Facebook fiasco leads to caution on social media

Investors pinning their hopes on a New Year windfall with a Twitter IPO may have to wait a little longer yet as the markets grow more cautious about social media investments in the wake of Facebook's rocky path to life as a public company.

Although Twitter has not publicly indicated its intention to float, many are hoping that it could be the IPO which redeems the industry after Facebook's stock struggled when the website went public earlier this year.

But investors are growing more cautious after that experience, with another social media darling, FourSquare, reported to be struggling to raise new cash at the valuations seen only months ago.

The location-based social media service raised about $30m from Stark Capital Partners in a deal valuing its business at more than $750m (£470m) a few months before Facebook's listing, according to the Wall Street Journal. But now it is reportedly finding it hard to convince potential backers that it's worth as much.

"We are coming off the hype and sliding into the trough," Todd Chaffee, general partner at Institutional Venture Partners, an investor in Twitter, told the Wall Street Journal. "Companies will have to come to the realisation that the valuations of the social and mobile boom are starting to fall."

Twitter, meanwhile, is being closely watched for any hint that it might go public, thanks to growing usage and its success with making money from sponsored tweets. "Like Facebook, Twitter will be a very high-profile consumer IPO and will be scrutinised even more closely as a result of Facebook's missteps," Lise Buyer at Class V Group, a Californian IPO advisory firm, told Bloomberg last month, highlighting the stakes as social media businesses come in for greater scrutiny.