Foursquare's Marketing Potential: Better Not Bet This Tech Bubble Will Burst

by: Mark McQueen

I know that the New York Times is concerned about a private company technology bubble in Silicon Valley, but the U.S. VC industry has climbed a wall of worry over the past few years, and I don’t subscribe to the theory that the bitter end is in sight.

Apps and social media appear to be the two areas of highest concern at the NYT, but the VCs we work with seem to have figured out how to do the deals and still give themselves a chance to make good money. Keep the capital invested at figures less than $20 million, unless you break 50 million users, and you’ve got the right framework for a good return of capital multiple. Try to do a chip deal for less than $75 million.

A couple of years ago, I interviewed Roger McNamee for the CVCA Private Capital magazine. Mr. McNamee runs Elevation Partners, and is very impressive on every level, but he was mildly derisive about the social media investing updraft of the day. Upon reflection, he was setting himself up to miss the boat:

Think Twitter. It is a social phenomenon, but when will it be a business?

It is so easy to fall into that trap, of course. I do it all the time, and could have easily done the same thing about Foursquare. Until I saw that data that it’s producing. Stop by any Foursquare friend’s Facebook page. This is what you’ll likely see:

Cheched in for yoga
Checked in at Starbucks
Checked in at high end boutique
Checked in at restaurant
Checked in at golf club
Checked in at airport
Checked in at office
Checked in at gym
Checked in at Starbucks
Checked in at movie theatre
Checked in at restaurant
Checked in at kids soccer practice

Hourly. Daily. Weekly.

The patterns are definitely there. And those patterns produce data. Think about what value Nielsen was able to create with a few hundred boxes that tracked what familes watched on their bunny ear television sets.

It may well be that the success of Groupon, Facebook and Twitter will generate some capital overflow for a few unworthy startups, but there’s a difference this time. The Book4Golfs, Metrophotonics, Webvans and Peachtrees of 1999 are out of business. Not many of the names with big capital raises made it through the tech winter of the last decade 2000s. That was a definite bubble; but I don’t see the direct link to today’s environment. We now have the benefit of hindsight, which investors and pension fund LPs didn’t have in 1998/99. That should make for wiser investing. Are you prepared to bet that Facebook, Foursquare and Twitter will be dead in 10 years?

Not me.

Disclosure: None