Financiers warn of second dotcom bubble

Venture capitalists are warning that the growing popularity of online video could lead to another dotcom bubble, according to reports.

An investment boom is underway in consumer video websites, as highlighted by the $1.65bn sale of YouTube to Google last year.

An expected wave of advertising tied to online video, has triggered a flow of investment that some Silicon Valley financiers are comparing to the dotcom bubble, though at this stage at least it remains on a far smaller scale, the Financial Times has reported.

Internet video has become the hottest targets for investment. Last year the amount of US venture capital being pumped into video-related start-ups rose by 95 per cent to $682m, according to figures compiled by Dow Jones/Venture One.

Investors like Todd Dagres, a partner at Spark Capital, whose investments include video site Veoh Networks, predict an eventual round of failures that will see most investors lose money.

Tom McInerney, founder of Guba, one of the first consumer video sites to strike a deal to distribute professional content from an established media company, said he was seeking to sell the company now rather than wait for the inevitable downturn.

As internet users visit an increasingly smaller handful of the most popular sites and traditional media companies begin to crackdown over the use of their copyrighted content online, many start-up sites are likely to struggle to find an audience, Mr McInerney said.

Despite that, experts report a continuing flood of proposals for new start-ups trying to cash in on the video boom.

© Independent Television News Limited 2007. All rights reserved.

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