VCJ Report: Photo Shopping

You can’t go anywhere these days without someone pulling out their smartphone and taking a pic or two with their camera to upload to Facebook, Twitter, Foodspotting or other social media sites.

It’s estimated that more than 200 million photos are uploaded to Facebook every day, making it the largest photo sharing site in the world.

With that kind of traffic, it’s no wonder that entrepreneurs have launched products and services that aim to make photo sharing easier and investors are clamoring to get in on the action.

A total of 18 photo sharing and related companies received venture backing during the first six months of 2011, including Color Labs and Instagram, among others, according to Thomson Reuters (publisher of this blog and Venture Capital Journal).

Whereas the heavily funded Color Labs has had its share of problems, Instagram is one of the more popular startups in the space. In January, Instagram raised a $7 million Series A round of funding from Benchmark Capital and individual investors, including Chris Sacca and Jack Dorsey. The company had previously raised a $500,000 seed round from Andreessen Horowitz and Baseline Ventures. The app allows users to improve the tone or mood of their photo using 15 different settings and then send it simultaneously to their friends at six different social networking sites, including Facebook.

As VCJ reports, most new photo sharing products being introduced are relying on partnerships with social networks and new smart devices for a winning strategy. For example, San Francisco-based Path, which received an $8.5 million Series A round of funding in February from Kleiner Perkins Caufield & Byers, Index Ventures, Digital Garage Japan and First Round Capital, automatically sends out photos snapped by users on a mobile device to a list of 50 friends or less.

The app, launched in November 2010, had about 50 million users as of June 2011. The company has raised a total of $11.2 million from investors, including a large group of individuals, such as Ashton Kutcher, Kevin Rose, Tim Draper, Matt Cohler, Joi Ito and Paul Buchheit, among others.

“I don’t want to share all my photos with everyone I am ‘friends’ with on Facebook, plus this eliminates the need to upload. A photo is much more meaningful than any text someone can write,” Chi-Hua Chien, a partner with Kleiner Perkins, tells VCJ.

What’s encouraging to some is that the first generation of photo sharing companies have seen their fair share of M&A activity.

In March 2005, Snapfish was acquired by Hewlett Packard for an undisclosed amount. At about the same time, Yahoo purchased Flickr for an undisclosed amount. More recently, in April 2010, Facebook swooped in and bought Divvyshot, and Google recently tried unsuccessfully to buy Path, which no doubt would have been incorporated into its new social networking site Google Plus.

Experts say that the founders of today’s crop of photo sharing companies care less about earning revenue and more about building a product that can be bought by a strategic acquirer in the future.

“Lots of the first generation photo sharing services have been bought out,” Jeff Bistrong, a technology investment banker with Harris Williams & Co., tells VCJ. “There’s lot of new interesting technologies out there, but are they stand alone businesses or something that will be part of a larger solution set? I think most of these companies are hoping to get absorbed as an added feature to existing companies.”

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If you want to talk more about digital photos or other hot trends, send an email to VCJ editor Alastair Goldfisher at [email protected] or contact him on Twitter at @agoldfisher.

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