Social media companies have always been valued much higher and much quicker than most other industries. I believe this is because of the sheer number of users on these sites. Although there isn’t anything to sell these users, just their presence builds value.
This infographic talks about a company called Color. Color raised over 40 million in funding without any revenue or users. This is something new in the social media realm. Before a website ever received real funding it would always need to build a user base. Now a good social media idea is all you need for 40 million bucks.
I believe the strategy of these investment firms is to build up these companies value, and contribute to over-valuing them, until a big gun like Microsoft or Google buys it up for billions. Hey, it is a good strategy. Building users is easy when there is millions of dollars to make a free site better.
Linked-in just went public and the market when crazy for it. Think about it if Facebook pulled that. Facebook has made it clear they want to be a forerunner in the tech industry. This is looking like a great way to do that. [Via]358