Internet investments: Venture banking on social networks

John Bakie
19 July 2010

Tweet
Facebook
LinkedIn
Google plus
Send to

Social networking has enjoyed a meteoric rise in recent years and the sectorтs biggest player, Facebook, is this week set to announce it has 500 million users. However, there remain doubts over whether social networking can be profitable, but this has not stopped some venture capital players investing. John Bakie investigates

Facebook has seen its membership double in size over the last year, was recently valued at as much as $12bn and is thought to be planning an IPO. But there are concerns the firm, and social networking itself, are being massively overvalued. Despite this, the sector has received a number of early-stage investments in recent months.

When coming up against powerful social networking behemoths like Facebook or MySpace, some investors hoping for direct exposure have opted to focus on more specialist operators, serving niche markets and often offering associated services. ISAI recently backed French website Covoiturage.fr, which offers services to facilitate car pooling through social networking. In the UK, Index Ventures took a similar approach, providing $1.3m for GroupSpaces. The site allows social and sports clubs to manage memberships online and makes income from premium accounts, targeted advertising and transaction commissions.

Others have opted for less direct exposure to the market, offering ancillary services through social networking platforms. Providing gaming activities via social networking has been popular after the success of applications such as Farmville. Earlybird Venture recently led a funding round for CrowdPark, which provides a social betting application through Facebook and mobile phone applications. The venture investor says it was interested in the company's combination of both social networking and betting, which has been popular online, in its product.

There are also companies offering B2B services for those active in the social networking space. SponsorPay received $5m of funding from Hasso Platner Ventures and Team Europe Ventures last month. The company helps brands provide offers and advertising to users of social networks and online games. Meanwhile, Luxembourg's Vanksen, which offers clients a buzz marketing service via social networking sites, received €4m from Quilvest in May.

The success of Facebook's IPO could prove a good barometer of the potential for social networking to make a profit. Venture players that have invested in social networking and the businesses that serve it will, no doubt, be hopeful this major Internet business can take off.