RenRen and the new tech IPO mania

May 9, 2011

Last week another social network went looking to raise money. These days, that’s barely news. But the company in question was Renren, China’s “answer” to Facebook, and the investors who threw money at the company weren’t raw-meat-eating venture capitalists; they were your neighbors.

Renren’s Wall Street debut got a lot of attention: A Chinese company doesn’t IPO on the New York Stock Exchange every day, and the social network space is red hot — just today, LinkedIn,  a professional social newtork, set its IPO striking price range to value the company at $3 billion.

Renren means “everyone” and with serious competition sidelined in the world’s most populous country this social network might just live up to its name. Most favored network treatment may in turn deliver profitability, a little metric which eludes Renren, but which didn’t deter the Street’s fascination with the company: It raised $740 million in its first-day.

The good news is that tech is again awash in money — and that might also be the bad news. The dot com bubble which ushered in the new millennium is hardly a distant memory for either the big risk money takers who lost billions or your neighbors, who may have had less money at stake but lost more in dashed hopes and dreams as they watched their portfolios drop to zero.

Tech always attracts money because there is always innovation going on and it always feels like we’re on the threshold of something big. Just as manufacturing accelerated the future generations ago, today, tech drives all manner of progress, from energy to entertainment — to manufacturing.

So all the frothy valuation buzz seems right on cue.

Here we go again valuing young companies like Facebook and Twitter in the billions, at sky high multiples of their inferred revenues, and greeting others that have never made a profit with open arms, like ZipCar, Demand Media — and now Renren.

Here we go again, as angels, VCs and corporate boards pour money into social, sharing and media apps. Color, albeit founded by successful Silicon Valley entrepreneur Bill Nguyen, got $41 million in backing before it even launched its product — considerably more than the initial fundings of Google.

In the 90s if companies lacked a business model or profits, but had the potential to possibly yield some, they were pushed aside by the “eyeballs” argument — if you were popular, well, then, revenue was sure to follow.

Are “downloads” the new “eyeballs?”

News Corp said last week it had lost $10 million on The Daily since the February 2 , 2010 launch of the publication that is believed to have cost $100 million to reach the start line. Kudos for breaking out that number in this high-stakes gambit to create an indispensable news read available only on the iPad.

By way of mitigating those numbers, News Corp touted that the free app had been downloaded 800,000 times. How much of that was converted into paying customers, they aren’t saying. “We’re not going to build this in a fishbowl,” News Corp President Chase Carey said on the earnings call.

With a market cap of nearly $50 billion, News Corp, like Charles Foster Kane, can afford to lose money for years.

But if you’re vexed that only big players are still getting in on pre-IPO action for Internet darlings you hear about (and use) every day, and are itching to get into the game again, ask yourself how your eToy and WebVan shares are doing.

Photos, top to bottom: China’s Renren Inc. Chairman and Chief Executive Officer, Joseph Chen (C) is joined by executives and guests as he rings the opening bell at the New York Stock Exchange, May 4, 2011. Shares of Renren Inc., one of China’s largest social networks, surged nearly 50 percent in their stock market debut on Wednesday in the latest sign that investors are eager to buy into social media and China’s booming Internet sector. REUTERS/Adam Au; China’s Renren Inc. Chairman and Chief Executive Officer, Joseph Chen on the floor at the New York Stock Exchange, May 4, 2011. REUTERS/Adam Au — NYSE Euronext/Handout

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Renren higher management are busy selling off their stock.

Something is fishy

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