Stocktwits founder Howard Lindzon on the next big thing in social media

It's not often that you get to interview a man like Howard Lindzon. Not only is he a successful hedge fund manager for Knight's Bridge Capital Partners and a successful player in venture capital, but he is also the creator of the highly popular Twitter-based stock market discussion platform,

Among those in financial circles, Lindzon is best known for his start-up deal making prowess: He is the man behind WallStrip, which was acquired in 2007 by CBS for an undisclosed amount (but estimated to be around $5 million). He is also the author of the book The Wall Strip Edge, an easy read which provides practical investing strategies. This candid Canadian has a track record of success, so we spoke with him about the future of social media, start-ups, and of course the stock market.

DailyFinance: Why are you partial to investing in social networking?
Howard Lindzon:
The emerging trend in social media will be monetization of lifestreams. Facebook and its ecosystem is close to figuring it out, but it needs to come soon. Right now it's mostly gaming that does well, such as Net Ease NTES and Perfect World Co PWRD.

But Stocktwits has been doing well too. Tell me what you have created with
Stocktwits is a global live trading desk. It's an aggregation of traders of all kind from all over sharing ideas. We built our own back-end and desktop to give our community the speed and features they were asking for from true real time, to charting to data, privacy options and groups.

What are the advantages of using this platform?
The advantages are not all apparent but they will be customizable data delivery, private groups and streams and reliable uptime and real time. The best investors likely don't have one necessity. We are striving to be a fun way to just tune in when you can and be an idea and opportunity machine for investors.

Social networks, of course, cover a lot of territory. What emerging trends do you see going forward?
I think mobile is beginning another massive bull phase. Look at companies such as Skyworks Solutions (SWKS). (Ed. note: Shares are up about 176% since the beginning of this year.) You can also see it in the stocks which are the fastest tech stocks to bounce and rally like shares of Stec Inc. (STEC) and Informatica Corp. (INFA). The VC's have struggled in this space and are a little cynical. But that's the opportunity.

Are there any cool start ups we should be watching?
I like the real time space but it is very early and risky. I have put my investing mostly on hold because I need to focus on and like any business, to see the best opportunities you have to be in the flow. Right now, I don't have the time so it's not smart to spread too thin.

But for those of us that do have the time, please tell me about a few more start-ups that are in 'the flow'.
Betaworks is in the flow. Most real time Web companies are calling on Betaworks for funding and so they are in the flow. I trust them as investors and that keeps me indirectly in the flow of deals in the space. Traders want to have flow as well. Keeps them alert and on top of what they need to do to beat everyone else.

Please name three new tech/social media start ups that will take the stage over the next year.
There is no product I can't live without right now that's new. I live and breathe the community on Stocktwits and I think we are the next hot company. Zynga is THE hot growth story and I know that Foursquare is 'HOT' and local. Location based companies could be a great sector but I don't fully get it because I barely use the Web on my mobile.
I think the key to all of this is to invest where you have deep knowledge and can pick entrepreneurs that have the gut, vision and skills to solve a problem in a better way or change/improve an industry.

With the word that Twitter is worth $1 billion, I'm interested in your thoughts.
Twitter is actually in great shape. The $1 billion valuation is exciting but makes it harder for everyone. Now the pressure and urge to be in the Twitter jet stream just went to all-time highs and beyond....but if Twitter were a public company, this would be more fun for us all.

Do you think Twitter, Facebook, and Linked In will eventually go public or be acquired?
I think all three should do IPO's with very small floats and without institutional help. I have been saying this for a long time. These companies are built on the community's backs so share them with the community, not the institutions at first. Its inevitable, the institutions will get involved but keep the float small and basically get the best of both worlds. As they execute, they can release more shares but its a more efficient way to raise capital for a strong growth company than clunky VC money.

What are your favorite sectors now and why?
My favorite sectors are mobile, software, oil and gas, currencies and other commodities. I don't like signaling out any one stock but continue to pick from all time high lists in these sectors.

Where do you think the market is headed?
The market is likely going to get volatile again as big money gets restless while fear has subsided and fears missing a further rally. I think we must get used to bigger stock swings in general going further.

Please summarize your view on financial transparency.
Transparency is a double edged sword. The big funds can't be too transparent or they lose their edge. I think the lesson from the crash (and it was a crash) is that you need to manage your money and be responsible. I am pretty transparent, but it suits my style and I am very small so I don't risk moving markets. Plus, as I grow my business, I think it will have been important to be transparent. That's my personal edge.

What hedge fund managers and traders do you look up to?
I respect the trend followers and their discipline and their ability to manage risk and the eventual drawdowns. Salem Abraham of Abraham Trading Co. is a legend in this space and has ridden the good and bad. There are many I don't respect though and they were exposed with 50-60 percent drawdowns last year.

Tell me something we don't know about you.
I color my sideburns. The grey was just starting to piss me off. Loved it at first but it was getting me down.

Full disclosure: Howard Lindzon is an investor in Twitter. His hedge fund invested in startup Betaworks, which developed a product, Summize that was bought by Twitter for $15 million in cash and stock in July 2008, giving Lindzon a stake in Twitter. (Added Sept 26, 2009)

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