About two years ago, venture capitalist Kevin Efrusy says he was "roundly beaten and castigated" by his partners for boasting to The Wall Street Journal that his portfolio company Facebook Inc. had the potential to be worth more than $2 billion.

The general partner at Accel Partners had led the firm's investment in Facebook the year before, and his company was the subject of possible takeover rumors by acquirers that didn't seem too enthusiastic with that figure.

Now, with a $15 billion valuation placed on the company thanks to Microsoft Inc.'s (MSFT) small stake purchase, he's not looking so foolhardy. But these days, Efrusy is a bit more restrained about the valuation while the industry debates the worth of Facebook and other social media companies.

(This story originally appeared in VentureWire, a daily email newsletter published by Dow Jones & Co. that covers news about venture-capital and start-up companies.)

At the National Venture Capital Association's annual meeting Wednesday, Efrusy sat on a panel with executives from advertising firm Omnicom Group Inc. (OMC), entertainment content company Viacom Inc. (VIA), and Internet giant Yahoo Inc. ( YHOO), to discuss the power of online advertising.

Among the topics was the hot-button issue of whether Facebook and other advertising-based social networking sites deserve lofty valuations at this point. "Would we love to own MySpace for $700 million? Absolutely," said Wade Davis, senior vice president at Viacom, which was interested in Facebook in the past. Would Viacom buy Facebook for $15 billion? "Absolutely not. Nor did we want to pay $1 billion. There is a lot of hype, a lot of activity, but a lot of dollars aren't being made."

Davis believes there's a place for social media in the future, but they will serve as platforms that distribute branded content and entertainment the way cable networks do.

"They're very small, very nascent, not the place where our advertisers are spending a lot of money," Davis said. "For companies in the branded entertainment business, it doesn't matter to them yet."

Efrusy, though, believes Facebook has created a network coveted by advertisers by dominating a tough-to-reach demographic of college students who suddenly began spending hours a day on the site.

"Media properties are valuable when they concentrate and really own the demographic," Efrusy said. "At the end of the day there is a media buyer somewhere in the bowels of an organization who decides where to spend the dollars, and he makes phone calls and places ads.

"The idea is to be that first phone call - BET is probably the first company that gets a call when a media buyer wants to reach African-Americans. ...You can't underestimate the value of that, where you become that first phone call, you sell out your ad inventory more quickly, you price highly."

Jonathan Nelson, who runs the digital business of Omnicom, agrees Facebook is helping advertisers get messages across to the college-aged set. But he said Facebook and other social media companies have a long way to go before they're in a position to be the "last mile of advertising" like Google Inc. (GOOG).

"People go to Google to buy, to research things, to go somewhere else and do something," Nelson said. "On social media sites people are just chatting with their friends, not looking to buy a car or buy a computer. Some sites are making recommendations, but they still have a long way to go."

Seeing a future in this area is Yahoo, which is focusing on "socializing media assets and tapping into this nascent social network that exists within Yahoo," said Scott Moore, senior vice president and head of media at the company.

Moore said, though, that it's important to weave together social experiences online with a traditional media experience like reading a newspaper or watching a video.

"Social media - like MySpace and Facebook on a standalone basis - gives advertisers the willies because there's no context, no quality branded content experience where they know their ad is going to thrive and live in a healthy way. They're nervous what kind of activity is happening on those things. And there's not an engagement with those brands that you might get in content areas."

-By Scott Austin, VentureWire/Dow Jones Newsletters; 201-938-4299

  (END) Dow Jones Newswires
  05-09-08 0818ET
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