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Social-networking websites -- which provide a forum for meeting friends of friends and professional colleagues -- have proven this year that they can be wildly popular.
Now venture capitalists are increasingly convinced that such sites can serve another function: making money.
In a rare show of confidence in an emerging and still-unprofitable Internet business model, three of Silicon Valley's most storied venture capital firms recently invested in two of the fastest-growing online sites, Friendster and LinkedIn.
LinkedIn, a networking site targeting professionals, announced this week that it received $4.7 million in an initial round of venture financing led by Sequoia Capital, a onetime backer of Yahoo, Google and PayPal.
Three weeks earlier, Friendster announced that it received $13 million in a venture-financing round led by two other well-known Silicon Valley VC firms, Kleiner, Perkins, Caufield & Byers and Benchmark Capital.
Meanwhile, a third networking site, Tribe.net, is also in talks with venture-funding sources, after receiving initial backing from two media firms, Washington Post Co. and Knight Ridder Digital.
The sums being funneled into these social-networking startups aren't vast in comparison to the amounts venture capitalists routinely poured into Net firms in the late 1990s. Nonetheless, entrepreneurs say the infusions are encouraging, particularly considering VCs' recent reluctance to put money into consumer-oriented Internet businesses.
The draw of social networking, the startups say, is that a little investment could go a long way.
"One of the advantages of software and online-services investments is the amount of capital required to develop them is relatively small," said Reid Hoffman, CEO of LinkedIn.
Social-networking sites have an added advantage in that they don't spend money acquiring new members, Hoffman said. Instead, they encourage existing members to refer their own friends and colleagues.
Still, given that networking sites don't yet charge for services, or turn profits, investors have been understandably cautious about wagering large sums on them.
"There's a lot of sniffing around and a lot of attention, focus and interest. But I wouldn't say there are tons of firms ready to make bets and take out their checkbooks," said Mark Pincus, a Friendster investor and CEO of Tribe.
For now, the most appealing attribute networking sites have to woo investors is their hyper-fast growth rate. Friendster, which went live in spring of last year, currently boasts well over a million members.
Tribe, which launched four months ago, has about 44,000 users. And LinkedIn, in business for about six months, claims just over 40,000 members. (If current growth rates hold steady, LinkedIn's Hoffman expects the number of members to double every six weeks.)
Even Yafro, a site launched just a month ago by the founders of the photo-rating site Hot or Not, already counts about 20,000 users.
Each networking site targets a slightly different set of users. Friendster is a popular place for making friends and meeting dates. To set up a profile on the network, members must state whether they are single, in a relationship, married or party to an "open marriage."
LinkedIn and another new site, Ryze.com, focus on work-related networking, while Tribe markets itself as a place for friends to communicate for a range of practical purposes, like swapping job leads, organizing events or finding roommates.
Given that people have been using the Internet for years to meet dates or make job contacts, the new crop of social-networking sites doesn't represent any great technological breakthrough, said Tribe's Pincus.
He said the sites are drawing Internet users who want a more sophisticated networking tool than e-mail listservs or traditional dating sites. Because networking sites connect members only with the friends and colleagues of people they already know, new acquaintances are perceived as more trustworthy than complete strangers.
Despite their popularity, social-networking sites have yet to prove that online schmoozing can produce an actual business. For now, most are content to continue expanding and are exploring ways to eventually begin charging for some services.
"What you do is actually focus first on growing the value of it, then you focus on the business model," said LinkedIn's Hoffman. When the site becomes larger and more active, he hopes to begin charging members a fee, a strategy Hoffman helped implement with success at his former post as a vice president at the online payment firm PayPal.
Friendster, for its part, wants to keep the basic service free for members, but may require a subscription fee for certain features. At Tribe, Pincus does not plan to require a subscription, but may start charging a fee for certain types of postings, like job queries that go out to the whole network.
Given that most networking sites are quite new, it's still anybody's guess how many will actually survive. Already, startups are facing competition from Microsoft and Monster.com, which have made forays into the social-networking market. Eventually, Hoffman and Pincus believe one or two sites will emerge as dominant players, although there may be room for many smaller, special-interest sites built around professions or hobbies.
More-extreme optimists, like Ross Mayfield, founder of social-software startup SocialText, expect networking sites will soon begin taking away customers from more-profitable established businesses, like recruiters and dating sites.
Others believe the enthusiasm over networking sites is overblown. At a recent Stanford University forum, participants debated whether online networking has a viable business model. Some said the sector is beginning to look like the latest Silicon Valley investment bubble.
Not so, said Mayfield.
"Right now everyone's an expert in bubbles, and there's more than a healthy dose of criticism for any new business that manages to get some level of funding," he said. In the case of networking sites, he added, "venture funding doesn't necessarily validate a space, but they're making these investments off of some good fundamentals."
