Following the news that Yahoo will acquire social sharing platform Tumblr for a massive $1.1 billion in cash, it’s becoming clear that two of these investing svengalis are Bijan Sabet of Spark Capital, and Fred Wilson of Union Square Ventures. They’re the venture capital rockstars of the social web as their jaw-dropping track records shows — they have been very early investors in companies like Twitter, Tumblr and Foursquare. Wilson was also early to Zynga, Etsy and Kickstarter.

David Karp, Founder and CEO, Tumblr paidContent Live 2013 Albert Chau / itsmebert.com

We’ve seen this pattern before. During the networking boom of the late 1990s, it was Vinod Khosla and Promod Haque of Norwest Venture Partners who scored many of the top deals. Khosla was early to the table with companies like Cerent, Siara and Juniper Networks.

For the first wave of the consumer Internet it was John Doerr who owned it all, and later during the search boom, he and Sequoia Capital’s Mike Moritz led the charge by investing in Google. Similarly, the shift to the social web (or post Web 2.0) has been a happy hunting ground for Wilson and Sabet.

While there are others such as David Sze of Greylock and Jim Breyer of Accel Partners who have found success in social with Facebook, the Sabet and Wilson team has a better on-base percentage. And one of the reasons why these two guys have found gold faster than others is because they are active participants in the social web and invest in what they know.

Sabet, who moved up to number 51 on Forbes’ Midas List in 2013, was described by Tumblr’s founder and CEO David Karp as someone who “lives and breathes,” social media, and as Karp’s “mentor, friend and partner from day zero.” Sabet said in a post this morning that he met Karp when he was 19 and “was immediately taken with his passion and drive to create wonderful things.” His other investments include Twitter, Foursquare, OMGPOP (sold to Zynga for $180 million), and thePlatform (acquired by Comcast), as well as RunKeeper, Boxee, Jelly, Lyft and Stack Exchange.

Wilson, who writes the popular blog AVC, is one of the most winning venture investors thus far in the new century. He rose to number 16 on Forbes’ Midas List in 2013. In addition to Tumblr, Wilson has backed Twitter, Zynga, Etsy, Kickstarter, FeedBurner, Lending Club, Zemanta, ComScore and Tacoda (sold to AOL in 2007).

In a sign of the new power of the New York startup ecosystem, Tumblr is run out of New York, and both Wilson and Sabet are East Coasters — Wilson in New York, Sabet in Boston — but of course spend a lot of time in Silicon Valley. It’s through these two investors, who live across the country from Sand Hill Road, that a major chunk of the web’s leading social brands have emerged.

Pulling out lessons from these master’s investing practices, would be a good topic for a book. But I’ll run through just a couple I see that are obvious. Sabet clearly has an eye for finding the passionate creator founder early, and has an ability to see the future. Wilson has long practiced what he has preached, is utterly immersed in social and has a unique way with words. He writes this morning on his blog about one of the cliches of VC investing: “success has a thousand fathers.”

Clearly Sabet and Wilson are two of the main fathers of this morning’s success story.

Updated at 1:20 PM on May 20, with comment from Fred Wilson. Wilson attributed some of the deals to his Union Square venture partners and says that “investment syndicates are a team.”

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Spark Capital was founded in 2005 in Boston by Todd Dagres, Santo Politi and Paul Conway, and has invested in some well-known tech companies like Twitter, Tumblr, OMGPOP, and Warby Parker. An oversubscribed fund is one where the size of the fund is smaller than interest from potential investors.

General partner Bijan Sabet said the firm plans to continue its current investment strategy for the new fund, looking at mostly early stage deals but some larger growth stage deals as well. A recent report looking at venture capital trends overall for 2012 found that a good number of firms were moving more toward early stage investing.

“We like early-stage investing in companies that we can then be supportive of over time,” Sabet said. “And we’re going to stay with this strategy.”

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Om: What kind of music do you listen to when you work?

Matt: Mostly Hip Hop — Dr Dre, Wiz Kalefa, A Tribe Called Quest. Also, I listen to my brother’s music projects such as his bluegrass/americana band Brothers Comatose, Death Cab and other recordings he is working on. I am also a trumpet player, so i’m often listening to my jazz favorites like Roy Hargrove, Miles, Lee Morgan and Clifford Brown

Om: How do you listen to the music? (Tell us about the gear you use)

Matt: (My co-worker) Hua sits right across from me and he is the DJ in our non-developer area, so we listen to a lot of music straight from his Apple Thunderbolt 27-inch monitor. I listen to Pandora on my iPhone with stock iPhone headphones on my 2 mile bike ride to and from work every day. I have a Jambox for taking music to the park or my roof deck. I want to upgrade to the Big Jambox though.

Om: What are your favorite music apps/services?

Matt: Spotify for DJing parties. Pandora for cruise control while working or biking. We use Turntable.fm in the office on launch days.

Om: What are your favorite music blogs?

Matt: I don’t really read music blogs

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In particular, I love one of their weekly features: Playlist, where they ask some of their favorite people (designers and cool creatives) what they listen to when they work.

I thought, wouldn’t it be cool if we asked people in the tech industry to share the apps they use, their favorite gadgets and most importantly, the songs that inspire them?

Many of them have great and eclectic taste in music, so I thought I would ask them to share what they listen to and how they listen to. And I thought why not ask them about their favorite music blogs and apps and even Spotify/Rdio playlists– after all we all need help with discovery in this age of plenty.

So, with a full tip of the hat and extreme gratitude to folks at Herman Miller, here is our first musical bouquet. Our first candidate is Bijan Sabet, general partner at Spark Capital whose investments include Twitter and Tumblr, not to mention a whole bunch of other cool startups. He is often tweeting about music and blogs his favorite tunes on his tumblr.

What kind of music do you listen to when you work?

Usually new stuff but there are times when you just need to put on The Clash.

How do you listen to the music? (Tell us about the gear you use)

In the office i’ve got my iMac with external speakers I discovered on Svpply. When on the go, my iPhone with my new Bose IE2 headphones. At home we use Sonos all the time.

What are your favorite music apps/services?

ex-fm (social + curation); Soundcloud for new artists are constantly uploading their new stuff to Soundcloud and Rdio, especially if i just want to listen to an album from front to back.

What are your favorite music blogs?

We All Want Someone To Shout For: The founder Will Oliver has awesome taste and is a huge Arctic Monkeys fan. Today he’s got Beirut. I love that blog.

David Noel’s Tumblr always has great tunes and so does Fred Wilson’s Tumblr. And of course, Andy (Weismann) although today he’s got a Bee Gees cover which I’m not sure about. :)

What are you listening to right now?

I’ve got Ben Kweller’s new album “Go Fly A Kite” and the debut Of Monsters and Men’s on heavy rotation.

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Well, not so much. I looked at the list and found that Fred Wilson, who is one of the most-successful venture capitalists of the post-social era, is listed at #20. Wilson is a general partner at Union Square Ventures, a firm he co-founded, and his investments include Twitter, Etsy, Tumblr and Kickstarter.

He invested in most of these companies during the early stage of their start-up life and long before they became household names and were successes. When investors put money in at this early stage, the returns they get from hit companies are much higher. His return on investment on those dollars is much, much higher than say someone who invested in Twitter at, say, a $3.7 billion valuation. I don’t know, say, John Doerr, for example, who is ranked at the #12 spot.

“Everyone in the industry knows USV is the top VC, so any ‘top list’ like Forbes that doesn’t include them is a joke,” tweeted Chris Dixon, an entrepreneur and partner at the Founder Collective. David Lee, who works with Ron Conway at SV Angel, added, “It’s like putting Andrew Luck at #20 in an NFL mock draft.” Bijan Sabet, who incidentally is #57 on the list and has invested in Twitter and Tumblr, added, ”Also list doesn’t take into account cost basis or ownership.”

The point is not to defend or talk-up Fred Wilson — he can do that himself on his blog, and frankly he doesn’t need to. The reason for bringing him up is that the list’s methodology is just weird and, well, ambiguous at best.

Do Forbes and its partners take take into account how much money was invested in Skype and how much of it was actually returned to the limited partners at Andreessen Horowitz? And how do they explain that Mary Meeker is on the list at #42 (ahead of say, Sabet), even though she has been in the business for — wait for the drum roll – 17 months. And well, if we are going to include Meeker on the list, then why not Brad Feld from The Foundry Group, who was an early investor in Zynga, one of the hot investments?

To be clear, I am not commenting on individuals, but more on the Forbes methodology:

For the Midas List, we created our data-based rankings again this year with TrueBridge Capital Partners, a venture capital-focused fund of funds. Also advising us on our final ranking was an expert panel made up of secret sources, including professionals from a premier global investment consulting firm and a leading foundation’s investment office.

The aim of the Midas List ranking is to identify the venture capitalists who are providing the best returns for their investors, while helping create the most valuable and impactful technology and life science companies. To assess performance, we looked at all venture-backed initial public offerings and mergers and acquisitions valued at more than $200 million over the last five years, since 2007.

When I worked at Forbes.com, I got to know a lot of people who worked on Forbes’ lists. There was a dedicated team that worked around the year and dug up little-known facts and details before assembling the final tally of America’s Richest or the Billionaires’ list. The effort that went into those lists was so comprehensive that you could take it to the bank. The  methodology for the Midas List, based  on Forbes’ own description above, is nowhere close to having that rigor. So, if Forbes is serious about this list, it needs to devote resources to it.

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Twitter confirmed the move in a statement to All Things D, which originally reported the news. Wilson and Sabet, of Union Square Capital and Spark Capital, respectively, were two of the first major investors in Twitter and have been on the board for several years.

Apparently everyone is still friends, according to the report. Twitter is rather circumspect for such a high-profile company as to the size and composition of its management team and board, but various reports pegged the number of board members at 10 prior to Wilson and Sabet’s departure, which is quite a few for a company of its size.

Twitter has also revamped its management structure over the last year, promoting Dick Costolo to CEO, bringing back co-founder Jack Dorsey as head of products, and saying goodbye to co-founders Biz Stone and Evan Williams.

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Two of Twitter’s earliest investors — Fred Wilson of Union Square Ventures and Bijan Sabet of Spark Capital — are leaving Twitter’s board of directors. This is the latest shake-up in a long list of shake-ups at the San Francisco–based company. Fortune’s Dan Primack in a tweet postulates that the “Twitter board shakeup reflected in who was offered cash-out on last VC round.” Twitter recently raised a whopping $800 million from a variety of investors, including DST Capital, and it is now valued at over $8.4 billion.

Twitter statement: “Bijan Sabet and Fred Wilson both played important and greatly appreciated roles in our success. Both saw what Twitter could become before most anyone else. We look forward to their continued input as both investors in the company and passionate users of the product.”

Blogging platform Tumblr has raised another round of financing from its existing venture backers, Spark Capital and Union Square Ventures, putting additional pressure on the 3-year-old company to start generating some revenue — something Union Square partner Fred Wilson says the startup is now focusing all of its attention on. The $5 million in funding was what’s known as an “inside round,” in that no new investors joined the financing group, and brings the total raised by the startup to $10 million. Generating revenue could be a tall order, however, given that Co-founder and CEO David Karp has said that the company is “opposed to advertising.”

Karp, who is 23, made the comments to the Los Angeles Times last week, adding that the idea of putting ads on Tumblr pages company “turns our stomachs.” Instead of relying on ads, which many other publishing companies depend on for revenue, Tumblr has been experimenting with charging users for add-ons, including professional-quality themes and other features. The site considered a premium version of its service called Tumblr Plus that would have incorporated some of these features and enhancements, but rejected that idea based on feedback from investors, according to the LA Times. Tumblr competes with other blogging platforms such as Posterous and WordPress.com (see disclosure below).

Meanwhile, Fred Wilson suggested in comments on a blog belonging to entrepreneur Scott Rafer that the latest financing round will be Tumblr’s last for a while, and that the company is now focused on maximizing revenue. After Rafer suggested that multiple rounds from the same group of investors tends to put pressure on startups to “optimize for growth, not cash flow,” Wilson responded sarcastically that this “sure didn’t work out very well for jack, ev, and biz — nor did it work for zuckerberg or pincus either,” referring to the founders of Twitter, Facebook and Zynga, respectively. Wilson added that “some businesses should be allowed to scale and that takes capital — going for revenues and profits too early in some businesses is a mistake.” Tumblr has grown fairly rapidly over the past year, and now brings in more than one billion page views a month.

Rafer also said that while the founders of Tumblr might want to “dream the big dream,” funding such a company beyond two rounds requires that it be “super hot for revenue not to matter” and that the founders were “playing it way too risky.” But Wilson responded that “revenue is coming in nicely now” and that the recent financing “will be it, given the focus on revenues.” Now all Karp and his team have to do is come up with some.

Disclosure: Automattic, maker of WordPress.com, is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.”

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Post and thumbnail photos courtesy of Flickr user Pixel Y Dixel

It’s become obvious over the past year that location-based services are the new black, to the point where some are speculating that Yahoo might acquire market leader Foursquare for as much as $100 million, and explorers are racing to the North Pole to be the first to win a special badge. Although it’s still not clear whether location-based services will go mainstream or not, the theory is that if companies can tie location to something tangible — advertising messages or marketing offers, direct sales, etc. — they could drive significant revenue, and that’s going to appeal to everyone from Yahoo and Microsoft to Facebook and Google.

Angel investor and startup advisor Dave McClure, however, says that all the talk about badges and game mechanics is nonsense, and that location-based services need to come up with ways to tie their behavior to cash incentives before anyone is going to care about them. Check-ins are “a classic case of early-adopter lust for shiny objects,” he says, and don’t have anything to do with “long-term sustainable mainstream consumer behavior.” McClure argues that no one normal is ever going to consider doing it “until you give them $5 off their next beer or 5-dollar foot long.”

His other main point is that accomplishing this — going mainstream with enough scale to make it worthwhile — is going to require huge sums of money, and that only a few players have that kind of heft and resources, including: Microsoft, Apple, Google and possibly Facebook. McClure says he believes that Facebook will win. With 400 million users and an active user base, as well as users’ familiarity with connecting through Facebook Connect, “they are the easy pick front-runner.”

Bijan Sabet disagrees. The Spark Capital partner, who has invested in both Twitter and Tumblr, says that there are “tons of non-geeks using Foursquare right now,” including his wife and other friends, and that badges and the utility of being able to see where friends are is enough to get people using the service, even without payments. Sabet also disagrees with the “Facebook can offer this and kill everyone” argument, and says that the ‘focused startup’ has many advantages over “the big, broad based established players.”

So who has the edge in this debate? I think McClure does. The reality is that location-based services don’t have an obvious utility for “normal” people (i.e., non-geeks). In fact, many people I know think that telling people your location all the time is madness, and the creation of Please Rob Me probably didn’t help that impression (even Om is skeptical of their appeal). So how do you convince people to check in somewhere? You reward them. And badges probably aren’t going to be enough for the vast majority of people — in other words, your service either remains FGO (for geeks only), or you broaden it by adding real incentives like discounts on merchandise.

As for Facebook taking over as the king of location-based services, I think there is a good chance it will. Without seeing what kinds of features the social network has planned, it’s difficult to say whether they will dominate, or whether they will federate (i.e., make it easy for Foursquare, Gowalla, etc. to work within Facebook). But the most important point — as Om noted in a post earlier this year — is that location doesn’t feel like a service all by itself — instead, it feels like a feature that belongs inside something else, such as a mobile app or platform, or as part of a web service or network. Regardless of whether users are paid in some way, that feels like the ultimate end-game.

Why The Location Wars Are a Dead End