By Gerry Shih

SAN FRANCISCO (Reuters) - Viddy, the popular mobile video start-up, announced on Friday it has raised a hefty $30 million from institutional investors to bolster its expansion efforts in the face of stiff competition from Socialcam, a similar video-sharing service.

Viddy's announcement comes at a time the two companies are locked in a race to generate users and publicity, and a struggle to differentiate themselves.

The competition between the two start-ups has drawn an unusual degree of interest since Facebook suddenly acquired Instagram, the mobile photo-sharing start-up, for $1 billion in April, prompting speculation that other hot, mobile media-sharing app developers could be acquisition targets for larger firms like Facebook, Google and Twitter.

In an interview, Viddy CEO Brett O'Brien touted the content on his service as "100 percent user-generated," a dig at Socialcam, which he didn't mention by name.

O'Brien's app allows users to share 15-second vignettes shot with their iPhones; Some of the most popular content on Socialcam - which does not limit the length of its videos -- is reposted from sites like YouTube.

"The others are about content curation and redistributing third-party content," O'Brien said. "That's just a whole different value proposition. What we're doing is validated by the type of investors that are investing."

Participants in Viddy's latest funding round - its Series B - include NEA, Khosla Ventures, Goldman Sachs and Battery Ventures. The company has also benefitted from publicity driven by celebrity investors like Will Smith and Shakira.

"It's a blue chip group of investors," O'Brien said. "It's great validation of our business."

STRATEGIC M&A TARGET?

Socialcam, which recently completed the Y Combinator start-up accelerator program in Mountain View, California, has signed on dozens of angel investors but has yet to raise a round of venture capital funding.

But in the fickle iPhone market, Socialcam appears to be gaining the upper hand in recent days, as it has overtaken Viddy in terms of the number of daily users on Facebook as well as the number of downloads from Apple's App Store.

The emerging rivalry is reminiscent of some of the great start-up duels of recent years including Foursquare and Gowalla, two location-based social networks that competed for months before Gowalla was acquired by Facebook in late 2011. Foursquare remains independent.

Especially in this frothy market for start-up valuations, Viddy's investors have already begun fanning the flames of a potential acquisition.

"The goal here is to build something valuable to a lot of different people," said Brian O'Malley, a partner at Battery Ventures who was one of Viddy's earliest investors and led its seed and Series A funding rounds.

"For web video guys like YouTube, it's potentially strategic acquisition," he said. "Or the Twitters and Facebooks of the world. It could also be interesting to more content-oriented companies like some of the larger media businesses."

(Editing by Muralikumar Anantharaman)