Are VCs losing interest in social? This study says yes
VCs are cooling off their social media fervor. A new study out today surveyed hundreds of investors around the globe. VC's in 11 out of 13 countries had less confidence in the social networking/new media sectors than last year. That dip was even more dramatic for the US, with VC's ten percent less sure about social then they were in 2012.
The National Venture Capital Association conducts the "Global Venture Capital Confidence Survey" every year with Deloitte. They ask general partners at different sized firms from the Americas, Europe, the Middle East, and Asia Pacific how confident they feel about a ton of sectors -- clean energy, mobile, cloud computing -- and geographies -- domestic economy, global economy, emerging markets. This year's survey took place in May and June 2013 and 35 percent of the responses came from investors in the States.
There's a lot of interesting factoids to be found in the flood of numbers, but the stat about VCs losing confidence in social jumped out at me. It mirrors a trend others have noted: the social media bubble is quietly, slowly, timidly deflating. This latest NVCA report shows that confidence is still high in social media compared to other sectors -- it's just less high than it was last year.
Social is not going out in a big pop, and it's not disappearing anytime soon, but it's also not what VC's look to invest in first. CBInsights, a research company that studies VC investment trends, found that in the second quarter of 2013, social media companies got only two percent of VC Internet funding. They're getting a much smaller piece of the puzzle now than they've seen in past years.
So why isn't social the hot kid on the block anymore? I have a few theories: Facebook's IPO was a bust, the market has gotten saturated, and there's perpetual questions over mobile monetization of social platforms.
Facebook's face flop of a public offering made people question whether its valuation was founded on real earning potential. Investors got nervous about social's money-making potential. And given that Facebook is the biggest social beast of them all, investor anxiety may very well have informed decisions about funding smaller start-ups focused on social.
The market has gotten saturated, some people are tired of social, and there's a cultural pushback ranging from mocking social media job titles to compiling lists of how social is ruining your life. How many networks can a person possibly join?
And as always, there's the struggle to monetize social networks on mobile. Facebook and Twitter have gotten small pieces of the mobile ad pie, and Instagram has no mobile monetization plan. Granted, Facebook showed a possible turnaround with its recent earnings report, but it's by no means out of the woods.
As always looking forward, time will tell whether VC interest in social media picks back up again, or whether they've moved on to a new sector love. Last I heard, VCs were the Romeo to cloud computing and big data startups' Juliet.
[Image courtesy Wikimedia]