New Social Media Fund BS or Right Play for the Future?

This week, investment firm Kleiner Perkins Caulfield & Byers (KPCB) teamed up with Facebook, Amazon, and Zynga to create a $250 million fund for social networking start-ups. The fund, to be called "sFund" will focus on start-ups and businesses that fundamentally change the overall functionality of social networking, improving upon the standard in macro yet tangible ways -- not ideas that are add-ons or only improve some small part of social network usability.

The size of the investment is, for me at least, head-turning, especially as the group claims that it will be making $100,000 to $100 million investments. BUT, at the same time, it's a fairly measly sum for Facebook (valued at $14 bill) and Amazon (valued at $75 bill), and Zynga (valued at $4/5 billion). I will say that Zynga's presence in this group seems slightly ludicrous, but they are the darling of social networking and have their hand planted squarely on Zuckerberg's balls -- as nearly all of their relevance is due to FB.

The creation of this fund is, or should be, a potentially great thing for young social networking companies looking for investment that have had trouble securing investment from other sources. Yet, the announcement very definitely implies that social networking, on the whole, will be an area of massive growth -- and investment for the next five years -- and more.

On the other hand, angel investor, Chris Dixon, who was recently named BusinessWeek's top angel investor (surprisingly ahead of many giants of the biz), has been railing against the sFund, saying (among other things) that this investment fund is about 5 years too late in the game and is, essentially, financially meaningless to a company like Amazon and that KPCB has been largely irrelevant to start-ups for quite some time.

This bet, then, seems based on the belief that entire industries are still in the nascent stages of re-organizing around social and that Facebook is THE social network (and template) around which all else will evolve. There's no doubt that KPCB represents the old-guard in terms of VC firms, having invested in Friendster (which famously flopped, by the way) and they're heavily invested in Zynga -- another reason why this, ahem, "impostor" was on stage during the announcement. Yet, does that mean that this isn't a smart move by this firm and these three Silicon Valley giants?

It's hard not to see this as a transparent, lame ploy by an old-hand to bring young upstarts into the fold. "Hey, we still got it!" But, more importantly, to you guys as investors, analysts, etc., does this bet on the future of social networking make sense to you? Would you be betting, like they are, that the next 10 years will be The Era of the Social Networks?

Comments (10)

Oct 24, 2010

i say this will either go bust in 5 years or have insanely good returns

Oct 24, 2010
squirtlez:

i say this will either go bust in 5 years or have insanely good returns

ha, so you mean you're saying absolutely nothing?

Oct 24, 2010
DoctorEvil:
squirtlez:

i say this will either go bust in 5 years or have insanely good returns

ha, so you mean you're saying absolutely nothing?

lol +1 :)

Oct 24, 2010

Doesn't matter if returns are x-a-fucking-bajillion, social networking adds "0" value. Bleeding once a month, period.

Oct 24, 2010
Midas Mulligan Magoo:

Doesn't matter if returns are x-a-fucking-bajillion, social networking adds "0" value. Bleeding once a month, period.

The value is in the data social networking sites make available for analysis.

Oct 24, 2010
surferdude867:
Midas Mulligan Magoo:

Doesn't matter if returns are x-a-fucking-bajillion, social networking adds "0" value. Bleeding once a month, period.

The value is in the data social networking sites make available for analysis.

Agreed. Knowledge is power and people are signing it away to FB for free. It's really analogous to giving permission to an advertising company to use your image in an ad for free even though others refuse to do so unless they are compensated for it.

Think about it, your photos, videos, what you do, where you go, who with, when an why are all being handed over willingly to FB. Extensive market research with a sample size of 500 million for the price of site maintenance. I have friends who hit me up on FB even though they have my email and phone number. Why? Because they live on FB. All their correspondence is on FB. FB is the place to be and if you're not there your nobody and FB likes it that way. I would bet 97% of WSO users, have a FB account, probably more. I would also bet that 100% of those, who do not use FB for legitimate business promotion, could not quit today and have a laundry list of bullshit rationalizations of why they couldn't.

I quit two days ago. They didn't want me to and told me they would be so nice as to give me 14 days to think it over. Wanna bet they give me an extension?

Think about the future, not where FB is now but where a semi intelligent person in Zuckerberg's position would take it. He's not cashing out when he could, and FB isn't gong public. Probably shouldn't. Do you really want the public to have any idea what you're doing?

Yes, the concept of the place where you connect with friends, build a user base, and sell ads, is archaic and go they way of the dinosaur, but FB is not stopping there. With the data they acquire and the funds they acquire, they will build out a portal, think iTunes mates with AOL. It will probably look like the internet your used to, but it will be different in that everything you do, say, send, or download, will be tracked, stored, compiled, and packaged for sale to those who can afford it. The competition will be bought out at a premium to keep the deal quiet. Good exit for a VC fund?

Mark Zuckerberg is the new Jim Jones, FB is the new Jonestown, having friends and "connecting" is the new Jesus, and we are all drinking the kool aid, or maybe I'm wrong.

Oct 24, 2010
Midas Mulligan Magoo:

Doesn't matter if returns are x-a-fucking-bajillion, social networking adds "0" value. Bleeding once a month, period.

Agreed.

My friend and I were having a conversation about this same thing after we left the Facebook movie the other week. We see some stark similarities between the valuation of the current social network media frenzy and the overvaluation of internet/tech in the late 90's. Are people really going to jump all over this internet/tech stuff again?

In 1976, James Hunt broke the sound barrier through Eau Rouge only to retire before the event finished... following the race he had sex with three Belgian nurses at the clubhouse near La Source.

Oct 24, 2010

interesting...had not seen this. I think there are plenty of ways to generate revenue but it's much harder for facebook. they are such a beast and so many people use them that I don't see how they could ever completely flop or be overtaken unless they do something stupid.

Is the valuation justified? Who knows...i thought I heard somewhere it was valued at $25 billion. that seems a bit high, even for 500million members+.

Oct 24, 2010
WallStreetOasis.com:

interesting...had not seen this. I think there are plenty of ways to generate revenue but it's much harder for facebook. they are such a beast and so many people use them that I don't see how they could ever completely flop or be overtaken unless they do something stupid.

Is the valuation justified? Who knows...i thought I heard somewhere it was valued at $25 billion. that seems a bit high, even for 500million members+.

Right, well there's no doubt that FB has become an institution at 500 million plus users. For me, there's no question that FB will be around for a long time and that they've beaten MySpace at the game -- MySpace needs to focus on its strengths and how it can remain relevant, because the question of what site will be used to stay in touch with friends, share links, pictures, network has been answered.

The real question this announcement raises is not whether FB/Zynga/Amazon are overvalued, it's whether there's enough growth potential in social networking on the whole to make a $250 million social networking fund a useful or meaningful thing ... the question is whether FB has become the dominant social networking platform and all other fledgling ideas (and businesses that want to create the next big social network) are a waste of time, b/c they're not adding value. Sure, FB isn't perfect, and you can make great money creating fixes to FB, etc, but a lot of people would argue that Twitter/Foursquare don't really add any value, even if they are companies that will make their founders/employees a shit ton of money upon exits...

I think there's a lot of room left for innovation/improvement in social networks ... how about social site that is purely the FB news feed, where you're simply sharing videos/links to things you've read, but without all the superfluous bells and whistles of FB? I just wouldn't be betting the farm on social networking being the hottest tech area to invest in ... we should all be focusing on cleantech, innovating/investing in areas that really matter. I don't need another Chatroulette, but I would like to see us focus on finding cheaper, cleaner alternative energy sources ...

Oct 24, 2010
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