Big Round of Funding For RockYou

hmmm this seems like the youtube sale has really usered in a new round of “user metric” based sales.

I am sure these guys must have a sideways strategy to ACTUALLY give MySpace a fight rather than simply rely on it for too long as their core business. Monetizing MySpace widgets is one of the toughest things to do.

-Zaid

Have these sites found a business model yet? I thought Slide’s original concept had some promise, but their current (and rockyou’s) approach as a social networking slideshow widget isn’t much of a company.

What do you imagine the revenue for this company is? Two years out? 50 million? Wow, I’ve got to take a long drag off of my crack bowl…

Ah, that’s much better Yes, yes, 50 or 60 million sounds right

wow! This has to be nepotism; I know slide got its money b/c of that. I wish I had a best friend VC.

Pretty sweet investment deal for RockYou.

I would love to have a behind-the-scenes look at this. I just don’t see any way a sane person could put a valuation of $50 million on a “business” that has no business model and could potentially be shut off from the services that have made it popular (i.e. MySpace). On the surface of it, it looks like pure insanity.

Off the bat, I think this is ridiculous. Then again, I didn’t do the due diligence. I don’t have their projections, their plan, and their current numbers. Getting the VCs to drink the kool aid is one thing. Getting the exit strategy (a company or the public) to drink and buy the kool aid is another. At a 50 mil valuation, the exit numbers have to be astounding. Was it a 50 mil post or pre money deal? Whoever wins this space will be sitting pretty in the end.

-JLB

Rockyou do 130+ million views a day of their widgets, rockyou.com get more than 10 milion unique a month. They make money selling branding ads on their homepage today.

I’m not sure the valuation is out of bounds, but it’s a lot of money

Lame. What is this world coming to. A service that generates no income at all continues to get funding and has a ridiculous valuation (that doesn’t seem to look ridiculous anymore).

I mean really, doesn’t this look like a crash all over again? Ok maybe none of them will push for a public offering but they still are getting crazy money.

I would really love to interview a few top dogs from the big VC firms and ask them there thoughts regarding funding of companies that have no business model. I really do wonder how these guys pitch their ideas to VC’s.

Mike, maybe you could do an interview with a few answering this question? I’m sure we would all love to see some interviews

Correction: I meant ‘their’ thoughts. My bad.

@11 Alex

Don’t worry about interviewing the VCs.

Here’s the answer.

If Google is willing to pay 1.6B for a business that is losing 1M per month on bandwidth fees. They’ll at least be willing to pay 160M for something like RockYou!

Rock You lives and dies with the actions of Myspace. I think there are better ways to invest 10mil.

Do you have any details on the percentage of venture funding being successful and the reasons behind success and failure of Ventures.

I was curious as I myself am an aspirant to begin an Internet venture but still Business Ideas elude me.

http://www.tekno-world.blogspot.com

So…what’s their business model? Waiting for a buyout or actually trying to make a profit out of MySpace?

It is becoming more and more apparent to me that there must be a lot of rich folks thinking that myspace is not going to be the only place widgets can be used. If you look at how quickly other widget-able applications (wordpress for example) have gained mass adoption, I don’t think investing in widget companies is dependent entirely on myspace, nor do I think it is a terrible idea. That said, what does a widget company need 10 mil for other then survival?

I’m a Partner at Lightspeed, and led our A round investment into Rockyou. While I can’t comment on the rumors of a subsequent financing round, I’d like to address a couple of misperceptions raised in the post and in comments:

1. Rockyou serves and creates substantially more total widgets than Slide does (though less photo widgets). This is because Rockyou offers a number of other widgets that Slide does not (Glittertext, etc).

2. According to Comscore, Rockyou has greater PVs/mth and minutes/month than Slide does (although it reports lower UU/mth). This may be an artifact of Slide’s desktop app creating a lot of “one and out” PVs when users click on a photo.

3. Rockyou has comparable penetration into Myspace versus Slide, and substantially greater penetration into Bebo.

Unless the metric for leadership is blog and press column inches, these three points would suggest that there is at least some dispute about who leads in this space!

4. Substantially less than 50% of Rockyou’s traffic comes from Myspace. It is, however, the largest traffic source.

5. Rockyou is making revenue, but not profitable. As commentors have pointed out, the ongoing revenue model for widget companies has not been finalized. For those who are interested, I posted on potential business models for widget companies at the Lightspeed blog in January. You can click on my name in comments to read the post

Jeremy, since you are a big champion of widgets.. here’s the question.

So you are saying that you’re pouring in money in these popular widget companies in the HOPE that the popularity somehow turns into profitability assuming through some kind of acquisition or some unknown method that will bring in positive cash flow?

So any startup that can show you that they’ve gained massive user traction but at the same time losing money and no plan whatsoever of how to turn profitable, you’d be willing to put your money in?

Guk - Waiting for a buyout like every other one of these

word on the street is that myspace will block slide and rockyou soon.. wrong time to put money into this company.

Rockyou is really a site to look out for with it’s huge and growing community. It will definitely rock.

Jeremy: I couldn’t help but chuckle when I saw a VC mention that his portfolio company “serves and creates substantially more total widgets” than a competitor does and mentions something called “Glittertext.” Sounds like something we might have heard in 1999.

The point that isn’t addressed in your post is just what value is actually being created by RockYou. You can talk about total widgets, pageviews, unique users, minutes per month but that is ancillary to the fact that the “ongoing revenue model for widget companies has not been finalized.” Interesting choice of words. My translation: there is no revenue model right now, and while some people, like yourself, have some ideas, nobody has proven anything on a noteworthy scale. Furthermore, we’re only talking revenues. Nobody is talking about how these companies are going to create *profits*. And nobody seems to be asking the logical question: these services have massive audiences, so what is stopping them from at least testing some sort of business model. How long are investors going to have to wait to see some sort of progress? Until after a third round of $20 million at a $150 million valuation?

I understand that VCs and angels often have a decent rationale to invest in companies/industries where a sustainable business model hasn’t yet been firmly established (as it’s that type of risk that usually leads to the biggest rewards), however it’s a bit disconcerting when companies like RockYou, which should/could have extremely low burn rates, start raising $10 million rounds at valuations that are way beyond what they’d be worth in a sane market. It just seems absurd right now that a potential acquirer or the public markets would value anything like RockYou at $50 million. It generates some revenues but not a cent in profit, faces significant competition in a space with little barrier to entry, has no real defensible technology and could potentially be shut off at any moment by the services that drive most of its traffic. I’m not a VC, but I’m familiar with the criteria that they look for and am I the only one who thinks it fails on most of it?

A lot of people commenting on Web 2.0 and how there’s no sign of a bubble often argue that things are different now because the average rounds being raised these days aren’t as big as they were in Bubble 1.0 and the costs of starting and running Web 2.0 businesses are lower. If this type of funding doesn’t make you think twice about that, I don’t know what will. Let’s not forget that a lot of the huge rounds raised in Bubble 1.0 were for companies that had significant infrastructure requirements (i.e. ecommerce companies like Webvan and Pets.com). I would be interested in seeing a comparison between today’s funding and Bubble 1.0’s funding based on some realistic projected financial needs of the companies. I would not be surprised to see that a significant percentage of companies today are being overfunded at the same relative rate as they were in Bubble 1.0. The rounds today may be smaller, but overfunding is not based upon the total size of the round but rather the amount being put into the business based upon its actual, reasonable needs to achieve some tangible objectives and milestones.

Drama 2.0

Drama summed it up perfectly; the only consolation here is that it’s private money being wasted this time. Hopefully, when the bubble does burst it wont hurt the valuation of public companies like google too much. I really don’t get it myself, maybe the people in these circles run too close? Perhaps Silicon Valley is ‘over-networked’? I’d like to see someone draw out a map showing the personal relationships that connect alot of these 2.0 sites. There’s got to be some serious circle-jerk echo chamber going on.

another recent deal that seems quite ludicrous in terms of valuation and $$ raised is Aggregate Knowledge. raised ~$22M at ~$50M valuation. 1 major customer. vcs are going to destroy their own business with these types of deals.

Here Here Thomas!! I couldn’t agree more. You summed it up perfectly.

i prefer a single fixed price/song - just like apple’s
why should popularity of a song affect price/download?
doesn’t make sense to me
http://www.appletvconverter.net

See Figure 8