Wall Street Turns to Investments in Social Media

by James Barry March 7th, 2011 

wall-street-newsThe soaring rise of popularity of social media and social networking sites has Wall Street investment banks licking their chops " again.

In early January, leading investment bank, Goldman Sachs announced it was buying a stake in Facebook. While the purchase was originally intended to permit its wealthy clients to invest in the privately held social media giant, The Economist reports that Goldman Sachs was forced to restrict sales of Facebook holdings to non-U.S. clients for fear of triggering Securities and Exchange Commission filings. Nonetheless, the Goldmans purchase helped establish an approximate value of $60 billion for Facebook, arguably the Internets premiere website.

Meanwhile rival investment bank, J.P. Morgan Chase has created its own investment fund for buying stakes in promising social media companies. Its new $1.22 billion Digital Growth Fund is reportedly negotiating to buy a minority stake in social media darling, Twitter. Morgan Chase's investment could end up boosting the valuation of Twitter to almost $4.5 billion, a sharp increase from its most recent valuation of $3.7 billion two months ago.

Investments by the fund are also expected to extend to other sectors of social media, a broad and rapidly expanding group of companies like the gaming giant Zynga and providers of group coupons like LivingSocial. []

JPMorgan plans to invest in companies with established business models and steady revenue before they go public in widely anticipated stock sales.
New York Times

Dont look for a listing of the J.P. Morgan Digital Growth Fund on eTrade.com, however. Apparently, the minimum investment in the new fund is $250,000, according to filings with the SEC.

Ordinary investors will likely have to wait for Twitters first initial public offering (IPO) to buy Twitter shares for their 401(k)s.

Goldman Sachs investment in Facebook was widely seen as the first step in Goldmans underwriting an IPO for Facebook, an IPO that is expected to occur sometime in early 2012.

J.P. Morgans investment in Twitter is also likely a preliminary step in an eventual IPO. When or if such an IPO occurs is to be determined by the progress Twitter makes in monetizing its platform " a bigger challenge than it was for Facebook, given the 140-character limit on Tweets.

James Barry

James Barry covers social media marketing and related topics for Wolf21.com, a Toronto-based search engine optimization firm offering a full product line of SEO services.

Wolf21 Internet Marketing

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