Social media investing and ‘Dot-com’ crash fears as the market heats up

[Saul Kamisky, Finance & Banking Contributor]

Social media business creation and investing are understandably the new ‘Mecca’ for entrepreneurs and investors. With Facebook and Twitter now valued in the billions pre-IPO, investors are eyeing up huge gains when the companies go public which is likely to be soon.

The social media market’s ‘dot-comish’ high has been fuelled this month by banking group JP Morgan Chase‘s announcement that is was allocating  $1.2 billion to its ‘Digital Growth Fund’ established to focus on cash-rich pre-IPO social networking sites such as: Twitter, Zynga, Skype, LinkedIn and Groupon.  To stock up its fund, the banking group is going after rich individuals and plan to approach established family companies who want to move into social media investing but need the guidance of experts.

By the fund’s establishment, JP Morgan Chase has done a major up-value service for the established social media players, such as Facebook and Twitter and has also brought new credibility for financing to the social media wannabes who are eyeing the vast valuations of Facebook, Twitter and others with drooling jowls.

So if you want to ‘get rich quick’ these days, the indications are that starting a social media internet business, or investing in one could be very good for you. But be careful, the world has seen all of this before.  Remember the dot-com bubble which had burst only around 10 years ago? To remind you – as the  newly found power of the internet had, towards the end of 2000, caused many companies to build web-based businesses that ignored the basic rules for successful businesses, in 2001, thousands of them failed post IPO, leaving investors with empty promises ringing in their ears and even emptier pockets?  Then America‘s 400 or so, IPOed Internet companies had been valued at $1.3 trillion which was around  8% of the entire U.S. stock market. The crash therefore, understandably, had been painful, leaving investors with a bad taste in their mouth and an aversion to going anywhere near Internet-based businesses.

So, will social mediaring be any different for investors and entrepreneurs? Possibly, the market is beginning to heat up with social media sites being established each day and with the new venture capital available, the market will probably overheat quite soon, But who knows, however, we only have the ringing of the burst dot-com bubble in our ears to remind us that the Internet is indeed a dangerous place for entrepreneurs and investors.

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