The Social Media Bubble Is Quietly Deflating

The Social Media Bubble Is Quietly Deflating

By Joshua Brustein on July 16, 2013

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Two years ago, when the craze for social media startups was in full swing, a former Facebook (FB) engineer summed up the situation with a memorable lament: “The best minds of my generation are thinking about how to make people click ads,” the engineer, Jeff Hammerbacher, told Bloomberg Businessweek at the time. “That sucks,” he added. It might be over.Social networking companies drew a meager 2 percent of Internet venture capital last quarter

Social media companies drew only 2 percent of the venture capital headed to Internet-based enterprises last quarter, according to data published on Tuesday by CB Insights, a research firm that tracks venture-capital investment. In the two-year stretch that ended in the middle of 2012, social media companies took in at least 6 percent of overall venture capital invested in Internet companies each quarter. But for three of the last four quarters, those social startups have brought in 2 percent or less (with the outlier quarter largely the result of a huge investment in Pinterest earlier this year). The peak came in the third quarter of 2011, when social companies led by Twitter took in 21 percent of the total $3.8 billion in Internet deals by venture capital firms.

Here’s how Bloomberg Businessweek’s Ashlee Vance explained it at the height of the social media money boom:

Once again, 11 years after the dot-com-era peak of the Nasdaq, Silicon Valley is reaching the saturation point with business plans that hinge on crossed fingers as much as anything else. “We are certainly in another bubble,” says Matthew Cowan, co-founder of the tech investment firm Bridgescale Partners. “And it’s being driven by social media and consumer-oriented applications.”

If Cowan was right, the air seems to have been released fairly gently—at least in comparison to the Internet bubble of the late 1990s, which shook the U.S. economy. Sure, Zynga (ZNGA) crashed and Groupon (GRPN) burned, but overall tech investment continues at a reliable pace. The total amount of venture investment in Internet companies last quarter was $3.625 billion, close to what it was in the third quarter of 2011—and much higher than it was before then.

New buzzwords have arrived: Big data and cloud companies are grabbing the imaginations of venture capitalists, says Anand Sanwal, founder of CB Insights. Boring companies that make tech products to sell to businesses seem to be in ascendance. But it’s just not the same.

“Social was so unique in that it had taken up a lot of mind-share,” Sanwal says. “Folks were singularly focused on social, and that was unlike anything we’ve seen to date. It was probably most analogous to e-commerce in the last dot-com boom.“

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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