Time for a Web 2.0 Vulture Fund?

Brad Greenspan’s LiveUniverse is indeed buying personalized web page startup Pageflakes, the two confirmed today, bringing the curtain down on a critically acclaimed service that failed to gain much traction, mostly because it was chasing savvier competitors with deeper pockets.

The company blew through nearly $4.3 million and was close to running out of cash, as we first reported over the weekend. Their quick embrace of bargain-hunting Greenspan only adds credence to the rumors of them running out of gas.

But in the broader scheme of things, Pageflakes’ sale is not that big of a deal. Startups that fail to become category leaders either shut down or have to settle for the ignominy of being sold for pennies on a dollar — it’s standard operating procedure in Silicon Valley. And as the current Web 2.0 cycle runs out of steam, we’re going to see the startup equivalent of a brownout. I think there is a real opportunity here for someone to make money.

Back in the dark days of the telecom depression, some crazy mavericks started buying up distressed telecom assets, packaging them and flipping them for a nifty profit. More recently, many vulture funds have started buying out distressed real estate assets. Maybe it’s time for someone to start a Web 2.0 Vulture Fund, aggregating startups with decent technologies that have otherwise failed to get themselves off the ground.

Someone could, for example, roll up the social bookmarking startups with social news companies, or bundle Office 2.0 web apps. Aggregating web utilities such as online storage services, or online address books and calendaring services could be another opportunity.

How would such a fund be different than Greenspan’s Live Universe or Internet Brands? Those are companies with a roll-up strategy. In comparison, as Morgan Stanley notes, “Most vulture funds are limited partnerships, but some are retail mutual funds that are open to individual investors.” (The other option is a buyout fund specializing in distressed Web 2.0 assets.) You can help define the properties of this Web 2.0 Vulture Fund, either on your own blog or in our comments section. Or just email me directly.

If you don’t care much for that, answer this big question, dear reader: Which Web 2.0 company do you think is going to run out of steam and is worth being picked up by a Vulture Fund?