Blog network Sugar Publishing (the most popular blog in the network is PopSugar) has raised “around $5 million” in a Series A round investment from Sequoia Capital. Michael Moritz will join the Team Sugar board of directors. No word on the valuation, although I suspect it’s in the $12-15 million range pre-money. Like all good rumors, the source of this one is a venture capitalist who tried but failed to get in on the deal. The company would not comment on this either way.
Om Malik and I compared notes and sources on this story – read his thoughts here.
The Sugar Publishing network, which includes a number of blogs and other sites catering to “young, hip women” has only been around since the Fall of 2005, but boasts a rumored 3 million unique visitors and 20+ million page views per month (up from 13 million monthly page views and 1.5 million unique visitors just a couple of months ago). See our initial review of the network from August 2006 for more.
Blog networks are hot investments right now, particularly as they continue to take traffic from established (and high-overhead) news websites. At least three blog networks have raised venture financing (GigaOm, PaidContent and B5 Media), although the size of those investments combined is probably less than this Sequoia-backed round. Weblogs, Inc. was the first blog network to have a liquidity event, selling to AOL in 2005.
Look for Sugar Publishing to launch four new blogs in the next month or so – GeekSugar (engadget’s “little sister”), GiggleSugar (”fun stuff”), BuzzSugar (music, movie, etc. review) and YumSugar (food and drink).
As I said in our first post on Sugar Publishing, you are going to start hearing about them a lot in the mainstream press
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
Vik, I have just the server solution you need – it’ll be up on techcrunch at 8 am PST tomorrow.
Nice! Thanks Mike. I’ll be on your blog first thing tomorrow morning.
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
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
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.
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
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.
Is anyone actually using the internet in the carribbean? I’d be on the beach sipping rum drinks and looking at girls.
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.
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)
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.
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.
@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.
I think the fact that PopSugar kicks ass has something to do with it as well.
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.
@ 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/
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.
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
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.
I have a good story too. Maybe I’ll call Sequoia Capital and do a little presentation. And I am not kidding…
And Michael,
Why have you blocked my commenting here!
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.
Michael-I heard you were going to merge your company with PopSugar….what happened to that rumor?
The deal fell through when PopSugar realized that all of my commenters are morons.
Women buy the majority of magazines so it would make since that a site like Popsugar would catch on.
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.
“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
“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.
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.
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.
@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.
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.
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.
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.
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.
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.
“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.
@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.
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.
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.tech...ing-yahoo-deal/ )
Cheers,
-Salman Jariri
Dubai, UAE
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.
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.
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.
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?
I have lots of thoughts on raising money and other startup topics that I have started to document on my blog http://isfansta...p.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.
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!
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.
Its great to see a content brand get funding, as opposed to another application
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?