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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