Web 2.0 Faces a Squeeze Tough times are coming for entrepreneurs as market turmoil cools the I.P.O. market, a New York venture capital investor says. Murdoch blundered in not making the Wall Street Journal free, he adds.

Global financial turmoil caused by the subprime-mortgage meltdown, and the resulting credit crunch threatens to pour cold water on the red-hot technology venture capital market, a leading New York investor said.

Promising startups may be starved of capital, said Fred Wilson, general partner at Union Square Ventures, as investors pull back amid market volatility that is damping the market for initial public offerings. Wilson, added, however, that his $125 million venture capital firm will actively look to "take advantage" of any slowdown by investing in startups at lower valuations.

Wilson also said that he thinks News Corp. chairman and C.E.O. Rupert Murdoch made a strategic mistake by declining to make the Wall Street Journal's website free. Ending the subscription-based model would not only attract more readers and generate additional revenue, it would ensure that the Journal remains at the center of the business world's conversation as readers migrate to the Web.

Wilson's primary concern, though, is the current financial turmoil. He sees it having a domino effect that could stifle the booming Web 2.0 venture capital market.

"There has been a real 'de-risking' of the market, which will certainly affect the I.P.O. market," said Wilson, whose firm was an early investor in the social bookmarking site del.icio.us, which Yahoo bought, and Twitter, a site that combines social networking with blogging.

"That will impact the late-stage venture market," Wilson added, "because the I.P.O. market drives the late-stage venture market. And that will slowly impact the early-stage venture market."

As investors move out of equities and into fixed income and other usually safe investments, equity prices will drop across the board, he predicted, creating bargains.

"Valuations will come down," Wilson said. "There will be less exuberance about venture capital investments. What will probably take place is a flight to quality. Venture capitalists will want to invest more in the companies that look like they're going to be successful and be a little less willing to take fliers on things that are hard to really handicap.

"If the financing environment changes," Wilson added, "we'll try to take advantage of that and invest in companies at lower valuations than we would otherwise be paying."

In the interview, conducted in Union Square Ventures' office, in the Flatiron district of New York, Wilson also characterized Murdoch's strategy for the Journal's website as "a mistake" based on "short-term thinking."

"Anything that is news or opinion needs to be free on the Web," Wilson said, "because the Web is this very fluid medium that is very much driven by links and the flow of visitors through a discussion. If you're going to make people pay to see your opinion piece or your news piece, that kind of activity is not going to happen.

"People say, 'The Wall Street Journal has such a profitable business on the Web,'" Wilson added. "That's fine, but they could have such a better business on the Web if they embraced the way the medium is really designed to be used. And they're not doing that, so it's a mistake."

Wilson speculated that Murdoch ran the numbers and concluded: "We would have to cause our audience to grow 10 times, and we would have to sell ads at this price to replace all this revenue."

"But that's short-term thinking," Wilson said. "They could have been able to increase their audience and become a dominant voice that would feed back into the other things they want to do." The best example of potential synergies, he said, is the new Fox Business News cable channel.

Wilson suggested that the Journal's online competitors-from the New York Times to TheStreet.com-let out a collective sigh of relief upon hearing Murdoch's decision not to go free.