Dale Dougherty of O’Reilly Media who said in 2003 that Web 2.0 will signify the changing rules and evolving business models of the Web and defined the second coming to be dominated by innovative Web technologies. It is just 2005 and change is visible. It is no more random search that pulls out a million pages, but contextual search that adds value to the user experience, it is no more a static social relationship website or web chat but building a community with the social network and it is no more shopping online but customizing online that unleashes the power of the user.

Unlike many other technologies, Internet witnessed unusually accelerated adoption rate. In the 1990’s following the herd mentality, entrepreneurs and VCs invested in the Internet companies completely ignoring the fundamentals of business. Now that the scenario is evolving, Internet companies are perfecting their business models toward sustaining in the long term than to make a quick cash exit. Just like the radio, television and any other significant phenomenon before the Internet, it is pretty clear that Internet is here to stay.

With VCs funding many innovative online ventures there is collective exuberance in the air. But a report by the National Venture Capital Association reveals a rather tepid investment environment. The NVCA reports that venture capitalists invested $104 billion in over 7,000 companies in the year 2000. The average deal in the year 2000 was $13.4 million. But in contrast, in 2004, VCs invested $21 billion overall in over 2,500 companies with the average deal size being about $7.31 million.

Revealing a much more careful approach VCs don’t see a rush to invest as it was in 1999. Entrepreneurs are taking time in perfecting an executable business model and putting together a skilled team. Unlike 1999 it is much easier now to find a talented and experienced team.

One such online venture with a cautious approach comes from the SimplyHired.com founders’ team Gautam Godhwani and Anil Godhwani. After the tremendous success in their previous venture AtWeb, which NetScape acquired for $95 million in 1998, the Godhwani brothers are taking SimplyHired with measured optimism.

After selling AtWeb, Gautam moved on to AOL and Anil immersed fulltime in growing the India Community Center. But the entrepreneurial spirit and the affinity toward the Web brought them back to roll the dice again. AtWeb was born after the duo attended a conference, SimplyHired comes after six month of grueling research and exploration of ideas reflecting a much more discerning approach. While the company was started in 2004, they formally entered Beta mode only in 2005.

While with AtWeb, the brothers entered the market and exited the same in two quick years with the backing of Sequoia Capital; this time around they are not looking at quick exits. Unlike AtWeb, the brothers did not raise capital from VCs but chose to go to Angels. In August 2005, the company raised $3 million from within the company. “This time around we realized we could go out and specifically target the people we want to participate with.

In our first round we raised capital from within the company from people who are interested in working with us,” says Gautam Godhwani.

The business opportunity and the right model came from the widespread dissatisfaction in employment sector. The employment industry holds great promise, which is about one percent of the U.S. GDP, an $83 billion market. But the Godhwanis are not alone; there are bigger and established players with successful business models.

The current approach calls for posting jobs and resumes on the web, which can be searched by both recruiters and candidates. SimplyHired is hoping to change the behavior of candidates, by allowing them to search for jobs using a search engine and while linking jobs to the social networking Web site LinkedIn.

SimplyHired hopes to follow the proven moneymaking model of Pay Per Click mastered by Google. They also hope to cash-in on the money spent in the transaction between a job seeker and the employer during the hiring process. As a contextual search engine SimplyHired is simply the largest jobs aggregator search engine with over 4 million jobs. Understanding advantages of social networking, the search company has partnered with LinkedIn. While it is contextual search for SimplyHired, another online company has ventured into the business of social relationships.

Engage.com hopes to the answer the heavy dissatisfaction with the existing relationship sites such as Match.com, eHarmony or Yahoo! Personals. Founded by Indian Suneet Wadhwa and Karen Wallace, Engage.com recently completed Series B funding led by The Founders Fund and Revolution Ventures for an undisclosed amount.

It is second online venture for Wadhwa who previously co-founded SnapFish.com an online photo sharing platform. While Wadhwa moved out of the company SnapFish continued to grow to 13 million members. HP acquired SnapFish in early April 2005. While the details of the deal was undisclosed, a Merill Lynch report estimates it to be anywhere from $300-$400 million.

Exploiting the large dating community in the U.S. Engage.com takes a radically different approach to meeting people online. While the dating space is crowded with established players, Wadhwa and his team show measured optimism backed by a great management team. Wadhwa has roped in Trish McDermott, a 16-year veteran from Match.com. Wadhwa notes management teams are more experienced and smarter and reflects that it is about building long-term sustainable companies that can reach profitability.

At Engage, the founders are promoting the uniqueness of having a third party introduction to initiate a relationship. But one wonders why can’t the existing players come up with such features. Wadhwa quickly qualifies recalling experience from his previous venture SnapFish. “When we started SnapFish, we did think that it would be easier for the deep pocketed Kodak or Olympus to come up with a photo sharing platform, but in reality they didn’t, and we did and till today they don’t,” he says.

Current players in the market charge a fee finding dates online and Engage is focusing only on customer traction. The company hopes to get enough traction before moving to a paid model when they reach a level of critical mass. So they won’t be charging anytime soon, right now the goal is allow people to enjoy the site, says Wadhwa.

Unlike Match.com or eHarmony that blasted a whole marketing campaign Engage is taking an orthodox approach. “We want be careful and don’t want to grow the company too fast, and we are very conservative when it comes to managing our books and money in the bank,” engages Wadhwa.

While Engage and SimplyHired are the progeny of Web 2.0, CafePress is a veteran in the online world of unleashing user power. Founded by two buddies Mahesh Jain and Fred Durham, CafePress allows people to share their creativity through customized products sold online. The company uses a simple business model- people provide their own logo and CafePress will print it on any of their 70 different items.

After six years of maintaining a conservative profile, CafePress recently completed $14 Series B funding from Sequoia Capital. It is interesting to note that the company raised $1.5 million when it was founded in 1999. “In 1999 we did not raise a lot of money; our main focus was to grow the company and being profitable,” says Jain.

Building the company based on customer feedback, CafePress has grown to 2.5 million members with 1.5 million stores. Following a model similar to ebay, CafePress prints the designs for the sellers, it allows sellers to set the prices and market them in their own online shops; the Web site charges a portion of the proceeds.

SimplyHired and Engage.com still in Beta mode, along with the sturdy business discipline executed by CafePress are typical examples of the emergence of Web 2.0.
But challenges remain and emerge from new areas, one of the biggest issues these next generation companies face is the slowing pace of adoption of Internet. According to the Internet researcher IDC, the growth in the number of Internet users worldwide has significantly slowed.

With rise of Web 2.0, Internet companies are increasingly placing the power back in the users hand. People centric, relationship centric and the power of creativity coupled with business sense have unveiled the Second Act of the dot-com, one has to wait and see which direction Web 2.0 takes.