Silicon Valley’s Search The Next Big Thing

Venture capitalists and angel investors so hot on social media just months ago have largely turned their backs on the space, investors say. Even for the most promising social startups, they won’t pay nearly as high a price to get into deals as they would have a year ago.

That’s true in part because the markets have shown that public investors won’t dumbly buy in at the inflated prices set by private exchanges and late-stage rounds. But it’s also true because some investors who scored a piece of those hot companies in the last funding rounds before the initial public offerings ended up in the red themselves, sometimes deeply. The markets deflated the hype and valuation of those firms faster than they could unload shares.

The investors who bought into Zynga and Facebook at high prices, they look stupid, it looks terrible,” said Promod Haque, managing partner at Norwest Venture Partners. “Once you see people get burned, the discipline returns.”

That renewed discipline includes avoiding riskier deals, paying less for the promising ones (particularly in the late stages) and holding off on IPOs until growth prospects are clear.

Next big thing?

Still, even with the pricking of the social media bubble, hope springs eternal in Silicon Valley.

Total deal making has barely taken a breather. The activity is just shifting into new categories. Opportunities still abound in mobile, cloud, digital media, security and other categories, particularly for companies focused on the business market, investors say.

When asked if we’re still in a tech boom, each venture capitalist interviewed for this story responded with a resounding yes.

“There’s so much exciting stuff going on,” Carolan said. “Video is taking off; mobile is taking off. I think we’re just getting started.”

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