The Web 2.0 funding frenzy is in full effect. YouTube, a self described “Flickr of Video” was one day being told to go raise less than a million dollars and grow the business. A few weeks later the word is that they have raised $5 million from Sequoia Capital at pre-money valuation of $15 million. Well that’s the story these days with Web 2.0 companies. The money gravy train can have its side effects, Mike Rundle argues.

Dozens of “Web 2.0” companies launched this past week, while many other companies (Upcoming, Weblogs, Inc., Weblogs.com) were bought. It seems like the web industry economy has suddenly gained 50lbs of muscle weight overnight, and sudden upturns are always scary

But does the world need another RSS company? Not after Google Reader, or when Yahoo’s version of that comes out next week.

Jonathan Weber, former editor of Industry Standard, now editor of an online site called New West, succinctly puts it: “People on the street in Montana aren’t talking about this… It will be some years out before general people become users.”

Clearly there is a lot of interest in a “user generated” video content. Google, BrightCove and a bunch of others are already doing the infrastructure part. The New York Times had a great summary of the space, and quotes Jeremy Allaire as saying, “We are trying to create a new kind of online media distribution business that has the scale of Google, an Amazon or an eBay,”