One of our distribution partners - 5Min - has raised a Series B round from Globespan Capital Partners. Existing investor Spark Capital also participated in the round. The company had previously raised $5.3M, bringing the total to just under $13M.
Globespan Managing Director Jonathan Seelig will join 5min’s Board of Directors. 5Min is one of our distribution partners that apart from YouTube actually drives some volume, which is promising and suggests that they get the kind of traction that VCs would look for in today’s climate.
The 5min platform collectively reaches a potential audience of over 200 million monthly unique visitors, and of this group, 14 million people watch at least one video per month. 5min has also built a multi-vertical content library of over 100,000 professionally produced videos through partnership with media companies such as Hearst Corporation’s UGO Entertainment, Elle, Car & Driver, The Doctors, Pet Side, Britannica, Ford Models, Kiplinger, Big Think, WatchMojo, Road & Track, Woman’s Day and more.
For example, in our record-setting month of June 2009 where we did 6.5M streams across our network (up from 4.8M the month before), YouTube accounted for nearly 3M of those, and 5Min clocked in at over 500,000 streams, which was an uptick from the previous months admittedly, but promising nonetheless considering that YouTube commands such a lead on all other sites.
Now that I am in NYC I’ve had the chance to meet some of the members of 5Min’s team personally and I like what they’re doing to differentiate in their category, so despite my opinion that the How To space is awfully crowded online, I can fully understand why VCs think they are worthy of more capital.
But, the space is crowded: Expert Village, VideoJug, Graspr, Instructables, SuTree, Howcast, MindBites, Monkeysee, WonderHowTo, FindHow, eHow, WatchDoit, to name a few.
It’s also worth noting that eHow is part of Demand Media who is armed to the teeth with over $300M in capital and VideoJug is no slouch with $40M in backing.
As we’ve seen and I have been saying all along, more VC money leads to more problems… but the point is: there’s lots of gunpowder left and these guys will be pummelling one another for months to come, so sooner or later, you will see some mergers and inevitable rounds of consolidation in the space.
Check out some of our content on 5Min here.
Some time ago I published a post called Financial Engineering: How to Triple Your Market Cap. I was referring to Marchex, a publicly traded company now worth less than $500M and founded by Russ Horowitz, founder of Go2Net, which merged with Infospace back in the day. But the strategy would apply to Marchex, as well as Name Media and any other owner of large domain name portfolio.
Anyway, the gist of that post was that Marchex - who was sitting on countless URLs and using them mainly for search marketing purposes - should bring those URLs to life by actually creating businesses, you know, websites with actual content and a purpose, instead of the kind with no content but only links to paid ads. Don’t get me wrong, the domain navigation business is lucrative, something I covered in Domain Parking Ecosystem here.
Marchex has not done that to date, neither has Name Media. One company that has, of course, is Demand Media. Demand was founded by Richard Rosenblatt, funded by big name investors, including Gordon Crawford (who is a major owner in Yahoo!) as well as Goldman Sachs. If Rosenblatt’s name is familiar, it’s because he was the executive that Intermix’ board brought in after Brad Greenspan was booted from the MySpace parent. It was Rosenblatt who struck the massive $580M deal with News Corp., creating Fox Interactive Media. Previous to that, Rosenblatt started iMall, which sold for an eye-popping $565M to Excite @ Home. You have to give a lot of credit to Rosenblatt who got into this particular space later than Marchex, Name Media et al., but has managed to build a company that in 2 short years has gotten interest from players like Yahoo! to the tune of $1.5B - $2B, according to Tech Crunch, who pegs Demand’s revenues at a healthy $250M and suggests that Rosenblatt is gunning for a $3B exit.
For the record: I am not arguing the merits of Demand Media’s business plan on a stand alone basis. The company is too complex, diverse and fluid for me to do that. I am, however, saying that relative to the Marchex or Name Media strategy, I prefer Demand Media’s. Then again, I am a content/sales guy, though I did work in the search industry back in the day.
I’d be surprised if Yahoo! acquires Demand Media, mainly because it is undergoing turbulent times and Yahoo! does not have that kind of cash on its books (as of its most recent quarter, it had $2.61B) and its stock is fairly volatile. Moreover, I see Demand actually as a buyer more than a seller. I can think of 3-5 more acquisition targets for the company.
With $250M in revenues a paltry two years after launching (though in all fairness, technically Rosenblatt’s crew has bought many businesses that pre-existed Demand Media’s incorporation), then the company’s path seems to be an IPO, though those are as rare as companies with revenues these days (oh, wait, see a connection)? In fact, while Rosenblatt has long been a proponent of social networking, he’s attacked the market in a very smart, methodical and wise way.
In other words: sure, social networking tools and applications are powerful, but devoid of any high quality, premium content, packaged and editorialized in a way that consumers and advertisers can digest, social networking can kill a brand and property, too.
It does go to show, however, that it takes money to make money: Demand Media has raised a dizzying $355M… and while that seems like a breakneck amount, Rosenblatt is on pace to create enough value, fast enough, to make the numbers add up. After all, few companies will be able to step up to the plate and pay $1B - let alone $3B - for the company. So for investors to get back their money, then an IPO seems like the likely route.
But enough from me, here’s an interview Kara Swisher did with Richard:
When MSFT launched an unsolicited $44.6B acquisition bid for Yahoo!, it was clear that 2008 might set a record for global M&A, with digital media leading the way.
However, I think what you are seeing now with regards to deals in the $50-200M range is a sign of things to come. Yesterday Compete.com was acquired for TNS for $75M, with earn-outs creating an opportunity to double the payoff.
Today Pluck gets bought out by Demand Media, for about $75M. Demand Media is founded by the Intermix executive who sold MySpace to Fox Interactive Media, Richard Rosenblatt. Rosenblatt has been ahead of the curve many times and with $320M raised in funding, it was a matter of time before he took out his checkbook to make another acquisition. Previous acquisitions include eHow and ExpertVillage.
Anyway, I do not think these are exceptions: this year, brace yourself for micro-web deals. Big media companies won’t want to drop $500M and more because the opportunity cost of buying these assets - and the time to integrate these - is far too great. Media companies are investing aggressively online and moving towards a digital and interactive world. In previous years, companies sought to make big acquisitions for exposure to the Internet, hoping that such moves would shelter their offline assets from cannibalization. Today such theories are seen as lunacy and companies understand that small deals (well, assuming $75M is small) will be easier to leverage across their massive asset base and not break the bank.
Of course, it takes two to tango. What you are also seeing is less patience from backers of companies that cannot get over than $100-250M market value barrier. If you have spent $10-50M in financing and you cannot envision how you will return a $250M to $1B payoff to investors, there’s a chance the companies will end up selling… Pluck and Compete are two examples of that, I suspect.
Daily Motion is escalating the battle for #3 in their space (after YouTube and MySpace TV).
Online video advertising is growing, quickly.
Online video advertising is where search advertising was in 2000-01: a major part of the web ecosystem desperately looking for a business model.
Unlike search - where traditional media companies failed to invest and even new media companies gave up in favor of portaldom - a lot of companies are vying for online video supremacy. My read on it is that we will never have a Google of video. That’s right, even YouTube - incidentally owned by Google - won’t command the kind of revenue within its segment that Google does. The reason for that is lack of competition and monetization ability. On the former, YouTube has a lot of competition in the monetization race.
Either way, looking at the stats, the numbers are impressive:
An estimate of the US online video ad market for 2009 - set in 2004: $657 million | Source.
An estimate of the US online video ad market for 2009 - set in 2005: $1.5 billion | Source.
An estimate of the US online video ad market for 2010 - set in 2006: $2.3 billion | Source.
An estimate of the US online video ad market for 2010 - set in late 2006: $3 billion | Source.
An estimate of the US online video ad market for 2011 - set in 2007: $4.3 billion | Source.
An estimate of the Worldwide online video ad market for 2011 - set in 2007: $10 billion | Source.
An estimate of the US online video ad market for 2012 - set in late 2007: $7.1 billion | Source.
An estimate of the US online video ad market for 2012 - set in early 2008: $6.6 billion (all broadband at $12.2B) | Source.
It’s thus not surprising to see the sheer volume of money that is being invested in the space, here is an incomplete snapshot:
Judging from that, investors better be patient because only YouTube has exited, handsomely, to the tune of $1,650,000,000 (that’s $1.65B, in case you’re wondering). I’d like to remind everyone that more money does not equal more return, but I digress.
It’s worth noting, too, that YouTube raised less money than everyone else in its peer group but I highly doubt anyone in that group will be worth more, ever, than YouTube.
I am personally hoping that WatchMojo.com pulls the same feat in its peer group. I won’t say “jokes aside” because I am not exactly kidding, admitting that yes, indeed, we’ve raised - and spent - less than $5M to build our content and distribution, which is actually bigger than some of our peers. You might notice that I do not call the players in our group competitors because we are the bastard children of the broader video space: everyone is betting heavily on platforms and user-generated content and our category is definitely going against the grain.
Lastly, I think most of these players are pricing themselves out of exits:
- IPOs will be very hard: yes online advertising is growing quickly but I suspect traditional media (that owns rights to the content) will garner a big share of the online video ad pie. In this context, hitting $100M in revenues or more becomes very challenging, especially with the low-quality content most of these sites are trying to monetize.
- M&A becomes nearly impossible because you need to sell for more than you have raised, and judging by Revver’s fate (who raised $12.7M and sold for less than $5M) that becomes quite hard.
It’s a good thing I am no low-expectations mofo… just because we have not raised boatloads of cash (yet anyway) does not mean we’re not gunning for a big payday one day, but realizing that such a day might not materialize tomorrow, I respectfully think a lot of the companies in the broader video space and our content creation space in particular have dug too deep of a hole for themselves.
To each their own.
This is a work in progress, I am adding CMS platforms (Brightcove, Maven, etc.) and CDNs (Limelight, Akamai, etc.) as we speak. If you have more companies and funding amounts, or if I made a typo, leave the correction in the comments or email me at ash@mojosupreme.com.
The following is a perpetual-work-in-progress. Once you start to compile a list of mergers and acquisitions, you realize why it’s nearly impossible to have a complete list. We are quite confident that the following is a very good, comprehensive list of the largest, more notable deals… but it is not - and no list will be - fully complete because there are too many countries around the world and too many industries to report (it is highly possible that the Wall Street Journal or Financial Post, for example, has such a list… but it would be thick and unwieldy).
We have included:
- many industries
- have not adjusted for inflation
- mergers (be it all cash, cash/stock, or all stock)
- acquisitions (we have excluded partial acquisitions)
- private equity deals.
It is certainly not complete, send me any ones you think I am missing or industries you want us to add next to ash@mojosupreme.com or leave in the comments.
Trivia:
- In 1981, when DuPont acquired Conoco for $7.8B, it was the biggest deal of all time. But adjusted for inflation, that remains a $20B deal by 2008 standards.
- KKR’s private equity deal for KKR remains the biggest buyout when adjusted for inflation, but in actual dollars it has been long surpassed.
Related on HipMojo.com:
Having worked in the past - and hopefully in the future, too - with Demand Media, I was intrigued to learn that in addition to $220M of funding to date, they closed an additional $100M round yesterday.
There was no word on the valuation, but it was obvious that the company was gunning for an exit of $1B or more in an eventual IPO. Today, in an interesting twist, Bambi Francisco - who left Marketwatch to focus on the Peter Thiel-backed Vator.com - announced that Richard Rosenblatt (Demand Media’s CEO) confirmed to her that this financing round was done at a valuation of $1B. Should be noted that Rosenblatt is an investor in Vator.com and will be presiding over its latest endeavor, too.
Well, what can we say? When the then-unnamed News Corp./NBC joint venture, now christened Hulu, raised $100M on a $1B valuation from Providence Capital Partners, it was inevitable that companies like Demand Media would fetch lofty valuations, too. Sure, they are in different markets, but both have big ambitions and bigger backers.
But, unlike Hulu that remains a concept until now, Demand Media is far from embryonic. It boasts $100M in revenues (this for a company that is 18 months old is nothing short of impressive and breath-taking!), it makes sense that it’s valued at 10x revenues, or $1B.
Of course, this all means that Demand Media’s eventual exit, be it by way of an IPO or a sale by a larger media company, will have to top $1B. Given its growth thus far, young age, acquisition track record and additional funding, there’s no real limit as to how far its value can reach.
It sounds crazy, but Rosenblatt has assembled quite a team and assets in short time, and with his Midas touch on the MySpace deal (he was brought in to serve as CEO of parent Intermix and orchestrated its sale to News Corp. for $580M), nothing is impossible.
Bambi asks: is Demand Media over-valued? Well, with Facebook brandying a $10-15B valuation off revenues of $100M, I would say no. All things are relative, after all.
I wonder what Rosenblatt et al. will do with all that money. Time will tell. But while many have been working on such roll-up companies - including more recently former AOL CEO Jon Miller and former Fox Interactive Media CEO Ross Levinsohn - it’s clear that raising boatloads of cash to amalgamate the online space is proving to be a sound strategy.
And with Rosenblatt, Miller and Levinsohn’s backgrounds, it might not be as risky a bet as some would presume at first glance.
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