The Internet advertising industry appears to be in denial about the growing momentum behind Internet privacy -- and it should start to prepare for more protection of data through global privacy legislation.

As I noted last week, the European Union is moving toward privacy policies, most notably with the "cookie directive" which would require all advertisers to obtain opt-in to place cookies in user browsers.  In addition, we are in the early stages of new privacy legislation in the United States which would introduce tighter Internet privacy.

All of these powerful new regulations are likely to put signficant pressure on Internet media, most notably the ecosystem of ad networks and data exchanges.

The Internet privacy movement appears to be gathering steam and leading to growing paranoia (warranted) among those who have the most to lose: Dozens of venture-backed ad networks and advertising data companies.

What's going on? Well, certainly the Wall Street Journal series on data privacy didn't help. This may be the high-profile media piece that tips public opinion toward the privacy advocates, who have been quietly ramping up their assault on the free-and-easy exhange of Internet advertising data.

What should be scaring the Internet marketing companies: The ideas are starting to gain traction in Washington, D.C. Reps. Ed Markey (D-Mass.) and Joe Barton (R-Texas) recently issued statements that "that the price of consumers' daily use of the Internet increasingly is surrender of their personal information."

At the same time, you have other escalating assaults on the Internet advertising marketing machine. Let me name just a few examples:

• Europe is ramping up on Internet privacy, including cracking down on cookies. In fact, the EU has issued on opinion that all behavioral advertising must be opt-in. Why aren't more people talking about this?
• The U.S. Senate is prepping online privacy legislation!! (Washington Post)
  
• Facebook's privacy errors continue to boggle the mind (Christian Science Monitor)
  
• Other countries aren't happy with Google's Street View. South Korea recently seized Google's computers in an office raid.
• The media is starting to question free-and-easy Internet ad data. This may only be the beginning.
• The solid privacy series in the Wall Street Journal woke a lot of people up to reality. Maybe this will start to tilt public opinion in the direction of more legislation?
  

This potentially huge development doesn't seem to be getting that much play. Over the past few years, the venture capital industry has funded hundreds of ad data and ad network companies, all of them based on the premise that ad data would be freely acquired, exchanged and even traded. One such company is Blue Kai, a company I've followed on this site, which has their entire business model based on the exchange of anonymous ad data. There are dozens more. What happens to companies like that if powerful privacy legislation is passed?

And then we have even a bigger story: What about Google? Imagine what could happen to Google's market cap if the legislators initiate sweeping changes to Internet privacy laws.

This story is currently being underreported and underhyped. If you are in the Internet advertising or media industry, you should watch it closely. It could change your life.

Apparently the Wall Street Journal discovered over the weekend that companies can gather lots of data about you on the Internet.

I suppose this is their play for a Pulitzer Prize -- a groundbreaking story that exposes the evil of Internet data collection. Only one problem: The Internet -- and financial industry -- has been mining your data for over a decade. And unless you hide in a cave with Ted Kaczynski, you're not going to escape it.

In fact, everybody mines your data. Think of the credit-card companies or your bank. Or Google. They know everything. I like to tell my wife that, "Google knows more about me than you do."

Surely 2009 wasn't the best of years for the venture-capital industry, with Wall Street trying to sort out credit turmoil, startups struggling, and the capital simply out of whack with bloated amounts of funds looking for a place to go. But there were some victories -- some IPOs even, and 2010 is looking a lot better! Redpoint Ventures partner Scott Raney points out that the IPO market is creeping back and that M&A activity is picking up substantially. That means more exits for startup companies, which will be good for pumping new blood back into the venture capital market in 2010. Raney also says that deal flow is increasing, M&A talks are increasing, and investors feel better about things. Will it hold up? Just follow the bouncing ball of the stock market, which leads the psychology here. "The mojo is back, pricing is back, and things are full-steam ahead. It's a little surprising, actually," said Raney in an interview yesterday. "We're bullish about a lot of things especially cloud computing and on-demand software." How about some more buzzwords? Here are some other areas Raney likes: "Internet Infrastructure, virtual goods, open mobile." Some of the Redpoint investments that Raney says are doing really well right now: HomeAway.com (online vacation rentals), Solyndra (thin-film solar), and BlueKai (online marketing). I will be using some of Raney's input, as well as input from lots more people, in some research I'm doing over the next few weeks. If you'd like to talk to me on the topic of venture capital, startups, and innovation, send me an email at scott@rayno.com.