TechCrunch and Venture Beat are reporting that Greylock has invested $8M in Revision3, a content producer with eight or so shows. There’s no indication of it, but one would presume David Sze led the funding. Disclaimer: when I’m not writing on this blog, I run WatchMojo.com, one of the largest producers of web video content.
Anyway, I’m not sure quite it takes $8M to do what Revision3 does, or wants to do, but if you’re a VC who’s worked with Digg’s Jay Adelson and Kevin Rose and back their first project, I guess you can’t say no to project #2… and Adelson and Rose can command any pre-money valuation they want given their success in making Digg a force in social news.
But while they can command a valuation on paper for a financing round, ’tis quite different to get someone to sign a check in an exit. And this takes me to a couple of issues I see here:
Problem #1: Focus Taken Away From Digg
Last year apparently Digg asked for $150M from News Corp., News Corp. balked and instead launched MySpace News.
Digg denies this and the rumor might be false, but the company with 20 or so employees and said to be cash flow profitable - went on to raise more money just before the end of 2006. That put the company’s financing at over $10M.
I wrote, somewhat jokingly, would you pay $10M for Digg? let alone would you invest $10M in Digg?, for the simple reason that user-generated news is very precarious, to put it mildly. Digg since then was once hijacked by its users which demonstrated the bastardly double edge sword that social news presents to companies and advertisers.
Admittedly, I’m not sure that MySpace News has really taken off, but then again, I’m not sure Digg has a very “defensible” strategy: they don’t own anything other than a URL, in my eyes. Of course, that URL - and brand - has proven quite valuable, but the:
Content? Not their’s.
Editors? In puberty.
Just last week though, Compete.com (a sponsor of this blog) said that Digg had crossed the 20M unique figure and was in fact, larger than Facebook. I was personally shocked, and while such a figure would imply that Digg’s exit window might have opened up again, if the stat is true, then it implies a very high valuation for the company… which really only means that the company has practically priced itself out of an M&A. Who would pay $100M or more for Digg, which unlike a social network where someone creates a presence ultimately has no real lock on the users who create the content?
Will they realistically do an IPO? I doubt the market would price Digg at a premium over Facebook, who is a lead candidate for an IPO in 2008.
I also don’t think Digg is anywhere near the $100M IPO investors usually ask for before a company hits the the roadshow circuit.
Problem #2: Admission of Weakness in Digg Model?
As I write this, it occurs to me that what I’ve been saying for some is becoming more and more true and correct. User-generated and user-appropriated media is powerful in that it helps a site scale content quickly, but it proves to yield very little advertising revenue. Based on my calculations, YouTube should have been making $7.5M per month throughout 2006, when the kimono was opened, it said that it did $15M all year!
I think that while Revision3 currently seems like a bit of a side show, it’s an indirect admission that one needs to own the content to generate value for shareholders. Earlier this year I mentioned that VCs were about to get back into content, though the focus would be broadband content. Benchmark hired Dave Goldberg, which was an indication of that.
Please, please, pretty please, bear in mind my full time job (my actual gig, in fact) is as major producer, publisher and syndicator of video content, so I am very biased in saying that. But then ask yourself why I chose that as line of work…
Problem #3: Crazy Valuations?
My problem with the $8M round is that it puts a very high valuation that might be hard to overcome and bring “in-the-money” because online video remains very young and embryonic.
I wrote about this as well, in “What’s Up with the Crazy Valuation Rounds?” and “Not Sure About the Crazy Valuations, Frankly.” People, to quote Chris Rock, I can drive with my feet, it doesn’t mean that I should.
I had the same feeling, frankly, when Next New Networks raised a similar amount from Spark Capital. N3 is founded by the cream of the crop management-wise, but to raise too much money too early is a dangerous proposition (disclaimer: we might be working with N3, we might not…. but it’s worth disclosing that, too, I suppose).
Anyway, there’s a lot of money flowing around these days… and online video is a high-growth area, so some of these deals might not be surprising. Just remember, getting someone to agree to a deal on paper with intangible valuations is one thing, getting someone to pay you for that asset with a firm, tangible price is quite another.
Let’s hope Kevin and Jay can digg that.
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July 1st, 2007 at 11:06 am
[…] some are questioning whether Revision3 needs a further $8million when its production budgets are minimal (most shows […]