Money Rushes Into Social Start-Ups

By GEOFFREY A. FOWLER

As Wall Street and other investors clamor for a piece of social-networking giant Facebook Inc., Silicon Valley venture capitalists are betting on a new generation of companies that hope to unshackle social networking from personal computers—and shift it to the cellphone.

On Thursday, Color Labs Inc., a phone-based social network founded by veteran entrepreneur Bill Nguyen, is opening its doors. The Palo Alto, Calif., start-up recently secured $41 million from top venture-capital firms including Sequoia Capital even before the company’s iPhone and Android apps were ready to debut.

The idea behind Color is that a phone’s location-sensing abilities can build a user’s social network for them, allowing users to share photos, video and messages based simply on the people they’re physically near. The company’s view on privacy is that everything in the service is public—allowing users who don’t yet know each other to peer into each other’s lives.

Color is just one of a growing number of social start-ups betting on smartphones that are now attracting a venture-funding rush. Many of the companies feature photo taking and sharing at their core, such as Path Inc., founded by former Facebook executive Dave Morin. It received $8.5 million last month from Kleiner Perkins Caufield & Byers and Index Ventures. It has also had conversations withGoogle Inc. about a buyout, according to a person briefed on the discussions. Google declined to comment.

Another phone photo-sharing company, Instagram, was barraged by inquiries from nearly 40 investors before settling last month on $7 million from Benchmark Capital.

“We would have people show up at our offices every other day wanting to meet while we were trying to get work done,” said Instagram co-founder Kevin Systrom. Since launching in October, the service has nearly three million users, he said.

In addition, Yobongo Inc., a three-week-old iPhone app that lets users chat with people located in their geographic area, said Wednesday it raised $1.35 million. In January a group-texting service called GroupMe said it raised $10.6 million.

The flood of venture capital into mobile social start-ups is the latest sign of Silicon Valley’s Web-fueled boom. In recent months, investors have driven up the valuation of Facebook above $60 billion and social-gaming company Zynga Inc. to $10 billion.

Behind the spurt of new services is also the idea that the phone, carried by people at all times, can reinvent the notion of a social network by sharing more real-time information about where people are, what they’re seeing and even who they’re around.

The phone “provides a platform for developers to build experiences that are more personal in nature,” said Path’s Mr. Morin. What’s different now is the ubiquity of smartphones and tablets. “Now you have an opportunity to create these experiences at scale,” he said.

The rush into mobile social companies also comes as Facebook is honing in on phones. Facebook, which has more than 200 million users of its services on cellphones, this week bought mobile-technology company Snaptu and earlier this month acquired group chat room service Beluga.

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