The “Web 2.0” start-up scene has spread beyond its San Francisco Bay homeland as investors pump funds into new internet businesses in Europe and Israel in their search for the next Facebook or YouTube.

Investors directed a record $464.2 million (£232.2 million) into 101 Web 2.0 deals worldwide in the first half of the year, according to Dow Jones VentureOne and Ernst & Young LLP, up more than 7 per cent from the same period last year.

Web 2.0 companies generally feature user-created content and services that allow users to communicate and collaborate. Typical applications include podcasts, blogs, social networks, mashups and wikis.

However, a 14 per cent rise in the number of Web 2.0 deals was entirely attributable to the rising interest in the sector outside America – and especially in Europe and Israel – the researchers added. US investments were virtually unchanged from the first half of 2006 with $357 million invested in 67 deals.

In Europe, the United Kingdom posted the most activity in the first half with a record seven deals accounting for $22 million.

Jessica Canning, director of global research for Dow Jones VentureOne, said: "From 2002 to 2006 … 40 per cent of all Web 2.0 deals were located in the Bay Area. But in the first six months of this year, that figure dropped to just 20 per cent and seems to be related to the presence of fresh investor blood in the space.

The pause in funding in the Bay Area came as big Web 2.0 investors in Silicon Valley – including Benchmark Capital and Kleiner Perkins Caufield & Byers – slowed their activities in the sector.

“It seems many longtime stalwart Web 2.0 investors have filled their portfolios with Bay Area companies and are stepping aside," Ms Cannings said.

However, despite seeing a flat first half, the US still dominated the Web 2.0 market, accounting for 66 per cent of all deals worldwide and 77 per cent of venture financing.

The Bay Area, meanwhile, was the busiest region in the US with 25 deals accounting for $91 million. New England, the New York metropolitan area and Southern California are on course to set annual records for Web 2.0 deals and investments.

The most active investors in Web 2.0 on a worldwide basis so far in 2007 are Sequoia Capital, one of Google’s early backers, and Draper Fisher Jurvetson, whose past investments include Hotmail, the e-mail service that was bought by Microsoft, and Skype, the internet telephony service acquired by eBay.

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