The Social IPO Onslaught is About to Commence

The new wave of tech is the Social Mobile Web, and its leading companies are lining up to go public. We haven’t seen such a lineup since 1995, when Netscape went out and rang the bell on the dot-com mania. Further back, this happened in 1980 when Apple went out (in an overall poor market climate) and set off the PC bubble. Will lightening strike a third time?

The first out is Demand Media (to be Nasdaq: DMD), run by Richard Rosenblatt, who had been CEO of the parent company to MySpace. DMD is a next generation style content site, which mass-produces sites based on hot keywords. Google search begats synthetic content, designed to rise to the top of search results and skim clicks.  Blogger Paul Kedrosky describes DMD’s business as: “find some popular keywords that lead to traffic and transactions, wrap some anodyne and regularly-changing content around the keywords so Google doesn’t kick you out of search results, and watch the dollars roll in.” This modern way to produce content has produced hockey-stick growth, but Google just announced modifications to search results to undermine these synthetic web sites. DMD is highly dependent on search optimization and will quickly modify what it needs to to stay ahead of Google.

How this business dynamic plays out is anyone’s guess.

How this IPO dynamic plays out will set a tone for the coming IPO Season. DMD should go out at over a $1B valuation, and be the largest Internet IPO since Google itself. It is supposed to price at the close on Tuesday (tonight) and begin trading Wed.

On its heel are LinkedIn, Zynga, Groupon and eventually Facebook. LinkedIn is now trading at a $3B valuation. Yes, trading, even though it is not yet public. Markets fill gaps, and a secondary trading market for private shares has evolved for these social IPO candidates. Demand for these shares is hot hot hot, and Facebook ticked to a $70B valuation even as Goldman Sachs did an organized sale of $1.5B at a $50B value.

You might wonder why they have to subject themselves to Sarbanes-Oxley and other nefarious regulatory schemes when they can raise and trade effortlessly in private markets. Well, the Empire eventually strikes back, and the SEC has put pressure on Facebook to go out as its tradeable shares close in on the 1934 Act limit of 500 shareholders.

Until the Empire shuts it down, SecondMarket is a great resource. Here is its current hot list, showing which social IPOs should be hot:

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About Duncan Davidson 228 Articles

Affiliation: NetService Ventures

Duncan is an advisor to NetService Ventures, where he focuses on digital media and the mobile Internet.

Previously he was at four start-ups: Xumii, a mobile social service based on a Social Addressbook; SkyPilot Networks, the performance leader of wireless mesh systems for last-mile access, where he was the founding CEO; Covad Communications (Amex: DVW, $9B market cap at the peak), the leading independent DSL access provider, where he was the founding Chairman; InterTrust Technologies ($9B market cap at the peak), the pioneer in digital rights management technologies, now owned by Sony and Philips, where he was SVP Business Development and the pitchman for the IPO.

Before these ventures, Duncan was a partner at Cambridge Venture Partners, an early-stage venture firm, and managing partner of Gemini McKenna, a joint venture between Regis McKenna's marketing firm and Gemini Consulting, the global management consulting arm of Cap Gemini.

He serves on the board or is an adviser to Aggregate Knowledge (content discovery), Livescribe (digital pen), AllVoices (citizen journalism), Xumii (mobile social addressbook), Verismo (Internet settop box), and Widevine (DRM for IPTV).

Visit: Duncan Davidson's Blogs

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