Morningside bets on social network
"We currently have a large position in Apple. We believe the company to be extremely undervalued. Spoke to Tim Cook today. More to come." This 24-word Tweet, comprising just 111 characters, managed to push up Apple's value by $12 billion in less than a minute.
It was posted last year by US investor Carl Icahn, who had announced the day before that he would start using the social network for public announcements. It was a watershed moment for social media; its power to move financial markets - and its potential use as an investment tool - was starting to show.
China's Snowball Finance, which recently raised a $40 million Series C round led by local social network giant RenRen, is tapping into this phenomenon. Set up in 2010 by Simon Fang, former editor-in-chief at internet firm NetEase, Snowball has two platforms: financial news site IMeigu and social network Xueqiu.
Launched in November 2011, Xuequi offers a Facebook-like service through investors can exchange information on the US, Hong Kong and Chinese equities markets as well as on other capital markets products. It also has a kind of newsfeed that provides a constant stream of price movements, stock quotes, and business news for whatever market the user is following. Within three years, the platform - also available on iOS and Android - can claim to be one of most popular networks for Chinese investors.
"The company has created a very sticky community for investors who are able to use it to share information, build their network, and connect with other investors," says Fisher Zhang, a partner with existing investor Morningside Venture, which also took part in the latest round. "I don't think there is company doing anything similar to it."
This latest round brings the total raised by Snowball to about $53 million. It received a $10 million Series B round from Morningside and Sequoia Capital last year and before that a $20 million Series A round from Sequoia in 2011. The latest round of investment will be used to build a broker system that will eventually allow users to buy and sell stocks through Snowball's website and apps. "It is still at very nascent stage but we are thinking about different monetization methodologies, including the public trading model," says Zhang.
The first stage is creating a platform that can provide the information users need to conduct real-time research into the market - something they cannot get just by searching Google. The second stage will be building a transaction platform that allows investors to act on this information.
"Within an online community you are able to track and aggregate a lot of research, comments and actions produced members - and over time you will be able to see which members have good track records and who the most trusted sources of information are," says Zhang. "That is the power of the social network."
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