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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Last week, for instance, brought a fresh spate of news that suggest more people are treating Bitcoin as a serious form of money rather than a science fiction experiment. Here’s a roundup (if you want to meet people backing Bitcoin, come to our free meetup in San Jose on May 16):

Bitcoin is becoming more liquid

Gift card site Gyft has started accepting Bitcoin as payment. The significance here is that average consumers now have a forum to use their Bitcoins on a wide variety of familiar consumer brands. As Techcrunch noted, other merchants’ Bitcoin announcements (like that San Francisco cupcake shop) are largely marketing gimmicks; the Gyft news creates a real source of practical liquidity.

This development also coincides with the arrival of mini-machines that convert cash to Bitcoins and the first ATM for the currency in San Diego.

Real investors are starting to take Bitcoin seriously

Last month’s collapse, which saw Bitcoin fall from $266 to $105 in a single day, rattled speculators and undermined faith in the currency’s viability.

But that hasn’t deterred investors — including big and respected ones like Andreessen Horowitz — from putting more money into new BitCoin ventures. This week, the WSJ reported that Fred Wilson’s Union Square Ventures is investing $5 million in Coinbase, a service that provides an online wallet and easy conversion between BitCoin and traditional currencies.

Bitcoin is getting easier to understand

BitCoin discussions were once the province of quants, libertarians and cyber-geeks. Now, people are explaining how the currency is made and how it works in easy-to-understand stories. Last week, for instance, Forbes reporter Kash Hill kept a day to day diary of how she lived on BitCoin (albeit with difficulty) in San Francisco for a week.

Meanwhile, Wired’s Robert Macmillan offers a cogent account (including a video) of how his office now has a Bitcoin machine quietly mining away while using less power than the coffee maker.  (For an excellent general primer on BitCoin, see my colleague David Meyer’s “Yes, you should care about Bitcoin, and here’s why” from last month).

The government wants a piece of Bitcoin

Despite its newfound respectability, Bitcoin is still catnip for criminals, hackers and market manipulators. This notoriety led the financial crimes division of the Treasury Department to issue guidelines about Bitcoin and money laundering.

Now, Commissioner Bart Chilton of the CFTC — the agency that regulates futures contracts  – says he’s thinking of regulating BitCoin. Chilton cited the currency’s volatility and  said the government should make sure it’s not a “house of cards.”

Regulation will be tricky, however. As I explained last week, Bitcoin’s status as a currency, not a security, means it’s beyond the purview of the SEC. And while the CFTC might regulate some types of Bitcoin transactions, its overall power is limited.

“Only derivatives. We can regulate any Bitcoin future, option or swaps. I’ve not said we could regulate the actual currency–although for all I know some might have reported such. The currency could be regulated by Treasury or the Fed,” Chilton said in response to an email query.

Meet the engineers and entrepreneurs behind Bitcoin

On Thursday, May 16, GigaOM is hosting experts — including CEOs who use Bitcoin everyday as well as engineers from Facebook and Google — to explain where Bitcoin is going next. The meet-up, which costs exactly zero Bitcoins thanks to our friends at Ribbit Capital, is taking place at the San Jose Tech Museum from 6 to 9 — with time for cocktails and networking.

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Speaking at Bloomberg LLC headquarters on Thursday morning, Alan Patricof of Greycroft Partners rejected the idea that New York needs a “big win” to show it can be a real rival to Silicon Valley. Patricof noted that New York companies like Buddy Media could have gone public but were acquired instead; he added that tech giants like Facebook, Google and AOL all employ thousands in the city.

Other speakers touted New York’s recent climb in relation to other cities.

“New York has surpassed Boston as the clear number two,” said Jonathan Bowles of the Center for an Urban Future. Others said that, outside of biotech, Boston has “lost luster” as a tech hub.

Ann Li, an economic advocate for the city, added that, unlike Silicon Valley, New York is not just about “tech” but instead “dash tech” — for example, “ad tech,” “fit tech” and “fashion tech.”

The boosters did concede, however, that New York still doesn’t offer the same financial support for tech as the west coast.

“There’s a dearth of B-round funding,” said Patricof. “There’s not enough $10 million or $15 million rounds.”

Patricof attributed the money deficit to the presence of too many angel investors and too many copycat startups. But he noted that, unlike venture capitalist Fred Wilson, who famously didn’t make a “single new investment “ last year,  Greycroft invested in 18 companies. Patricof also predicted that several New York ad tech companies would go public in 2013.

As for whether New York will ultimately displace Silicon Valley as the pre-eminent tech hub, that seems unlikely — and it’s not just a question of venture capital or talent. Like Hollywood, which other cities have tried to replicate for decades, the Valley has an intangible people quality that defies duplication.

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At one end of the debate are skeptics who think comment sections are cesspools of trolls and cretins. At the other end are publishers like Gawker’s Nick Denton and New York magazine who believe reader contributions should be a core part of their editorial strategy.

Are readers who look at comments worth more than regular readers?

It’s no surprise that Disqus is in the “reader comments are great” camp — after all, the company not only sells commenting tools but is also building up a second line of business dedicated to turning comments into a forum for advertisers . The service, called “Promoted Discovery,” does this by perching links to paid-for content right next to reader comments. It’s already appearing in the comment sections of sites like Mens Health and the Observer and it looks like this:

As you can see above, the tool lets a website surface its own content on the left side while selling space in the right hand “recommended for you” box. In trying to tap this market, Disqus is competing with market leader Outbrain which also helps publishers and advertisers buy and sell web traffic.

Disqus’s big pitch to advertisers is that someone who takes the time to read the reader comments of a story is likely to be passionate about the topic — and more likely to click on, buy or otherwise engage with the proposed content. In its December “report card,” Disqus claimed readers who dwell in comments are more likely to visit other pages and spend more than twice as much time on the site. Meanwhile, reader comments overall are being treated with a new seriousness due to recent studies that suggest they shape perceptions more than we thought.

Big money from “native advertising?”

Disqus is also betting its promoted content will gain traction as a form of “native advertising.” The concept, hailed by some as a magic bullet to solve falling online ad prices, involves selling ads that mimic the content around it — for instance, sponsored tweets on Twitter. In the case of Disqus, the American Express story in the above graphic is a “native” ad. The company is so confident of the concept that it’s betting that the advertising scheme will soon become the bulk of its business.

“We expect advertising revenue to grow from less than 5% in Q4 of 2012 to over 60% of our revenue by the end of this year,” said the company’s CEO, Daniel Ha, by email.

It’s an ambitious goal but can Disqus pull this off? It has a number of factors in its favor, including the presence of veteran VC and native advertising champion Fred Wilson as one of its investors. The company is also in a good position to sign up clients due to the fact that it already has access to millions of websites.

On the other hand, the company’s quest to turn reader comments into gold faces some obstacles. One is Disqus’s capacity to find relevant content. When I visited several sites using “Promoted Discovery,” the suggested stories it proposed often had nothing to do with the article I was reading. A Disqus spokesman responded by saying the product is brand new and that its capacity to propose content will improve rapidly with use and as inventory grows. This seems a fair response — it’s likely Disqus will improve with scale.

The longer term challenge to making money from content is likely to hinge on publishers’ willingness to offer a service that will take readers away from their own website. For now, though, the websites are likely to simply welcome the extra money they receive from Promoted Discovery; Disqus says the first batch of checks is going out this quarter. It will be interesting to see what type of revenue-share arrangement Disqus and other middlemen will ask going forward — a Disqus spokesman wouldn’t disclose any specifics, saying the firm’s take is “industry average.”

And, finally, Disqus’s bet that comments will be an advertising gold mine could also be affected by competition from much larger players such as Tumblr; its founder, David Karp (who is speaking at our paidContent 2013 media conference in New York on April 17), recently said the site downplayed comments in favor of “a beautiful design and no jerks.”

(Image by ollyy via Shutterstock)

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The survey of 800 advertising insiders by Solve Media (full survey below) found that 49 percent of media buyers would buy native advertising and that 14 percent of publishers planned to add a native ad option next year. The survey also found high support for the format among creative agencies and private investors.

Well, great, but what does this actually mean? To its credit, the survey cites skeptics who suggest “native advertising” is just a new name for an old practice:

But Solve Media also makes a strong case that there is something new about native advertising — namely, ad makers are responding to new types of web publishing by designing ads that fit naturally into the look and context of a company’s design: promoted tweets on Twitter, sponsored stories on Facebook, paid discovery on StumbleUpon, and so on. The study also makes a distinction between brand as publishers (i.e., a brand making a Tumblr page) and brands as intermediaries (i.e., a brand buys a Google Adword). You can see the full taxonomy, including pictures, in the study below.

“It’s not a trend, it’s a reality,” said Solve Media CEO Ari Jacoby, who believes native advertisers will eventually overcome detractors who claim the format is too time-consuming and expensive.

While the question of scale is an issue, my own hunch is that native advertising will grow as brands evaluate the relative ROI of expensive TV ads versus newer platforms. These platforms are also a good way for brands (if they’re quick) to ride internet memes like PBS did during the Big Bird controversy.

Solve Media sells sponsored CAPTCHAS, so it obviously had a dog in this fight when it commissioned the study. But the survey, especially the graphics, are worth a look:

Solve Media_Native Ad Whitepaper_FINAL

(Image by Everett Collection via Shutterstock)

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SnapChat is an application (both on iOS and Android) that allows the members of the community to snap a photo and share it for someone else and that they have access to that photo for a few seconds, before vanishing. You respond by sharing your own photo and the loop continues. The perception of privacy and lack of permanence is one of the reason why sexting (as the kids would say) is so popular on one of the reasons why this app is blowing up, though CEO Spiegel says otherwise. As of Oct. 28, the company said that a billion photos had been exchanged over its network.

Team Snapchat in Norway. Photo courtesy of SnapChat blog

The word is that SnapChat, which is seeing about 1,000 photos being swapped every second, is raising around $8 million at a pretty generous pre-money valuation. The rumored (but not confirmed valuation is close to $50 million).  Cohler declined to comment.

SnapChat’s audience is decidedly young and definitely different from Facebook and Twitter, two more broader social platforms. Why is this interesting? I would just look at Cohler’s track record of showing up first at social platforms. LinkedIn, Facebook, Instagram and now SnapChat — you see a pattern here. As far as Twitter is concerned — well, Cohler’s partner Peter Fenton has that one covered. That said, it is still unclear to me how SnapChat will evolve from a white-hot app to a red-hot business.

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There are obvious ethical issues here but, before jumping in, let’s take a moment to explore just how the practice works. The idea of native advertising, which is gaining traction across the media landscape, is based on the idea that readers are more likely to engage with ad content that resembles other content on the site — rather than intrusive banner or pop-up ads.

The viral news site BuzzFeed is a loud proponent of the concept, even offering an in-house ad team to help brands create appealing content. For example, BuzzFeed recently published a “story” by a toy maker called  ”18 of your favorite toys from the ’90′s.“

Native advertising is also being used by premium publishers like Forbes and the Atlantic, and by Twitter which sells “sponsored tweets” that look like other content in a user’s feed. Investors, too, are hailing the practice. Respected VC Fred Wilson last week told a large audience that ads should come in the same “atomic unit” as the native content that appears on a site.

Well, what about the New York Times? Is it time for the Grey Lady to embrace sponsored stories too? It’s worth noting that Boston.com, which is owned by the NYT Co, officially launched “Insights,” where marketers pay $299 for their stories to appear, clearly delineated. It looks like this, with the real news story on the left and the marketers’ stories on the right:

So could the New York Times take up native advertising too? If it did, it would have to find partners who could write stories that Times readers would like to consume; such candidates might include the Clinton Foundation or green car maker Tesla. For now, however, this is unlikely to come to pass.

“It is critically important to us that advertising can be clearly distinguished from editorial and news content by our readers. For that reason, we tend not to accept native advertising,” said New York Times spokesperson Eileen Murphy by email. While the site and the print paper have dabbled in “advertorial” in the past, the company has never integrated ads to the degree of BuzzFeed.

Unfortunately, the Times may not always have this luxury of being so selective. The company’s revenues are shrinking fast as digital subscriptions are not making up for lost advertising dollars. This situation will only get worse as more readers consume the Times on mobile devices where banner ads don’t work at all (but native advertising does). Before long, economic reality may drive the Times to follow BuzzFeed’s example.

As a fan of the New York Times, I would be glad if the paper needed no advertising at all. But, as a realist, I fear cost-cutting will soon pose a greater danger to the paper’s greatness than native advertising.

(Image by Kobby Dagan via Shutterstock)

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Fred Wilson is a good person to ask. He’s a prominent venture capitalist who has invested in dozens of tech companies – including Tumblr and, once upon a time, GeoCities too. Speaking at Ad Tech New York on Wednesday, Wilson explained how both companies built massive audiences in a very short period of time by appealing to community and self-expression.

Wilson believes, however, that Tumblr will escape its predecessor’s fate in part because the popular sharing blog is unspoiled by advertising.

“GeoCities slapped ads everywhere. The performance and appearance was ugly,” said Wilson. “At Tumblr, the business model is quite elegant.” (see a GeoCities example at right)

[Update: Wilson also noted that another crucial difference between Tumblr and earlier community services is the story feed; in services like Tumblr or Twitter, the feed makes for a cleaner, more efficient user experience. See his comment below]

The two firms diverging trajectories can partly be explained by capital demands. These days, lower development costs mean Tumblr can serve millions of users but, unlike the days of GeoCities, it can wait years to figure out a money model.

But the Tumblr approach also reflects lessons learned from the Web 1.0 era. Wilson says one of these is that scale must come before monetization: if a company focuses on advertising too soon, chances are that it will build a faulty product that will never scale.

That’s not the only ad insight Wilson picked up from his Geocities days. Like a growing number of execs in the New York tech and media scene, Wilson is a true believer in native advertising.

“If you just slap up some generic ad format, people tune it out and it doesn’t perform,” he argues. “People don’t hate advertising. They hate bad advertising, interruptive ads or poorly targeted ads.”

Wilson thinks sites should follow Twitter’s lead and ensure ad content is the form of an atomic unit that mimics the native content – a tweet on Twitter, a video on YouTube and so on. For the advertiser, the formula is to develop great organic ad content and then pay the platform to promote it. (It should be pointed out that Wilson has stakes in both Twitter and Tumblr; still, the observations seem sound).

Such a strategy, however, poses a challenge for the traditional ad campaign where one piece of content often fits all. The good news, Wilson says, is that ad agencies are adopting by building ads for specific venues and then engaging and managing that content.

(Tumblr CEO about his “design first” philosophy at GigaOM’s RoadMap conference; see video and write up here).

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When you listen to Cohen (below) talk about it, the scale of the challenge is what interests him. He sees social problems getting bigger but charities and the public sector less able to try new approaches because their time is spent servicing existing needs. So 10 years ago he set about proving that ‘social investment’ could have an impact. He co-founded Bridges and the Social Investment Business and played a role in the creation of social impact bonds that are now spreading to other countries.

But it’s only now that social investment is really taking off in the technology world. In the past it’s focussed on debt based investment which isn’t suited to high growth technology startups. Earlier this year Big Society Capital (of which Sir Ronnie is Chairman) was set up with money from dormant UK bank accounts to be a £600 million ($965m) investment bank for social investment. One of their first moves was into Nesta Impact Investments which, last week announced their first £17.5 million ($28m) seed fund. In tech terms it’s not huge, but what’s interesting is that it’s the first social investment fund that will make equity investments focused on seed stage technology startups.

This all comes at the same time as prominent venture capitalists are increasingly talking about social issues as promising markets. In the UK Nic Brisbourne of DFJ Esprit has written about the growing interest in healthcare technology. And in the US, Albert Wenger and Fred Wilson have pushed founders to come to them with ‘hacking education’ ideas and have made a number of investments. Investors like Mitch Kapor have also shifted their focus towards social issues –  Kapor Capital is overtly an ‘impact’ seed fund. In his now famous piece about ‘software eating the world’, Marc Andreessen writes that, “Health care and education, in my view, are next up for fundamental software-based transformation”.

Even at the really early stage support is available. When we wrote the Startup Factories a year ago, accelerator programmes in Europe were mainly for digital technology in general but it was clear they would develop into particular verticals as was starting to happen in the US. Just this week, for example, there are Demo Days in San Francisco for Greenstart, Imagine K-12 and Code for America Accelerator.

And sure enough, Healthbox has opened up a London branch, HealthXL accelerator run by Startupbootcamp in Dublin has just opened applications and Bethnal Green Ventures (which I help run) has just launched six new tech startups trying to solve social and environmental problems.

Angel networks like that run by ClearlySo and big industry conferences for social investment like SOCAP held in San Francisco in September show that a real ecosystem is developing around this both in the US and Europe.

The result? If you want to use digital technology to solve some of the world’s biggest problems like how we educate the next generation, improve the health of our elders or tackle climate change, you don’t need to apologise for it when seeking investment. That’s a welcome change.

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Community-writing site Wattpad says over 70 percent of time spent on the service comes from users on tablets or smartphones, and one of its most requested features is the ability to write and edit stories from mobile devices. So this week, the company is rolling out a “Create” functionality for Android tablets and phones. The updated app can be found in the Google Play store.

Wattpad, which is five years old and based in Toronto, has nearly 10 million monthly unique users. “This is the post-PC era,” Wattpad founder and CEO Allen Lau told me. “Users can write a chapter in 15 minutes while they’re waiting for a bus. They can write whenever they have the inspiration.” In fact, users have already been writing stories from their phones by navigating their mobile browsers to wattpad.com, “essentially hacking their way around the limitation.” Now they have an easier way.

Wattpad’s app is also available for iOS, but the company is rolling out its writing function on Android first because that is where most of its global users are. Fred Wilson, principal of Union Square Ventures (which led Wattpad’s first funding round in September 2011), recently took a look at Wattpad’s mobile usage stats and found that most of its North American users are on iOS, but Asian and European users skew toward Android. “Android is our top mobile platform, and we are going there first to learn,” Lau said.

“Cellphone novels” written via SMS are already popular in Japan, but Wattpad says it is the first company to let users publish long-form text from mobile to the Web. In beta tests, the company said “hundreds of stories” were written and published from mobile. Testers also jotted notes, made quick edits and fixed typos. ”The behavior we are seeing [in beta testing] is similar to what we saw in Japan ten years ago,” he said.

Wattpad raised $17.3 million last month in a round led by Khosla Ventures, in addition to its $3.5 million funding from Union Square.

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