So you've heard how hot Web 2.0 is, right? VCs love it! Early adopters use it! And it will make you rich!

Well, kind of.

While Web 2.0 businesses are raising money at a breakneck speed, apparently they're not actually generating much in the way of revenues according to today's Financial Times. Says Mitchell Kertzman, a partner at Silicon Valley VC firm Hummer Windblad:

"If you look at some of the valuations, you wonder what fantasy of revenues they're based on."

The point was driven home today by a statement made by Google CEO Eric Schmidt, who admitted that they, along with the News Corp, still haven't been able to effectively monetize the grandaddy of social networking, MySpace, according to ValleyWag.

So if all that's true, why do VCs keep throwing funding at Web 2.0?

Apparently the thought is that Web 2.0 has done so much to change online behavior and is so popular, that at some point, someone will find a way to make serious cash off the movement. Twitter, the "micro-blogging" service we wrote about last week is a great example of this thinking in action. The company hasn't figured out how to make money off the service, but VCs are fighting over who gets to fund them ostensibly because of its popularity. (Twitter's pre-investment valuation, by the way, was $80 million)

Is Silicon Valley being overly optimistic by continuing to throw money at a model that fails to generate cash? While they're certainly making a gamble, the assumption that someone will figure out a way to seriously monetize these types of start-ups is reasonable. The consumers are there, using these services already—it's just up to smart entrepreneurs and marketers to figure out how to reach them. And that's only a matter of time.