Facebook keeps getting bigger. Twitter isn't going away any time soon. Even the companies built to take advantage of these companies' social-media wiring--the Groupons and Zyngas of the world--have gotten huge in their own right. It's ubiquitous, and arguably mature.
So why does Sand Hill Road fixture Kleiner Perkins Caulfield & Byers, which has spent nearly four decades investing in companies like Amazon, Google, Intel, and AOL, think it's the right time to start a fund specifically geared toward new investments in social media?
The venture firm, which had a Java-specific fund in the 1990s and launched an iPhone development fund two years ago, launched its $250 million "sFund" for social media investments last month at Facebook's headquarters, and counts Facebook, Amazon, Zynga, and Comcast as investors and strategic partners. It's already invested in some start-ups, like pretty iPad-oriented feed reader Flipboard and teen media-sharing site Lockerz, and some not-so-start-ups, like enterprise social media manufacturer Jive Software. What's next? CNET sat down with Bing Gordon, the Kleiner Perkins partner and former Electronic Arts executive in charge of the fund, this week in Silicon Valley to find out what's up.
On how it all got started
Gordon said the sFund came to be when Kleiner Perkins' partners began looking at their in-the-works deals this spring and realized that a lot of them were, well, social.
"Last May and June we were just making an investment in Lockerz, we were deep in discussions with Jive, we were deep in discussions with Flipboard," he explained. "I can't remember when exactly they all signed but we were kind of in all those, and were realizing that we're meeting these companies, we're looking at them through a lens of how smart are they about social. Through Zynga (an existing portfolio company) and talking to some big partners of various kinds, we just realized that the number of people in the world who understand how this really works is limited. So we got some insight along the way."
On how he hopes a social-media fund will help like-minded entrepreneurs
The entrepreneurial lifestyle is often a solitary one, and so Gordon said he hopes to change that somewhat. "Being the CEO and entrepreneur is pretty damned lonely," he admitted. "The only time it's not lonely is when you've got a bunch of investors fighting to get a prom date. But other than that it's just lonesome to be in charge, so to get together with other people with the same vision on the same mission who don't compete is up-leveling and also reassuring."
There will be formal events for portfolio companies, too, something to the tune of what investor-slash-incubator programs like TechStars and Y Combinator have popularized over the past few years. "(We'll) get everyone together in a room somewhere in kind of a mini-symposium two or three times a year. That's what we've done with the iFund...we bring in outside speakers, (and there's) strong support from Apple."
On why he thinks the supposed limits of social networks are obsolete
Many arguments in favor of limits to online social networking invoke Dunbar's number, the figure proposed by anthropologist Robin Dunbar that suggests that the number of real human relationships that a given individual can have is limited to about 150. That's something that could spell less than sunny forecasts for a industry in which social connections need to keep escalating in order for profits to keep expanding in turn.
Bing Gordon's take is that those limits are going away in the first place.
"Dunbar's number is changing because of the efficiency of social networks. We're going to be able to keep 500 relationships warmed up instead of 120," Gordon said. "Social networks improve social capital so efficiently that more people are doing it. People who start using social networks don't stop. There are just too many advantages. You meet significant others, you get a job, you find out what's going on, you save time."
On how the sFund actually makes investments
No, it's not an early-stage fund or an incubator, Gordon explained. "What we said is, for the first time for Kleiner, that the sFund will invest as little as $100,000, as much as $100 million. It's a sense that there's so much going on and there's such big players at risk who need to be reinvented that we want to play at both ends."
As for the actual structure of it: "The sFund is actually two pieces. There's a set of new, limited-partner investors. That's a fund, and then there's an initiative where we carve out money from existing Kleiner Perkins funds and the two invest side-by-side. Kleiner did this in the 1990s with the Java fund."
On whether there are too many faddish social-media apps getting funding at the moment
When CNET sat down with Gordon, tech blogs and mainstream news outlets alike were (and still are, for that matter) filled with reports about the fast-growing, trendy, and often questionably viable social-media companies over which investors are going nuts. Given the low barrier to entry, social media seems like a field that can very easily attract loads of complete flops.
"It's a rising tide. On average it lifts all boats, but some boats are going to turn out to have leaks and some boats are going to have bad navigators and they're going to end up on reefs," Gordon said. He said there was similar sentiment about Kleiner Perkins' iFund. "A couple years ago when Kleiner announced its iFund, there were many skeptics--many skeptics who became late-stage investors in iFund companies. I think that's what an investment thesis is. We think this is going to be good. Other people don't. OK."
On the recent trend of start-ups "flipping" early to bigger buyers rather than trying to grow on their own
This is one where Gordon was ambiguous. Lately, there's been an apparent uptick in companies like Google and Facebook (and to a lesser extent, AOL) snapping up small social-media start-ups and often shutting them down in favor of integrating the founding team into the new parent company's executive ranks. Could any of those start-ups have had the chance to grow into real businesses, or were they getting speedy bailouts?
Gordon amusingly referred to the investor's side of this controversy as "when to hold 'em or when to fold 'em."
"I think if you start a company, and you have a vision, and you change the vision, just do it with honor," Gordon explained. "I was talking to one guy who's like, 27 years old, and he started a company, and I said, 'Dude, if this thing works you could make 10 million bucks in a year. After that it's going to be a boring company. But go do it real fast, because in your 20s to have $5 or $10 million in your pocket changes your whole life. This is not a potential Internet treasure, this is a life foundation. Run like hell. And that's what he did--I think it's just important for every person to understand their goals."
On his distaste for lazy zillionaires
Start-ups cashing out quickly might not irk Gordon, but he said he can't stand it when people cash out and zone out.
"I do have a bias against people who retire, I have to admit," he related. "I hate seeing high-value people stop. I kind of think it's a sin. I can understand it, but it's hard for me to forgive. I understand 'go fallow,' I understand being burned out, but I don't understand giving up on being productive...I just recoil when I see people who've made money and stop. It's kind of like having a sports car that never gets driven."
On one market where investments in social technology could really change things
Education reform is a hot topic, but repeated efforts to shake up the U.S. public school system have only seemed to make the dire situation more prominent. Gordon thinks it's time for private enterprise--namely, Silicon Valley--to step in, but to proceed with caution.
"I'd like to get involved in the 'game-ification' of education," Gordon explained, talking about how it was evident in his years at Electronic Arts that video games with no ostensible academic slant could still manage to teach kids a thing or two. "I have mixed feelings about it, and here's why I'm mixed--every other investor thinks it's a bad idea, because they've been burned so often...What you don't want to do is get mediocre educators and mediocre technology creators teaming up thinking they deserve to be rich. But I say there's educators now who've grown up since Nintendo and on the Web who are terrific educators and terrific thinkers about technology."
On his dream investment (no, really)
"I have a daughter who's a senior at Yale," Gordon said. "She's a Swahili-speaking African-studies major who wants to work in television. I would love to invest in her television production company. I think that'd be really cool."
He paused. "With Tina Fey as her co-founder."