An investment boom is underway in consumer video websites, drawing warnings of a new bubble in the venture capital business.

The $1.65bn sale of YouTube to Google last year, along with an expected wave of advertising tied to online video, have prompted a stampede that some Silicon Valley financiers are already comparing to the dotcom bubble, though at this stage at least it remains on a far smaller scale.

Video has become the hottest corner of a broader financing boom tied to so-called “Web 2.0” internet companies. The amount of US venture capital flowing into video-related start-ups of all types jumped by 95 per cent last year to $682m, according to figures compiled by Dow Jones/Venture One.

Part of this involves software, networking and other “infrastructure” companies deemed less risky than websites trying to attract a consumer audience.

Some 30 start-ups have already raised venture capital money to create consumer video sites, according to Todd Dagres, a partner at Spark Capital, whose investments include video site Veoh Networks.

Most are in their early stages and have raised only an average of $10m each, but eventual investments in these companies as they try to expand are set to top $1bn, he estimated.

Like other financiers and entrepreneurs caught up in this wave, Mr Dagres predicted an eventual round of failures that would see most investors lose money. With many of the start-ups in their early stages and drawing in money, though, the shake-out is unlikely to come this year, he added.

Tom McInerney, founder of Guba, one of the first consumer video sites to strike a deal to distribute professional content from an established media company, said he was seeking to sell the company now rather than wait for the inevitable shake-out.

With internet users gravitating to a handful of the most popular sites and big media companies starting to call the shots over how their copyrighted content is viewed online, many start-up sites are likely to struggle to find an audience, Mr McInerney said.

Despite that, venture capitalists report a continuing flood of proposals for new start-ups trying to cash in on the video boom.

Copyright The Financial Times Limited 2023. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article


Comments have not been enabled for this article.