Tag Archives: startups

SocialMediaInvestments

How to invest in social media? It certainly isn’t stocks.

When I first started to understanding the value of social media, I wanted to take that knowledge and use it in my investment decisions.

I started doing Google searches such as “Social Media stocks”, “Social Media publicly traded companies” and the like.

I quickly found that there weren’t any pure-play social media stocks.  Even those companies, who owned social media related brands, were the weaker of the social media platforms.  You could buy News Corporation who owns MySpace, but who wants to invest in MySpace, let alone have to invest in all the other News Corp companies.  You could invest in United Online, but then you would be stuck with what I view as a disaster site, Classmates.com.

After a weekend of research, I determined that there wasn’t really any social media investment opportunities in publicly traded stocks.

Today, a year after all that research, nothing has really changed.  In fact things might have gotten worse.  A LinkedIn IPO is in the works, but no definite date has been established.

Startup and Angel Investing

I determined there are two ways to invest in social media companies:  invest in startups and/or have access to secondary markets were non-public companies are traded.  Both of these options require having millions of dollars in personal equity and are out of my league.

Even if you have those funds, investing in startups is difficult.  You have to be connected with the seed capital or angel investor networks.  Prominent mid-sized angel investors are actually having trouble finding things to invest in as so much money is now being invested in startups.  Dozens of articles have been written about a “startup bubble”.

Russian billionaire Yuri Milner is providing startup funding without even considering the business model.  If a company can get into Y-Combinator, a start-up incubator, the company automatically gets $150,000 in funding just for joining the group.  And the terms of the funding are extremely favorable to the company, not the investor.  It is difficult for anyone to compete with that.

When a social media company finally goes public.

So what about when the company finally does go public?  Then the average person with money in their Roth or 401k will be able to have a fair shot?

Not really.  Yesterday, JPMorgan announced they are starting a $500 million to $750 million “Social Media Fund”.  This fund will provide financing to established businesses with additional investments in late stages before they go public.  This type of funding isn’t really even needed by most of these companies. The secondary market and traditional investor funding largely provide what is needed for these businesses.  But they aren’t going to turn down the money.  This type of fund allows large banks and their clients to get access to these companies before they even go public; taking out another layer of value.

Most of the value in social media stocks will be gone by the time any of these companies get to the stock market.  Social media is powerful enough that these companies may continue to do well. Since the hype for social media is justifiably high, it might make sense to get in for the short term on almost any company that has legitimate social media elements.  The demand is there for these investments, so the price will likely continue to rise, irrespective of traditional evaluations.

How you can actually invest in social media.

The takeaway from all of this is that if you want to take advantage of the power of social media, you have to invest in yourself.    If you have an idea for a startup, get working on it.  Build a prototype.  There has never been a time like this where there is so much money willing to be invested in the next social media related product.  Even if it is a niche product, the demand is still there.  You have to be a creator.

If you don’t have a product or business idea, invest your time and money in social media for whatever business or project you are currently working on.  Wall Street will hopefully never find a way to take the value out of your own social media efforts.

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I am hoping that I have just missed some obvious social media stock plays.  If you have any you would like to share, I would love to hear about them in the comments section.  Also if you have thoughts about investing in social media, please feel free to share them.