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— Analysis —
Browse other stories in Tech Confidential Special Report: The state of early-stage investing
For seed-stage investors, the sweet spot is social media. Startups in the sector, from multimedia microblogging services to online communities for dog lovers, have little overhead and capitalize on the Internet infrastructure the previous generation of entrepreneurs built a decade ago. Better yet, they are cheap to create, typically requiring less than $1 million to develop a product and bring it to market. Even Facebook Inc., with its multibillion-dollar valuation, subsisted on a $500,000 investment from PayPal Inc. co-founder Peter Thiel's Founders Fund of San Francisco before Sequoia Capital of Menlo Park, Calif., and Accel Partners of Palo Alto, Calif., delivered its first proper venture funding. Most social media companies remain in their infancy, but a few that received seed-stage backing three or four years ago have enjoyed exits. For instance, Yahoo! Inc. of Sunnyvale, Calif., acquired photo-sharing site Flickr and bookmarking service Del.icio.us Inc. for $30 million apiece in 2005.
Some also have succeeded in attracting traditional venture firms for
larger rounds to broaden their reach. Following are 10 social media
companies, each with only a few million dollars in funding, that are
making a splash.
Dogster As the user counts for Facebook and MySpace.com continue to spiral upward, niche social networks focused on specialized interests stand out by cutting through the noise. Ergo, Dogster Inc. of San Francisco, a social network for dog owners (and dogs!) that became profitable before taking in any outside capital at all. Founded in 2004, Dogster went to the feeding dish for $1 million from angels, with former Goldman, Sachs & Co. Internet research executive Michael Parekh taking a board seat. Jeff Clavier, who invested through his SoftTechVC fund, says about a sixth of Dogster's revenue comes from sales of virtual goods -- typically bones and toys -- featured on a dog's profile page, although the site also generates income from paid subscription services and advertising. Although Dogster targets dog lovers, cat lovers need not feel left out: The company operates Catster as well. FriendFeed If microblogging service Twitter Inc. emerged as the must-have Web 2.0 tool last year, FriendFeed Inc. of Mountain View, Calif., which four former Google Inc. executives founded, inherited the mantle in 2008. FriendFeed's application culls information from a user's friends' activities around the Web, centralizing them in a single convenient stream or dividing them into "rooms." Twitter is also one of the few applications that bridges services available on the Web and those inside Facebook, potentially making it a keystone property as Internet and media companies battle for users and advertising dollars. Co-founder Paul Buchheit, who coined Google's famous "don't be evil" motto, was already an experienced angel investor before launching FriendFeed. Buchheit and co-founder Sanjeev Singh acted as FriendFeed's own angel investors until Benchmark Capital of Menlo Park led a $5 million Series A round that rolled up their previous investments in February 2008. MOG Because so many people regard their musical taste as part of their identities, social networking and blogging are often closely tied to music. MOG Inc. of Berkeley, Calif., operates its own network of music blogs that feature streaming songs, allowing users to post their own favorites and listen to other people's while meeting fans with similar tastes. It's one of the only sites that wraps up music discovery, user-generated content and on-demand streaming in one place, thanks to a partnership with Real Networks Inc.'s Rhapsody music service. MOG accepted $3.2 million in two rounds from the Angels' Forum, an affiliation of individual investors based in Palo Alto, Calif. This past spring, major record labels Universal Music Group and Sony BMG Music Entertainment, both of Los Angeles, kicked in the majority of a $2.8 million round that included further investment from the same angel group. Outside.in Neighborhoods are niches, and as the sheer amount of information on the Web grows, niches have become more important than ever. New York-based Outside.in Inc. aims to be a neighborhood information and services site, currently serving hundreds of districts in dozens of U.S. cities. Founded by Steven Johnson, author of "The Ghost Map" and other intriguing nonfiction books, Outside.in culls news stories, blogs, map and business data, and other neighborhood-specific information from around the Web, fostering discussions among local residents. It's almost a quaint irony that the 2.0-style site mirrors the way the original social networks were born: from knowing your neighbors. In May 2008, Outside.in announced a $3 million Series A round that included venture firms Milestone Venture Partners and the New York City Investment Fund, both of New York, as well as Union Square Ventures and Betaworks, bringing its total funding to $5.4 million. The startup also hired former About.com general manager Mark Josephson as CEO. Futurist-journalist Esther Dyson, Netscape Communications Corp. author Marc Andreessen and Xerox Corp. Palo Alto Research Center director John Seely Brown were among its seed backers. Pownce Once regarded as a sort of enhanced Twitter copycat that mimicked the microblogging service but included attachments, San Francisco-based Pownce Inc. has taken big steps since it revealed its first outside funding in January 2008. The service, founded by programmer Leah Culver, Digg Inc. co-creator Kevin Rose and Digg creative director Daniel Burka, now allows users to share large files with each other and has opened a collaborative development platform. Bootstrapped for about six months, Pownce took a small round of funding of undisclosed size from two investors who hold stakes in both Digg and Twitter, key Silicon Valley angel Ron Conway (see related story, page TK) and Maples Investments managing partner Mike Maples Jr. And as Pownce has made strides to differentiate itself from its better-known microblogging peer, Twitter's frustrating downtime issues and spotty service could soon prompt users to explore their tricked-out options -- even becoming paid power users of Pownce, giving the upstart an initial business model while Twitter has yet to reveal one. Rapleaf We all have online reputations, whether we choose to try to control them or not. Rapleaf Inc. of San Francisco provides a method of managing individuals' online reputations similar to eBay's Feedback feature while collecting information about them from around the Web and offering it up as a people-search service. The two-year-old company has collected $1 million in funding from PayPal co-founder and early Facebook investor Peter Thiel, as well as SoftTechVC, Conway, Senkut and Convergence Partners venture partner Eric Di Benedetto. Like Facebook, Rapleaf knows the value of mining and harvesting vast amounts of information about people and centralizing it in searchable form. Rapleaf also operates Upscoop, which automatically searches for a user's contacts on a variety of social networks, and TrustFuse, which sells aggregated data to marketers. Some observers have floated privacy concerns about Rapleaf's projects, but the company maintains that it's "more profitable to be ethical." Seesmic Another Twitter descendant, Seesmic Inc. sports a video component that allows users to post short clips and create conversations. Founded by serial entrepreneur Loïc LeMeur, the company called on Skype Technologies SA founders Janus Friis and Niklas Zennstrom, as well as a dozen seed investors including TechCrunch blogger Michael Arrington, former America Online Inc. chief Steve Case, SoftTechVC, Hoffman and Conway, for $6 million in fall 2007. Seesmic is used in the popular comments section of the TechCrunch blog and has designs on powering a variety of Web video services. To that end, it has already spent some of its money, acquiring microblog filtering service Twhirl this spring for an undisclosed amount. SocialMedia "When people say there is no way to make money on Facebook, I just laugh," says SoftTechVC's Clavier about portfolio company SocialMedia Networks Inc. "Those guys do one thing, which is help developers make money." The Palo Alto, Calif.-based startup is aiming to become the largest advertising network operating on social networks. It's benefited from Facebook's own growth, as well as the massive proliferation of applications that ride piggyback on the site's programming interface. Ravikant, Google developer Jeremy Wenokur, Andreessen and SoftTechVC joined Charles River Ventures of Boston in a $4.5 million round formalized in October 2007. By the end of the year, Clavier says, the company had outpaced its own revenue projections for late 2008 and early 2009. SocialMedia faces tightening competition from widget marketers RockYou Inc. and Slide Inc., which also act as social ad networks, as well as ad marketplace Lookery Inc., another Charles River investment that is also backed by Betaworks, New York's innovative incubator. Someecards Some are snide, some are flirty, and some barely make sense -- but they're nearly all witty. The e-mail greeting cards created by Someecards Inc. of New York have grown virally over the past year, reaching about 1.5 million unique visitors per month this spring. That was enough to attract $350,000 in Series A funding from Betaworks, former Google Inc. executive Chris Sacca and Outside.in founding partner and documentary maker Mark Bailey. Someecards' founders, former creative marketing directors Brook Lundy and Duncan Mitchell, only recently dedicated themselves full-time to Someecards. The still-tiny business is using the Series A round to hire a full-time Web developer, integrate with Facebook's platform, develop tools for user-generated content and build out its merchandising services. A second round could follow as soon as the end of 2008. Tumblr Spun out of Davidville Inc., the design company operated by 21-year-old founder David Karp, next-generation blog tool developer Tumblr Inc. appeared in early 2007. The site boasts an effortless interface for posting links, music and video files and traditional blog posts and adds a friend-following feature familiar to Twitter users. The New York-based company looked to East Coast seed-stage specialists Spark Capital of Boston and Union Square Ventures and Betaworks for a $750,000 round last fall, alongside angels Vimeo Inc. founder Jakob Lodwick, Del.icio.us president Albert Wenger (now a partner at USV), former MTV Networks Co. executive Fred Seibert (Karp's mentor) and Varsavsky. -- Paul Bonanos
Browse other stories in Tech Confidential Special Report: The state of early-stage investing
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