Kara Swisher’s sources tell her that fund giant Fidelity was one of the investors in wiki/socialnetworks/web-thingy WetPaint’s newest $25 million round. Kara describes this as a “validation in Web 2.0 world from a large traditional institutional investor”. We don’t know about that. We do know this one of a handful of promiment deals (Ning, Slide, possibly LinkedIn) where we’ve seen institutional money taking a flyer, usually accompanied by a bunch of head-scratching and hand-wringing: Are these guys getting fleeced? Is this a market top?
Answers: Could be. And perhaps. But as we’ve discussed before, we wouldn’t read that much into these forays. For starters, bear in mind that Fidelity et al already have venture units, so the risks here aren’t new to them. More broadly these deals are small beans for investors these size. And they’re actually less risky, in the short term, than gambling on publicly traded equities.
A fund manager who made the wrong bet on, say, Dell in November now some explaining to do. But there’s no real time ticker on startup investments: If it blows up, you won’t know about it for a while. And the upside makes you a hero: “These guys are all viewing these investments as out-of-the money options on the next YouTube”, an M&A pro explains to us. “That makes the risk/reward profile pretty easy to accept.”
Again, we’re not saying these are smart bets: We’ve got no idea what WetPaint’s prospects are (although they do look like they have some products we’d like to play with). But from the perspective of Fidelity and its peers, they’re pretty safe bets.