Sequoia Invests in Blog Network Sugar Publishing

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1. vik
   

   October 16th, 2006 at 6:48 pm

   Man, what’s the secret behind raising money? Do you need connections in the industry? Or would a simple email with a presentation of your product work?

   I’m launching a website that I belive has a great potential. But, servers costs are killing me right now. Please provide tips!

   Thanks in advance!
   Vik

2. Michael Arrington
   

   October 16th, 2006 at 6:59 pm

   Vik, I have just the server solution you need - it’ll be up on techcrunch at 8 am PST tomorrow.

3. vik
   

   October 16th, 2006 at 7:21 pm

   Nice! Thanks Mike. I’ll be on your blog first thing tomorrow morning.

4. mesattack
   

   October 16th, 2006 at 7:22 pm

   Vik,

   The secret to raising money in this market is to already have a relative success. By this I mean you need to have a nice base of users. VCs in particular basically take no risks these days. They are looking for established communities regardless of their ability to generate revenue. The thinking is that a big community is easier to monetize than creating a new one. To me this crushes innovation on some level because most of these sites have no defensible technology or obvious mechanism to grow serious revenues. Nonetheless…

   We got zero response from them until I presented our company at ETRE recently. Now we are getting calls but this after we already lined up additional angel money and now have software to show.

   Check out my blog at http://www.markseremet.com and feel free to contact me. What you need are probably angels.

   Mark

5. Sramana Mitra
   

   October 16th, 2006 at 7:31 pm

   Vik, You can also read my Investment Thesis series. It includes, incidentally, an interview with Don Hutchison, a very well-respected Angel investor in the valley, who is also an investor in PopSugar. Sramana

6. Hyjak
   

   October 16th, 2006 at 7:32 pm

   I’ve been wondering the same thing. We have been building our nightlife site and i think the direction we want to go will make us stand out but i dont have a clue about who or how to aproach someone about VC money.

7. vik
   

   October 16th, 2006 at 7:33 pm

   Thanks mesattack for that wonderful post. I agree with you that at this point, I probably need a few angel investors. But I feel that it’s really difficult for an outsider to break into the “Valley Tech Boys Club.” I read the stories of how Digg, Yelp, YouTube, etc. raised money in their beginning stages and it seems that the founders of these websites had previous connections in the industry.

   I’ll visit your blog for more helpful tips!

   Thanks again for the advice.

   Vik

8. Evan
   

   October 16th, 2006 at 7:37 pm

   What about getting funding for something outside of the United States? I am in the Caribbean and have some great ideas, which, being in the Caribbean, means I have a market with basically no competition.

9. Michael Arrington
   

   October 16th, 2006 at 7:40 pm

   Is anyone actually using the internet in the carribbean? I’d be on the beach sipping rum drinks and looking at girls.

10. vik
    

    October 16th, 2006 at 7:43 pm

    Well, I’m not sure about the Caribbean, but I do know that a few Indian dot-coms have recently raised good VC. For instance, Guruji.com recently raised about $7 mil. Obviously, Guruji’s founders had connections in the Silicon Valley.

11. Hyjak
    

    October 16th, 2006 at 7:56 pm

    Right it seem if your trying to get attention in this game you need to be in the valley.(Im all the way in St.Louis)

12. Drew M
    

    October 16th, 2006 at 7:57 pm

    It’s amazing, but business really does come down to who you know. Networking is really a powerful thing that can open up all kinds of doors in all the right places.

13. Richard MacManus
    

    October 16th, 2006 at 8:02 pm

    For those of you looking for tips on how to approach VCs, may I humbly suggest reading my interviews with VCs Neil Rimer of Index Ventures and Judy Gibbons from Accel. The last question I ask both is: how does an entrepreneur get on your radar?

    Incidentally, both are non Valley VCs.

14. lemon obrien
    

    October 16th, 2006 at 8:04 pm

    @Man, what’s the secret behind raising money? Do you need connections in the industry?

    yes…its all in who you know, how well you get along with them, etc…mainly, bullshit. also, most are really boring old (or young fresh stupid MBA associates)…see friendster on how they had to get rid of the old white dudes…YouTube got lucky cause they were already in the in-crowd…from their days at PayPal…look how fast they’re getting their ass kicked…have you noticed all the good content has desappeared? dat cause dey getting sued;

    anyway…VCs don’t get it; and most don’t have money anyway…its a game. PopSugar or wahterever…which will just run out of money…is old dot-commers…the wife’s of; which mainly do the writing.

15. Michael Arrington
    

    October 16th, 2006 at 8:33 pm

    I think the fact that PopSugar kicks ass has something to do with it as well.

16. Drama 2.0
    

    October 16th, 2006 at 9:13 pm

    It’s all about who you know. For every startup that deserves funding, there are more startups with major flaws that get it when they don’t deserve it simply because they know the right people. What’s funny is that even founders that have proven themselves to be incompetent will get funding for future businesses. VCs understand that an investment is more likely than not to fail, but there’s a myth that you at least need to satisfy them on the execution and management side if you ever want to get funding for future ventures. In many cases, it’s apparent that this isn’t the case, as founders that were completely out of their league, blew the money and apparently didn’t really care will get funding for their next sca…I mean startup.

    PopSugar is definitely an interesting business and I think they’ll be successful (by many definitions, they already apparently are), but it would be interesting to see what such a large capital infusion is going to be used for. It just doesn’t seem like the type of business that needs this much investment, and given the impressive size and demographic of their audience, I’d be surprised if they weren’t profitable, or at least cashflow positive. In that case, even if they needed funding to expand more rapidly, some form of debt financing would, to an outsider like me, seem like a more appealing route for shareholders.

17. lemon obrien
    

    October 16th, 2006 at 9:19 pm

    @ PopSugar kicks ass

    not really…you should list the most prominate chick sites on the web…you did the gay thing; show the geeks some love…

    other than poperatzi(spelling) on the front page what makes it different….and, this is the net; poparatzi means paris hilton video…and do you think the poperattzi crowd actually surf the internet? we’re talking white trash…

    anyway…my chick digs http://girlshop.com/

18. WormInBuffet
    

    October 16th, 2006 at 10:23 pm

    Let me ask this question….how this this popsugar a blog network? in the same way that arrington’s cruch blogs are a network? Give me a break. If it wasn’t for their popsugar.com gossip blog, there would be no traffic to this “network”. so the question is, is a blog about hollywood gossip worth 5 million? is techcrunch worth 15 million? (they already had 10 mill in venture capital)

    here is a short list of gossip blogs (from the top of my head - and i am a guy)

    perezhilton.com
    gofugyourself.com
    popcandy.com
    thesuperficial

    all these gossip blogs are the same. blogs started by a bunch of chicks to talk about whether jennifer aniston’s breasts are real.they all have the same amount of traffic. so you are telling me that they are all worth 10-15 mill?

    VCs are flushed with cash. they’ll give it to anyone who shows up at their BBQ. the question is how do you get invited to their BBQs.

19. John P
    

    October 16th, 2006 at 10:55 pm

    This looks like a great play.

    One question: How did they get to 1.5 million visitors so fast?

    It seems that blogs are becoming the new magazines from looking at the paper thin print versions on the rack, and chicks love their magazines which are always two-thirds full of beauty product advertising. Cha Ching!

    Daily Candy is doing a brisk business…..

    I’d love to start a site for guys based around fashion - that was more geared toward making shopping painless as possible, where you could just click on a pic of some real cat on the street wearing something you thought was cool and wanted - and bam - buy it. Not a catalogue but real people out in the world. A pic of Tiger Woods at the Masters - wow, cool shirt - click it - buy it. - Manshop

    Any project might be a better use of time then my drudge like site recently resurrected, though it could evolve into a network of categories.

    By the way, does anyone know if Drudge’s traffic numbers are real, and if so what the valuation of his site would be based on those numbers?

    Suggestions & criticisms welcome.

    John P

    http://www.sundayreader.com

20. Michael Arrington
    

    October 16th, 2006 at 10:58 pm

    Ok, if you don’t buy my “because they kick ass” argument, how about this: Michael Moritz may be the single most successful venture capitalist of our generation? Does the fact that he is putting his money into a company suggest that they may be a winner someday?

    Why are people so quick to mock success? These guys built a great company in less than a year using their own savings, and then raised venture capital from one of the smartest guys in silicon valley. That’s what makes Silicon Valley so awesome. That’s what drives jobs and better standards of living for all of us. Go build something amazing - don’t sit and whine about how life is unfair.

    Also, #18 - we have not raised any outside funding here at TechCrunch.

21. Tim
    

    October 16th, 2006 at 11:13 pm

    I have a good story too. Maybe I’ll call Sequoia Capital and do a little presentation. And I am not kidding…

22. Tarry Singh
    

    October 16th, 2006 at 11:15 pm

    And Michael,

    Why have you blocked my commenting here!

23. Michael Arrington
    

    October 16th, 2006 at 11:21 pm

    Tarry - If it was a different comment than the one you just wrote, it’s because you wrote something that tripped the spam filter. Talk to Wordpress. No comments have been deleted from this post. yet.

24. Pusspaw
    

    October 16th, 2006 at 11:25 pm

    Michael-I heard you were going to merge your company with PopSugar….what happened to that rumor?

25. Michael Arrington
    

    October 16th, 2006 at 11:27 pm

    The deal fell through when PopSugar realized that all of my commenters are morons.

26. Hyjak
    

    October 16th, 2006 at 11:38 pm

    Women buy the majority of magazines so it would make since that a site like Popsugar would catch on.

27. Drama 2.0
    

    October 16th, 2006 at 11:42 pm

    WormInBuffet: If you’ve read my posts, I’m typically a skeptic, but I do think there is something here. I don’t really care about the sematics of “blog networks” and don’t disagree that their other blogs wouldn’t be successful without the gossip blog, but there’s no reason for them not to leverage their audience and to add new blogs, especially because the costs of doing so are probably negligible.

    There are a lot of gossip blogs and anybody can start one, but the numbers for PopSugar are very impressive. Just as with magazines, it’s all about circulation/readers. They seem to have built up a large audience, and this audience is in a very lucrative demographic. Unlike many of these startups, there are some clear ways to monetize it.

    What I do question, however, is the valuation and/or the financing route they took. I’m bullish on their potential and it looks to me like Sequoia scored a coup with this one. They got a sizable chunk of the company when I suspect that the company could have financed its expansion through other means that wouldn’t require any equity to be given up (or a minimal amount of equity). Clearly this is speculation on my part, but given the low operating costs for blogs and the advertising and integrated promotions that should be easy to sell at a premium for this type of audience, I would be surprised if some other options, such as debt or convertible debt, wouldn’t have been viable and a better long-term choice. And I still question what $5 million is needed for.

28. Vik
    

    October 17th, 2006 at 12:00 am

    “The deal fell through when PopSugar realized that all of my commenters are morons.”

    LOL, Mike. I hope the word “all” doesn’t include me. I consider myself to be a very non-moron type person

29. lemon obrien
    

    October 17th, 2006 at 12:04 am

    “Michael Moritz may be the single most successful venture capitalist of our generation? Does the fact that he is putting his money into a company suggest that they may be a winner someday?

    Why are people so quick to mock success? These guys built a great company in less than a year using their own savings, and then raised venture capital from one of the smartest guys in silicon valley. ”

    ok…first…if you’re in the valley; and doing vc stuff, you know 98% of what they fund goes down the tubes…mabye they can M&A it to up their average return…but its mostly like the record business…companies like Google, YouTube, those that hit it big, the profit from those fund most of the loosers.

    and…if they were really successful, they would not have taken VC money…b/c that my friend, usually cost them the business….for example…who now really owns and rund PopSugar…it sure ain’t the founders…not if they’ve taken that much money. they’re just hoping the VCs treat’m nice…after they cash their preferred shares…

    and let’s take TechCrunch as an example…would you take 15 million? probably not; why? cause you’re making bucks and you don’t want to cow down to nobody you already don’t have to. So, as anyone in business knows…taking money from a VC means you ain’t making money; its that simple.

30. Vik
    

    October 17th, 2006 at 12:10 am

    I belive in order for ANY company to take their biz to the “next level,” you need venture capital. Yahoo did it, Google did it, YouTube did it, heck, even Digg did it, notwithstanding the reluctance of Kevin Rose.

31. mr.stubblebine
    

    October 17th, 2006 at 12:22 am

    Michael,
    If you think buiding a good company is synonymous with building a good business, you need to audit some intro accounting and business classes. A company is an idea and a product, a business is a profit-generating operation. Company’s may drive jobs and better standards of living in the short term, but its businesses that sustain those jobs and standards of living. I think a lot of people tend not to make that distinction, and just lump them together. As if raising money means you have a successful business, when in fact its just the first step to trying to build a business.

    As it relates to M. Moritz . . . past performance is not indicative of future results . . . unless you have over 40 years of successful investing, and then its a maybe.

32. lemon obrien
    

    October 17th, 2006 at 12:25 am

    @Vik

    not if you’re making money…you’re making money…anyone will give you money; on way better terms than a VC.

    the next level…hmmm…what’s PopSugar’s next level? a myspace for white trash…opps, isn’t that already mySpace?

    the truth is, the founders of PopSugar know it will never make enough money for them to pay the mortage and they need jobs; and the VCs think they can turn it, something like a Salon combined with a mySpace or something…and the founders are like…cool…when do we cash out.

33. Drama 2.0
    

    October 17th, 2006 at 12:46 am

    That’s ludicrous Vik. I certainly hope that your only area of expertise is litigation and that you’re not advising your clients on finance and the startup of a business. I don’t like being insulting, but you should realize that making a broad statement about your belief that ANY (read EVERY) company NEEDS venture capital to take the business to the next level doesn’t make you look very knowledgeable. In my book, anybody, especially a lawyer no less, who makes absolute statements like the one you made lacks credibility, because there are few things that are absolute. Your statement is akin to saying that to elevate your baseball ability to the next level, you need to take steroids. There are multiple paths to improving your skill at playing baseball, just as there are many paths to financing a business. There is no one size fits all model.

    It is true that many businesses require outside capital to finance expansion and rapid growth in order to fully capitalize on the business opportunity (and maximize shareholder value), but venture capital is not the only financing option, and in many cases venture capital is least effective in creating/maintaining shareholder value. In the technology space, it is probably the most common method of financing simply because most technology startups have no little to no revenues and no tangible collateral to back a loan with. Thus, venture capital firms, which are not risk averse, may be the only financiers willing to invest. They are some of the only institutions out there that understand and can accept that the majority of their investments will result in losses, because one success can wipe out a number of losses.

    PopSugar is not a traditional technology firm. It’s new media. It seems to me that with the size and lucrative demographic of their audience, they should be generating decent revenues, and quite possibly even be cashflow positive or outright profitable given that the apparent operating costs are fairly minimal (the technology itself should be close to zero in cost compared with the big picture).

    Obviously we don’t know all the details about their business. What I can say is that if they aren’t generating a decent amount of revenues with the audience they have, it’s not a good sign for them. If they do have decent revenues, it’s likely they could have financed this in a more favorable way for existing shareholders (including the founders). I don’t know what they need $5 million for, and despite the potential they have given the audience, it pushes their valuation quite high. Seems like overkill. But I do think with a certain level of revenues, they probably would have had better financing options.

34. Michael Arrington
    

    October 17th, 2006 at 12:51 am

    Just to be clear: I would do naked cartwheels to have the opportunity to take Michael Moritz’ money and have him on my board of directors.

35. Michael Arrington
    

    October 17th, 2006 at 12:54 am

    On the business model, a good rule of thumb for blogs is to assume (in this great advertising market) $10 in actual collected revenue per thousand pages served. 20 million page views would generate $200kish in monthly revenue. PopSugar’s growth rate is absolutely astounding - possibly the fastest growing blog ever. If their growth rate continues anywhere near its current rate, Sequoia got a deal.

36. Drama 2.0
    

    October 17th, 2006 at 1:02 am

    Michael: While I agree that human capital is important and Michael Moritz is probably about as good a VC as you could get to serve of your board, at the end of the day, we are thinking along the same lines in regards to Sequoia getting a steal. My assumption is that they should be generating at least $100,000/month with their numbers, so the questions become:

    1. What do they need $5 million for?
    2. If you do need expansion capital, with decent revenues, why sell equity when you can easily finance it without having to give up any part of the company?

    Although we’re certainly not privy to all the details, it just looks like a bad decision on the part of the PopSugar management team if they’re in anywhere near as good a situation as they should be given the growth and audience.

37. Michael Arrington
    

    October 17th, 2006 at 1:17 am

    well, I have no idea. The main reason I’d want to raise capital would be to have the currency to acquire big independent blogs and roll things up into a CNET killer (or ankle biter). The cost of that capital is, as you say, high. I have no idea what PopSugar’s plans are.

38. Eric Eldon
    

    October 17th, 2006 at 1:28 am

    “Blog networks are hot investments right now, particularly as they continue to take traffic from established (and high-overhead) news websites.”

    Are CNET’s problems due to blogs taking their traffic? I’d like to see that evidence (which I’m assuming is out there somewhere). The last study I saw about traditional media on the web showed newspaper sites growing between 20% and 35% per quarter — not bad.

39. lemon obrien
    

    October 17th, 2006 at 1:30 am

    @I would do naked cartwheels to have the opportunity to take Michael Moritz’ money

    hopefully you know him…i’ve taken people’s money; and…well; it’s like a marriage or new relationship….and sometimes you end up feelings like its not a good thing…i think though, you’re just saying that.

    @popSugar…
    If they are making 100~200k a month…wtf with the VC money? what are your cost? 5K a month…the founders all know each other, are all friends, and married, etc…they probably can work from their houses…

    i have seen ads that they’re looking for a developer of two…but only for LAMP dev…probably a forum or two…its not like they couldn’t pay some guy to do all the dev’n for them on what they’re making.

    i honestly don’t get it. I don’t take money from anyone unless I have to…the fun stuff is running, creating, adapting your business to the market, watching it grow, learning, etc…the not so fun stuff is dealing with a board of directors, raising money, etc.

40. Tarry Singh
    

    October 17th, 2006 at 2:01 am

    Sorry Mike,

    I guess I wasn’t clear. When I post like this (meaning disalowing the autofill in Firefox to fill in my site’s/blogs address) it will publish it.

    Meaning clearly that my comment with the blogs address in it is being rejected WHILE the one without does get accepted.

41. Salman Jariri
    

    October 17th, 2006 at 2:10 am

    Hi Michael. Maybe mentioning Seeking Alpha financing by Benchmark were also interesting. (although I can see you regard it more as a “news site” than a blog network.
    http://www.techcrunch.com/2006.....ahoo-deal/ )

    Cheers,
    -Salman Jariri
    Dubai, UAE

42. victor
    

    October 17th, 2006 at 3:29 am

    Mike take a look at us, if you raise your money. we met want to join your roll up (the cnet killer). take me seriously.

43. Randal Leeb-du Toit
    

    October 17th, 2006 at 3:47 am

    Michael,

    Great comments - especially .20 — as a former VC and serial entrepreneur, nothing gets my goat like folk whingeing about the shortage of venture funding or how much it is a old boys network — guys, get out there…make your dreams happen and only good things can happen.

44. Michael
    

    October 17th, 2006 at 5:11 am

    We have a website doing basically the same thing with all the movie star picture and stories in addition to being founded by Argentina Brunetti of “It’s a Wonderful Life” fame called Hollywood Stories. Only we have been up and running for over two years. Send those VC people over. Also have them look at the soon to be release Hollywood Blockbuster called “In Sicilian Company” available through the same website.

45. hecklerspray
    

    October 17th, 2006 at 6:18 am

    Well done to both Popsugar and Sequoia - we’re also in agreement with regards to naked cartwheels + Michael Moritz.

    It *is* possible to grow traffic at an astonishing rate in this space. We thought we were doing well - hecklerspray.com attracts more than 550,000 uniques per month, from a standing start in May 2005. By that benchmark Team Sugar is doing a remarkable job. And we’re closing in on some major publishers…

    We’ve got a sizeable to-do list which contains various aspects that Sugar have already implemented, especially the on social networking side of things, and it is to their credit that they’ve executed so well and so quickly.

    These are interesting times for large blogs / networks. Some of the bigger publishers have approached us in recent months, which is how we ultimately expect to exit. It is good to be on radars. I hadn’t considered the VC route since we’re essentially in the publishing business, and I figured that VCs weren’t into that space?

46. allan isfan
    

    October 17th, 2006 at 6:19 am

    I have lots of thoughts on raising money and other startup topics that I have started to document on my blog http://isfanstartup.blogspot.com/. Although I haven’t come out the other side yet, I was able to become an Entrepreneur In Residence (EIR) with a VC firm that specializes in early stage start-ups. I get an office, access to all the staff, including one-on-one meetings with all the general partners, and eventually access to their high level contacts if an idea has merit. I even get to sit in on pitches and discuss them later with the team. I have started to get a good appreciation for the way this VC thinks. They people I’m working with are really fantastic. Although it is still about money of course, they are teaching me a great deal and introducing me to worlds that would have been difficult to penetrate otherwise.

    Although I had closer relationships with other local VCs, the EIR thing came out of a cold call so never be afraid to just go for it.

47. Julie
    

    October 17th, 2006 at 9:00 am

    All of this funding of blog networks confuses me quite a bit. Why is it that these companies need so much cash? My partner and I run a fashion blog network with a 170 odd fashion blogs (Coutorture Media) and I can’t even imagine what we would do with that much money.

    But since blog networks are so hot maybe all these VCs should start looking outside of silicon valley. If you really want to reach spendy women consumers fashion in is probably a better bet than gossip. Heck for 5 million you can have Coutorture!

48. Patricia
    

    October 17th, 2006 at 9:28 am

    I think knowing people can help but it’s not impossible to establish relationships or raise money if you’re new to the game. A lot of the business magazines quote and note the big/active/respected VC firms - it’s a good way to weed them out and start reaching out to them. Some of the best contacts I have right now stemmed from this - finding them in a magazine, calling them. You’d be surprised how even the biggest guy in the bunch will listen if you speak the right language. Investors are looking for good, stable places to make money. Think and speak like them when you talk them, know and be what an investor wants and you’d be surprised at who listens. Not every connection you make is going to turnover that minute - but that there is incredible value in being on people’s radar and keeping them updated. By doing so you also show your ability to generate traction, grow and navigate your idea, etc. - things that investors want to see in addition to a good revenue model, etc.

    Approach it with confidence. Tons of money every year goes into bad ideas - I never doubt for a second I won’t get what I am out to get, one way or another. But learn - there’s a lot you need to know when somebody comes into your company under this circumstance. I don’t know anybody who has been sorry to bring in VC, but it’s important to know the ropes and what you’ll be getting into.

49. Tom
    

    October 17th, 2006 at 9:31 am

    Its great to see a content brand get funding, as opposed to another application

50. Drama 2.0
    

    October 17th, 2006 at 9:48 am

    Julie: What type of numbers do you get (uniques, pageviews, etc.)? Sounds like you might have something interesting.

    Patricia: So how much money have you raised this way so far?

51. Patricia
    

    October 17th, 2006 at 9:53 am

    ^ none, we just started seeking capital in the past month or so, it looks like we may nail our angel round, we’ll see. it’s early to say. our company is two years old, has been making money - up until now, we haven’t felt a need for capital or that it was time to go out with it.

52. Julie
    

    October 17th, 2006 at 10:19 am

    Drama-I am happy to talk about Coutorture, our blogs, our numbers, and all of that jazz via email if you are interested.

    Julie.fredrickson@gmail.com

53. vik
    

    October 17th, 2006 at 10:46 am

    Drama2.0, yes, at this time, litigation is my only speciality. However, I do want to extend my horizons and that’s why I’m here learning from you kind people.

    By the way, I’ve heard that most web 2.0 websites follow the “community now, ads later” model. In such case, wouldn’t VC be considered the sine qua non of success?

    The website that I’m about to launch is going to require so much server resources. If I use the “community now, ads later” model, I’ll run out of my personal savings in about, ummmm, 6 months or so

54. Patricia
    

    October 17th, 2006 at 10:59 am

    ^ it’s hard to secure real advertisers without the traffic, and most VCs or acquisition companies appear to know they can monetize a good property if it has the traffic. so that’s where that mentality comes from.

55. Drama 2.0
    

    October 17th, 2006 at 12:15 pm

    Vik: The community now, ads later model is prevalent in Web 2.0, but my questions to you at this point would be:

    1. Where is your business at currently? Do you have a completed product (or some development done)? Good ideas are a dime a dozen. If all you have is a concept and a piece of paper (business plan) and you’re lucky enough to find somebody to fund you (helps to have existing connections), expect them to want a hefty chunk of the company right off the bat (perhaps even a controlling interest), since they’re assuming all the risk. There are so many startups out there that have growth and revenues that you’re competing with as an investment opportunity. Depending on your business, you may not be a good candidate for VC funding at this point. Obviously I don’t know enough to give my opinion, but just remember that VCs are typically looking for companies with an experienced (or clearly capable) management team, a large market opportunity, differentiation in the marketplace (hopefully with some defensible technology, although that’s tough in the Web 2.0 space), etc. Of course, we’re seeing lots of startups getting funded that seem to fail on many of these points, but that’s where who you know helps.

    2. You mention that the server resources for your business are going to be significant. Have you looked at whether or not the operating costs are going to be so high that turning a profit is extremely hard? Projections in this space can be difficult to come up with, and most of the time they’re off, but you should have some general ideas about how much money you’re going to have to make per user (or some other relevant metric) to turn a profit. Cashflow is the lifeblood of a business. Outside investment can give you the resources to meet your expenses, but you should not expect that you can live off of VC money forever, especially if you don’t hit objectives that would justify increased valuations with each additional round of funding. A lot of startups right now are focused completely on the acquisition exit strategy and those that don’t get acquired and don’t have sufficient cashflow to meet their expenses and liabilities will eventually die.

    3. You mention that you will run out of savings in 6 months if you don’t get outside funding. I hate to tell you, but more often than not, successful companies are started by people who weren’t afraid to take great personal risk to build the business. They maxed out their credit cards, took out home equity loans, sold their unnecessary possessions, ate Top Ramen for months, etc. If you can raise money so that you don’t have to take any personal risk, great. But as an investor, I would be weary of investing in anything early stage (pre-product, pre-launch) where the founder didn’t show a willingness to dip into their personal savings to get the business going. Look at it this way: if you, as the founder, don’t have the confidence in your business to take some risk, why should I as the investor? You may also face some problems since you are (apparently) employed full-time in another profession. Starting up a business is not easy. It is a full-time job and most founders put in a lot more than 40 hours a week. Expecting somebody to seriously look at funding your business while you have other obligations (and a safety net that they don’t), is unrealistic. Bottom line: if you incur some level of risk to get the business going before you ask somebody else to finance it, and are willing to commit yourself fully to it, your chances of getting somebody to assist you with financing are significantly higher, and in the long-run the potential payoff for you is far greater.

56. lemon obrien
    

    October 17th, 2006 at 12:25 pm

    @Patricia

    so you haven’t raised a dime; but you can talk shit. And i’m glad to see you’ve discover the nice catch-22 (no-traffic = no-revenue = no VC) So; what i’m saying is…if you’re making 100-200K per month…why would you get VC money.

    I’ve seen your site Patricia, its good…now, how much do you think PopSugar is really making?

57. Patricia
    

    October 17th, 2006 at 12:37 pm

    @ lemon, aw I wasn’t trying to talk shit - I was just sharing what I’ve learned from the experience and good people I’ve been lucky to learn from. I hope it’s encouraging for people looking to raise capital.

    I haven’t said what we’re bringing in or that we specifically needed to raise capital, personally - I think it’s very good to investigate it as a route to take for your business if you feel it can add value. That’s all.

    As far as PopSugar goes, I don’t know what they’re making - I would be more interested in traffic, growth, etc., as monetizing platforms right now seems to be almost the easy part :). It looks like a great site - it’ll be good to see how things play out.

58. vik
    

    October 17th, 2006 at 12:45 pm

    Great post Drama2.0. I have a deposition in about 1/2 hr. and will post my reply after I’m done with the depo.

59. Patricia
    

    October 17th, 2006 at 1:09 pm

    I agree with Drama - you can aim for acquisition but you better have a B plan that includes generating your own cash flow.

60. sam
    

    October 17th, 2006 at 2:25 pm

    hi…

    for all you guys who have an ‘idea’ but not funding, you should really consider whether you really need funding to begin with.

    i submit that if you can get 3-4 guys who are willing to work nights/weekends, then within a few months you can actually build the structure of a startup site/biz opportunity. it’s the old ‘garage’ startup mentality.

    now, and here’s the kicker. i submit that the majority of people who write/bitch about not getting funding aren’t really ready/willing to roll up their sleeves and put in the energy/time/sweat equity to make it happen.

    being a ‘real’ entrepreneur is being willing to work on what you believe without the safety net of a salary. it’s been willing to do without because you’re building something that you know will work.

    the process isn’t hard. it’s a question of your dedication. now, does that mean you can create the next google with a few guys, working weekends, no, or course not. but it does mean that you could create the next advertising platform for blogs, or whatever…

    you start small, work your way up… and trust me, if you work your way up, you’ll start to seriously understand the processes of building a working/sustaining opportunity.

    but i’ll also posit that the majority of people here, haven’t really gone out to kick the tires of their proposition, to test it out with people who don’t know you to see if it’s even reasonably valid. you want to jump in to build the code.. the process to creating a reasonable biz is prety straightforward.

    if you’ve never done it before:

    1) find a small team (couple of guys to develop, guy to make serious calls to potential customers/,do martketing/feed ideas back to project/etc..)
    2) identify your market/identify your market/….
    3) code/test…
    4) code/test…
    5) work like hell…
    6) don’t get caught up in your partners ripping you off… you don’t have anything to rip off when you’re starting. remember, you’re all working on this thing for future possible $$$$
    7) work like hell….

    you get the idea

    if the idea that you’re working on is a web based idea, and you need lots of people to signup… create a survey kind of site/app that explains what you’re trying to do, and place it on the net… let people signup for it..let them read what you’re doing, what you’re trying to do, and why they should be a part of it.. solicit ideas from them.. don’t be afraid of people ’stealing’ your idea… the vast majority of people aren’t motivated to take what you have… remember, if you have something that you’re scared of someone taking, you shouldn’t release your app!!! most software that’s web based can be copied with ease anyway…

    anyway, these are simply my opinions… you’re welcome to agree or disagree.

    bitchin’ is easy, working towards your goal requires sweat and boold!!

    time to get busy!

    peace

    ps. if you feel like it, feel free to respond to me via email…

61. carl rahn griffith
    

    October 17th, 2006 at 2:31 pm

    are there now - officially - more ‘unique visitors’ to all these new social network/blogging sites/et al, than there are in fact people in this world with access to the internet?

    anyways, like me, i guess many of them are registered in parallel to many such sites and the relevance of a daily ‘unique visit’ is pretty minimal - i guess i ‘visit’ 15 or so such* sites each day that i am registered at yet spend barely 2mins on each one - just like channel-surfing/hopping on TV undermines the value of traditional media ads, one day the incestuous people squandering millions in this space may realise that similarly the many ‘unique visitors’ are simply passing thru and of negligible worth for ads or potential revenue or anything - let alone as a statistic being a ‘unique visitor’ to justify absurd vacuous valuations.

    yours, puzzled.

    *ps, excluding - and i am sure it is excellent - ‘popsugar’ - i don’t think we’re a mutual demographic, somehow

    **pps, it seems that the years of frustration the VC/PE community has had sitting on billions of dollars with nothing to spend it (so it decreed) on has meant that their powers of objective judgement have become severely warped - basic business planning seems to have gone out the window and hype is all (and as long as you all hang out in the same cool bars) - back to the days of “all sizzle, no steak” … hubris looms.

62. Chris
    

    October 17th, 2006 at 3:00 pm

    yeesh…Pop Sugar has less than 100K unique visitors according to Quantcast. A lot less than “The Superficial” and “Perez Hilton” I think a lot of these outlets are going to have a lot of trouble getting scale outside of the gossip business. Of course, if they get big enough…having to deal with lawsuits and such are going to take the sweetness out of sites like this.

63. Dave McClure
    

    October 17th, 2006 at 4:50 pm

    Mike -

    >> Just to be clear: I would do naked cartwheels to have the opportunity to take Michael Moritz’ money and have him on my board of directors.

    let me be the first (but hopefully not the last) to kick in $5 to the “PLEASE MAKE SURE MIKE DOESN’T PITCH MORITZ WHILE I’M WATCHING” fundraiser… yikes

    mike, really… i’m even more sure now you don’t need venture capital.
    for the sake of the children, don’t do it!

    

64. Patricia
    

    October 17th, 2006 at 8:46 pm

    thanks for posting quantcast. our stats are off on it by a lot but i sent to our cto, it looks like a cool site.

65. Rich Person
    

    October 18th, 2006 at 10:40 am

    We have a web site thast draws over 2MM unique vsitors each month, mostly IT managers from companies such as Microsoft, Wal Mart, Accenture and organizations such as the FBI, CIA and DOD. We provide free tools that help these companies run their businesses and protect against spam and hackers. We have more search engine links than Napster and Martha Stewart and we believe we attract 20% of the market. We’ve been told our tools are the best in the industry. I am considering taking VC money but having difficulty establishing the valuation. Any thoughts on what that valuation should be given the loyal audience and monthly nimbers?

    RP

66. Startup.Magazine
    

    October 20th, 2006 at 2:21 am

    Unser Kommentar zum Thema Sugar Publishing bezogen auf den deutschen Markt.

67. Sam
    

    October 28th, 2006 at 1:02 pm

    I agree with Chris. The number inflation that Sugar is doing is only going to hurt them in the long run, esp. with that high a VC investment. I don’t think they’ll get much added traffic outside the gossip sphere unless they have a B plan. But it will be interesting to see.

68. notsopop
    

    November 20th, 2006 at 1:44 pm

    the sugars dont care about moronic posts, they allow it and then scold there regular/oldies if they get fiesty with them over it. They even condone plagarism and vulgarity now.

69. Eyal Schiff
    

    February 9th, 2007 at 8:39 am

    @michael , … “Just to be clear: I would do naked cartwheels to have the opportunity to take Michael Moritz’ money and have him on my board of directors. ”

    i will see mike moritz on the end of ths month … will tell him that…

    @patricia …i wonder what have changed regarding your fund raising since.

70. Lip Plumper
    

    February 27th, 2007 at 5:39 pm

    omg, it’s bad soically tendentions.. but I agree with Chris, partycally.. Pop Sugar has MORE than 150K unique visitors