IMVU Investment Highlights Continued Strength in Social Networking

Pundits says the downturn soon will cause a massive shakeout in the overcrowded social networking industry as funds dry up and advertising dwindles.

That makes it all the more interesting to see companies bucking the trend. Palo Alto (Calif.)-based IMVU, an operator of virtual meeting places for teens and young adults, announced Jan. 22 it had received $10 million in funding for its series D round.

IMVU got a nod of approval from deep-pocketed big investor Best Buy Capital, the electronics chain’s venture capital arm. It joins previous investors Menlo Ventures, Allegis Capital and Bridgescale Partners, bringing its haul to $30 million over the various investment rounds.

Why the interest in 5-year-old IMVU? Unlike Facebook and MySpace, users create 3D avatars and design their own virtual rooms to interact with others. Some 30 million of them chat regularly, download and listen to music and create their own digital goods they can sell to other members—a Second Life for kids (IMVU says about half its users are adults, so it’s got that covered, too). Despite the downturn, it continues to show momentum, adding some 10 million new registered users over the last six months.

IMVU has only 55 employees and says it generates $1 million in revenue a month. About 90% of that comes from selling virtual goods instead of from the struggling advertising market. Competition for the same demographic right now is growing rapidly. Some 150 sites are targeting the under-18 crowd, with Habbo and Gaia Online two of the biggest rivals.

It makes one wonder just how far cash-strapped parents are willing to go to please their kids. Clearly investors think they’re on to something big. Despite the out-of-proportion development of youth-oriented social networking sites, the sites continue to attract loads of venture capital. Trade media firm Virtual Worlds Management reported Jan. 21 that 19 youth-oriented social networking sites raised $70.47 million through 2008, out of $593 million investing all in virtual worlds.

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