Commentary

JP Morgan Raises $1.2 Billion to Invest in Social Media

Not long after Goldman Sachs raised a cool billion from private investing clients for Facebook, JPMorgan is getting into the social media game with $1.2 billion raised from its own private investing clients.

In a sign of the huge interest in social media -- and more specifically, confidence in its profit potential -- the new JP Morgan Digital Growth Fund raised roughly twice the original target of $500-$700 million. While no specific investment candidates were named, press reports indicate it will only invest in social media businesses with proven business models (limiting the field considerably).

Like the Goldman Sachs-Facebook deal, investments from the new JPMorgan fund could allow social media companies to delay or even avoid public offerings on the stock market -- while simultaneously stoking demand for such offerings to even higher levels.

But at least in the case of Facebook and Goldman Sachs, this approach also attracted unwanted attention from the Securities and Exchange Commission, which used the threat of regulatory action to force Goldman into an embarrassing retreat by limiting investment opportunities in Facebook to non-U.S. clients. The SEC specifically warned Goldman Sachs that its aggressive promotion of Facebook to private clients may have violated rules which forbid investment banks from publicizing private investment opportunities (even though Goldman's clients signed confidentiality agreements promising not to speak to the press).

Wedbush social media analyst Lou Kerner noted the implications of the continuing slant towards private -- rather than public -- investment: "The $1.2 billion raised by JP Morgan is yet another sign of investors' growing appetite for investments in social media, which currently can't be satiated in the public markets.  Since the appetite for public equities is, by definition, many multiples bigger than for private shares (given the lack of liquidity) we can only imagine the enormous investor interest waiting on the sidelines for these companies to become public."   

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