A Primer on the Social Media Investment Landscape after LNKD (with Chuck Templeton, David Menlow, and Chad Bockius)

Yesterday was big for social media. LinkedIn, the first of the "big three" platforms to float a public offering, saw a wild first day of trading on the NYSE with over 30 million shares trading hands as its issue price soared from the $45 IPO figure to close at $94.25, registering a 109% gain on the day. A surge in volume late in the morning took LNKD to its intraday high of $122 before retracing its gains.

In the closing minutes of the trading session, the question on everyone's mind was whether a company that made a mere $15 million last year could really be worth the $9.1 billion that the market ascribed to it. We consulted a few different perspectives to explore this. As we watched LinkedIn wind down its first day on the public exchange, Benzinga sat down for a live broadcast with Chuck Templeton, founder of OpenTable and founder and CEO of social media start-up Oh So We; David Menlow, president of IPO Financial; and Chad Bockius, CEO of SocialWare.

We asked Mr. Menlow, who has been covering initial public offerings exclusively at IPO Financial for 21 years, for his initial reaction on the LinkedIn float. Regarding the intraday high, he told us, "I am unable to breathe in that kind of thin air, and I would imagine many of the investors who bought at those levels are wondering whether or not they are ever going to see that price again." He had a very straightforward message for those investors, saying they were "walking on a razor's edge if they believe that this is a model that is going to continue unabated. We had an explosively shocking move with LinkedIn. The company is not worth the valuation right now that it's showing. I believe that once the anesthesia wears off the stock could be appreciably lower, but not lower than its IPO."

Mr. Bockius pointed out that in the social media space, "you've seen some home runs, but by and large, you've seen more questions than answers." Indeed, one of those questions is how these platforms, with their loyal user bases, can monetize their business plan. For insight, we turned to Mr. Templeton, who founded OpenTable, a successful social media venture that weathered the tech bubble of the late 1990s and eventually went public in 2009. He agreed that "there is still a lot to be determined in that," but he gave us a valuable insight into the state of the industry as it stands. Mr. Templeton recently founded and now helms Oh So We, a social media platform that brings neighbors together. On growth, he said, "The internet user is starting to understand these types of networks, and that is why you are seeing such an increasing adoption rate of these particular things. For a long time, people didn't know what they were and what they would get out of them, but I think you're starting to see that now, and people are starting to have multiples of these. They're on Facebook, they're on LinkedIn."

We asked Mr. Menlow to compare the current wave of interest in start-up tech and social media IPOs to the dot-com bubble he covered a decade ago. While he conceded that "valuation wise, to some extent," there seem to be echoes of the dot-com era, he also explained that "we have a very educated market" and that "there is not going to be as liberal an investor climate" in which he believes a similar situation could arise. Whereas tech companies of the dot-com era said, "you give us the money and we'll show you what we can do," he said that "what is happening in social media is everybody is showing everyone what they can do, and the acquisition of new technology, the proceeds of the offering not just paying off the insiders."

Giving his outlook for the future of investment in social media platforms, Mr. Bockius told us that "While the excitement and the pent-up demand for this IPO may have led to some very crazed activity, I think the other view of this is that we really don't fully yet understand how big this can get in terms of how these sites can impact businesses and the value they can create." Further, he explained how "An interesting thing to watch and realize is that these sites are platforms, and by definition, much more is going to be built on top of them and around them that's going to create massive amounts of value in the market and will obviously have a huge impact on the strength and value of each of these sites."

When asked about valuations, Mr. Menlow said, "the valuations that we see now may appear to be high, but the companies that are coming public in this space are going to metamorphose into something very different over the next 9 to 18 or 24 months. So, at that time, valuations will probably continue to move higher as some very, very smart people will be able to monetize this investment and show everybody that it's going to turn down to the bottom line."

Mr. Templeton echoed his points on valuation, saying, "There are people who are seeing how these sites are monetized, and they get that, and they get the critical mass and the network effect, and they're excited about that. That's why we're seeing some of these valuations that I think in some instances don't look justified from the outside, but from the inside, I'm sure they do."

Mr. Menlow, however, provided a word of caution as well: "I fear that the changes we're going to see now are as I said, the all clear signal is going to be let loose, and other, smaller companies…can get into this market and get these incredible valuations." He explained that "The talk going around now is the dot-com bubble back again and this time only bigger. I'm not saying if you're not a Twitter or a Facebook or a LinkedIn that your deals are going to fail, I just don't believe investors are going to be jumping out of their shoes to get to these other deals."

Be sure to check out the audio of the interview in its entirety: OpenTable founder Chuck Templeton, IPO Financial president David Menlow, and SocialWare CEO Chad Bockius on social media investing

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