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Flickr Co-Founder Caterina Fake: Why Now Is The Best Time to Start a Social Media Company

The serial entrepreneur and investor explained why she’s bullish on the future of social networking–privacy concerns and increased regulation notwithstanding.

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BY Zoe Henry - 07 Jun 2018

PHOTO CREDIT: Getty Images

As Facebook continues to come under fire for its mishandling of user data--and GDPR rules impact thousands of companies in Europe and beyond--some investors are understandably leery to get involved with social media startups.

Not Caterina Fake. The serial entrepreneur--who co-founded Flickr, the photo sharing service that sold to Yahoo in 2005--says she's bullish on the future of social networking. She even hints that it's one sector that her newly formed seed and pre-seed capital firm, Yes VC, could be looking to enter.

"Cracks are starting to appear [in] the five major Internet companies that have controlled our social lives," said Fake onstage, Wednesday, at the Northside Festival, a Brooklyn, New York-based annual music, innovation and technology conference.

The Cambridge Analytica scandal--in which it was revealed that the political data firm indirectly harvested data from more than 87 million Facebook users earlier this year--has paradoxically created opportunity for new entrants, Fake continued. "My sense is that this is a great time for entrepreneurs, because things are being questioned, and we're seeing an exodus from some of the existing platforms," she said. "Frankly, it's exciting and terrifying at the same time."

To be sure, Facebook claims it hasn't lost users as a result of the scandal. It says the number of business users rose by 10 million since November 2017, when it reported 70 million on the platform.

Even so, social startups face an uphill battle. Existing competitors such as Snapchat continue to struggle in their attempt to steal market share from Facebook. Snap, which had a rocky debut on the public markets, missed revenue estimates in its most recent earnings report last month; although the app continues to be popular among young users, many investors question whether the company can ever become profitable. Snapchat has around 190 million daily active users--a drop in the bucket compared with Facebook's 1.45 billion, according to the most recently available data.

Still, Fake is certain that social media will be a main component of what she calls the "monumental changes" headed our way, and sees the chipping away of the incumbents' status as almost inevitable. "Facebook is a powerful company, yes, but so was IBM," she continued. "How many people today have an AOL account?" (Let the record reflect that no one raised their hand.)

Since launching Yes VC with her partner, Jaiku founder Jyri Engestrom, in January of this year, Fake says she's invested in nine companies, ranging from cybersecurity (Orchid) to machine learning (Gaze) to cryptocurrency (CryptoKitties.) From hearing Fake describe it, social media could well be next. "While I haven't actually seen the companies that will take that position in the new world," she continued, "I know it's coming."