Are social media networks still worthy investments? While some naysayers may feel that the investment hype that platforms such as Facebook, Snapchat, and Pinterest experienced is no longer possible, that’s hardly the final say on the matter.
Catching social media leaders-to-be early, investing in them, and watching those investments soar may not be as simple as it once appeared. But exciting new opportunities are always in the making.
Key Takeaways
- The high returns from social media startups may not seem as likely as they once were.
- Yet, new startups can offer fresh ideas and purpose, innovative new technologies that improve user experience, and ways to support human connectivity.
- The app Claim facilitates the satisfying social aspects of shopping people love but don’t always experience anymore due to solitary online buying.
- Breeze is a dating app that encourages in-person connections and arranges first dates at safe locations.
- The many possibilities for more honest and fulfilling engagement, connection, sales, and profit keep social media startups on the radar of investors.
What Attracts Investors to Social Media Startups?
Growth in Users
Why have investors historically been so willing to pour money into unproven business models that are not generating a profit? One of the biggest reasons is the ability some companies have to attract an ever-increasing crowd of users of all ages.
Snapchat, which quickly became a popular hit with teens, is one case in point. The online habits and trends among a younger crowd can evolve quickly.
Investors are well aware that investing early in such startups could prove to be quite lucrative later on.
Growth in Value
Pinterest, the San Francisco-based company, attracted investments of $225 million and reached a value of $3.8 billion, according to The New York Times.
Beyond the potential for a massive increase in valuation, investors understand that, though a social media company may not be generating a profit today, it may in the future.
Take X, for instance, which has proven quite successfully that it is possible for a social media network to yield a profit with a large enough audience.
Furthermore, when X (formerly Twitter) made an initial public offering, it managed to achieve a market capitalization of $25 million on the first day of trading, despite the fact that it had yet to generate a profit at the time.
With that kind of growth potential, it is little wonder that investors continue to focus on social media startups, even if their sales and profit potential are at first unproven.
Changing digital technology, AI, and the drive to launch platforms on which users can achieve goals and enjoy interactions mean that exciting social media investment opportunities will continue to be highly anticipated by investors.
Social Media Startups to Watch
As of November 2024, these social media companies were seen as businesses with compelling futures:
Feeld: A dating app for open minded individuals seeking unconventional relationships such as ethical non-monogamy, polyamory, casual sex, kink and swinging. The company has raised over $550,500. Founded in 2012, based in London, UK.
Breeze: A dating app that encourages actual, in-person connections by sending users new profiles every day and arranges the first date at a safe location. Founded in 2020, based in Berlin, Germany.
noplace: An easy, customizable, and fun way to stay up-to-date with friends that focuses on true connections. Aimed at Gen Z users in particular, with no algorithms or ads, its retro feel and eye-catching interface seem to appeal. Founded in 2023, based in San Francisco, CA.
gowalla: A location-based networking app that facilitates connections with people actually nearby. Its purpose was reinforced by the pandemic, when relationships with people situated locally became more vital. Founded in 2007, closed in 2012, relaunched in 2023, with interest from big players such as Alphabet. Based in St. Helena, CA.
Claim: An app promoting shopping as the social activity it once was, rather than the solitary pursuit it has become. It supports connections with friends to earn cash back and rewards. Appealing to vendors and buyers, shoppers who group together increase their buying power and can engage with a variety of stores. The potential for sales and profit have attracted investors. Founded in 2021, based in Boston, MA.
shelf: A startup that lets users create a personal display of books, TV shows, movies, and games, and share it via platforms like Spotify, Goodreads and Netflix. The company encourages people to participate so they can browse and connect based on more meaningful, less superficial sharing. Founded in 2020, based in New York, NY.
Ren: A company with relationship intelligence technology that gives sales and business development professionals a dependable way to connect and meet. It automates research, meeting planning, and outreach. It alerts users to important contacts and companies, as well as to actions that can reveal and win business for them.
Since 2021, creator startups have attracted almost $15 billion in venture capital. Creator startups are companies that provide tools for content creators such as artists, influencers, podcasters, and writers. Users can create a business by monetizing content, establishing a revenue stream, and developing a brand.
A Look Back: Social Media Companies That Drew Funding
Ongoing investment interest in social media firms won’t fade if a practical purpose, a potentially enormous user base, and innovative technology-driven engagement methods continue to be offered by up-and-comers.
Insightpool
In 2014, TechCrunch reported that Insightpool, a company whose mission was to connect companies to their target audiences and deliver conversions with on-point messaging, attracted some $4 million in Series A funding.
During its seed round, the startup social media network drew half a million in funding. What was it about Insightpool that made investors throw their money at it?
While Insightpool took an approach similar to other social media/technology companies, what truly set the site apart from its larger and more well-known competitors was its approach to filtering.
Investors were willing to bet on Insightpool’s financial future. And, in fact, that paid off when TrendKite, a leader in digital public relations solutions expanded its analytics platform by acquiring Insightpool along with Union Metrics in 2018.
Then, in 2019, Cision, a global provider of software and services to public relations and marketing communications professionals, acquired TrendKite for $225 million.
Medium
Medium was another social media startup. Created by Biz Stone and Evan Williams of X, this microblogging platform offered users the opportunity to publish ideas and stories.
Users could also use the site to curate their favorite stories and make recommendations using their social networks.
If you think it sounds a bit like Tumblr, you could be right. While perhaps no one thought that a site that was originally dedicated to providing a platform for teens addicted to publishing fan fiction would ever take the world by storm, that’s what seemed to happen.
In 2014, Medium reported that it had closed a $25 million round of funding. By 2018, it had received a total of $132 million from investors.
In 2023, the company announced that it expected to become profitable by May 2024.
Cutting Through the Clutter
New ideas and uses for social tech attract attention. Founded in 2012, Boldomatic is a content creation platform and community. Its app allows writers to create text images that increase their visibility on social networks such as Meta, X, Tumblr, Pinterest, and Instagram.
Some Startups Miss the Mark
With an ever-increasing number of social media networks putting their own spin on social engagement, the potential opportunities for high returns cannot be denied. Nor can they be resisted by certain investors.
What began as a class project for a couple of Stanford University students with absolutely no business experience was introduced to the world as Snapchat in 2012.
Within three years, Snapchat had become one of the most popular social media and messaging apps in the history of social media. As Snapchat grew in popularity, investors came knocking at the door with their checkbooks.
Although the Venice Beach, California startup had yet to make a penny, Facebook submitted a $3 billion all-cash offer.
The two 20-somethings behind Snapchat soundly rejected the offer. And while users’ messages on Snapchat might disappear, the buyout offers did not. Before long, rumors began circulating that Google had entered the bidding war with a $4 billion offer.
Again, no dice. Perhaps because the startup turned down such solid offers, Snapchat was able to rake in an impressive amount of funding.
Over the course of six rounds, the social media startup raised almost $650 million in funding. Snapchat attained a $10 billion valuation in 2014. Then, the firm announced another round of funding that might push its valuation to $19 billion. Its IPO in 2017 was huge news. Yet it failed to provide the big returns hoped for by investors.
One lesson is that, although Snapchat continues to be a popular camera app, and its parent, Snap, is considered a solid buy by some analysts, not all social media startups turn out as expected for investors hungry for a big payoff.
How Do You Value a Social Media Startup?
One way to value a social media startup is by comparing it to a similar social media company. You calculate the enterprise value and market cap of the established company and then divide these by the financials to get multiples, such as 5x EBITDA or 2x revenue. You can then apply these multiples to the startup you are trying to value. So if the revenue of that startup is $3 million, the valuation would be $6 million. You can also use the discounted cash flow (DCF) model to value your company.
Is It Risky to Invest in Startups?
Yes, it is very risky to invest in startups. Most new companies don’t make it. Executives might not have the right experience, the company can’t overcome existing competitors, the product doesn’t take, or the financial management doesn’t work out. The future of a startup is completely unknown. Therefore investing in one involves a high degree of risk.
How Do Social Media Owners Make Money?
Most social media companies make money through advertising. Meta, Instagram, and others are paid to run advertisements all across their platforms.
The Bottom Line
As with any investment, social media startups offer no guarantees of big financial paydays. But as long as social media continues to grow and evolve at a rapid pace, the trend among investors to inject funding into such startups is likely to remain strong.
