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February 11, 2008

HotOrNot Apparently Very Hot: Acquired For $20 Million

Michael Arrington

81 comments »

San Francisco based HotOrNot, founded by James Hong and Jim Young in October 2000, has been acquired, we’ve heard from multiple sources.

The buyers are investors connected with Avid Life Media, and paid somewhere around $20 million for the site. Hong and and Young have been taking money out of the very profitable business all along the way - which we reported was another $20 million or in May 2007. HotOrNot never raised outside funding.

The investors are creating a new company, called HotOrNot Media (new site coming soon), and they may be acquiring more properties as well.

I spoke with Hong a few moments ago, who confirmed the acquisition, which closed on Friday, but not the price. He says he and Jim will not be affiliated with the business on a day to day basis going forward. “We’ve been working on HotOrNot for seven years now,” said Hong, adding “It’s time to break up with this girlfriend.”

HotOrNot makes money from advertising, virtual flowers and a premium fee when users want to connect. They experimented briefly with a free model, but abandoned it last September in the face of overwhelming spam. Their annual revenue is estimated to be around $5 million, with $2 million in profit. According to Comscore, the site has around 5 million monthly unique visitors and 200 million page views.

CrunchBase Information
HOT or NOT
Avid Life Media
Information provided by CrunchBase
  • Sphere It

This entry was posted on Monday, February 11th, 2008 at 4:11 pm and is filed under Company & Product Profiles. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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Comments

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  1. Steel

    February 11th, 2008 at 4:16 pm

    Nothing sells like S E X. or the hint of it. Great payday for these guys. Congrats

  2. Jesus H Christ

    February 11th, 2008 at 4:20 pm

    Kinda Sad. They could have done some much with the company. I think in the end they just sat on their ass. Seems to me likes these guys just got likely with the site and enjoyed the ride while it lasted. Sadly i don’t see anything new coming from these guys … ever. In any case i wish them luck.

  3. EH

    February 11th, 2008 at 4:22 pm

    “It’s time to break up with this girlfriend.”

    Misogynist to the end…

    I’m guessing whomever rebrands it will realize the domain name is the most valuable asset. The site has needed a channel-change for years now, so best to cut its history off at the ankles and start fresh with a new business model. Hong will have an enjoyable summer practicing how to wrap his M5 around a telephone pole.

  4. Sean

    February 11th, 2008 at 4:25 pm

    Seems that $20 million is actually not that much from the rumored income these guys were marking when it was just the two of them alone. It looks like they got funding - built the window dressing to look like a legitimate company and then sold out. Looking at Hot or Not’s traffic over the past couple of years, customers finally got bored of voting and looking at pictures all the time. Good time to cash out.

  5. Random Guy

    February 11th, 2008 at 4:29 pm

    Only $20 Million for a popular and profitable venture?

  6. aaa

    February 11th, 2008 at 4:32 pm

    Thought it would be worth more than that.

    Congrats to the guys. Its one of those ventures where if you thought about it you displace it because you can’t see the potential in it. But then when someone makes it work in such obvious ways you kick yourself because you did not try it .

    Damn

  7. Zaid

    February 11th, 2008 at 4:32 pm

    $20M? Something does not connect. May be involves some share too in parent company?

  8. Alex

    February 11th, 2008 at 4:37 pm

    WOW!

    $20M+ in profits over the past 7 years + another $20M to sell the “website”. Now, that’s what I call ROI.

  9. John

    February 11th, 2008 at 4:38 pm

    10x earnings? Seems low, unless they feel they are peaking out.

  10. Michael Arrington

    February 11th, 2008 at 4:47 pm

    The business hasn’t shown a ton of earnings growth over the last few years, so the multiple will be lower.

  11. EH

    February 11th, 2008 at 4:54 pm

    “Only $20 Million for a popular and profitable venture?”

    Huh, think maybe Alexa’s numbers are less than accurate?

  12. Sahar Sarid

    February 11th, 2008 at 4:54 pm

    Sounds like a GREAT deal for the buyer.

    Sahar Sarid
    Assista.com

  13. Alaska Miller

    February 11th, 2008 at 4:55 pm

    either it helps you get laid or get paid or else there’s no point

  14. Erick

    February 11th, 2008 at 5:00 pm

    Man, they could have used some of that 5 mill a year and hired a graphic designer for their simple layout.

  15. Jeff

    February 11th, 2008 at 5:02 pm

    Interesting how much they have been doing on facebook, not sure they found the best link between their facebook app and their website

    Growth on facebook seems detrimental to the website, which is where they make their money from. Seems like they were happy to take some great money and run, think with some advisors they could have got a lot more or turned it into a strong competitor in this space

    Jeff
    Check out http://www.yupnup.com How do you rate?

  16. Startup News

    February 11th, 2008 at 5:03 pm

    I think they did good . NO NEED TO GET GREEDY !!

    Anytime you can start a business and sell it for millions you have done good . Especially if you get to keep most of the money .

    They can retire now …if they wish ..

  17. Everett

    February 11th, 2008 at 5:07 pm

    Congrats! Hong’s a great guy!

  18. Jen

    February 11th, 2008 at 5:07 pm

    I agree with #15. $20M for 2 guys is nothing to sneeze at. If you think that’s a weak exit, your sense of wealth is a bit warped.

  19. i am under age

    February 11th, 2008 at 5:22 pm

    agree. 20M is a lot of money. how many actually physical business gets acquired that much?

  20. Erick

    February 11th, 2008 at 5:25 pm

    I could use 20MM myself. Any takers?

  21. Mark

    February 11th, 2008 at 5:26 pm

    Sounds like a good move for all parties involved.

    Whats the scoop on Avid Life Media? I’m a Torontonian and have never heard of them.

  22. Silveira Neto

    February 11th, 2008 at 5:27 pm

    oh my bubble…

  23. Miley Cyrus

    February 11th, 2008 at 5:34 pm

    Pretty sad that a valuable and profitable business like this gets sold only for $20M because they had no connections with VCs in the valley, and hyped doomed 2.0 craps like Twitter and Digg get 10x valuations of this.

  24. Erick

    February 11th, 2008 at 5:51 pm

    @23 - Im pretty sure they had VC. They didnt want it because they made enough on their own. You dont take VC when you dont need it. You should avoid VC cash like the plague if you can.

    That way u can sell or 20 mill and not worry about equity and all that stupid crap.

  25. Erick

    February 11th, 2008 at 5:51 pm

    They could have VC, i mean… my bad

  26. Miley Cyrus

    February 11th, 2008 at 6:05 pm

    @24 -
    I know that they were offered a round by Sequoia back in 2004-5. They did not take it, as it would have killed their site most likely. Their decision was 100% rational.

    Problem is this micro crony capitalism in the valley: companies that get hyped (reddit, or i forgot the name…, del.icio.us?) get bought for much more than they are worth, buyers eventually (in 2-3 years) take the loss, but the founders who managed to hype it, get off with loads of cash. Apparently this happened much more in 1999, but I was not here to witness it.

  27. Ilan

    February 11th, 2008 at 6:17 pm

    http://siteanalytics.compete.com/hotornot.com/

    Rank: 1,88764 in Alexa.
    Over 1.5 Million visitors a month.

    yeah.. it’s worth somewhere around $20M - 30M maybe alittle more, depends on revenue model..

  28. Peter Cooper

    February 11th, 2008 at 6:21 pm

    There’s no way they’ll end up with $10m in cash each after this, but even if they end up with a couple of million.. man, that’s a great exit and a way to get back onto the ladder doing something more interesting. After several years of working on the same project it can become dull, and a few million in the bank is definitely going to make moving on to something more exciting a lot easier (it’ll buy you a house to live in for the rest of your days, at least!)

  29. allen stern

    February 11th, 2008 at 6:27 pm

    i hate to say this but guy kawasaki will have a clone of this in 2 weeks :)

    sorry couldn’t resist

  30. Erick

    February 11th, 2008 at 6:47 pm

    You say it in jest, but its true. Guy has no real accomplishment of note besides maybe being the original software evangelist which really means he is a professional fanboy.

    The art of start. Pfffff. Failing MOST of the time only works in baseball.

  31. patricia

    February 11th, 2008 at 6:50 pm

    Cashing out is cashing out. If somebody made money, the outcome is good. Nice that they’re cut loose to do other things.

  32. Markus

    February 11th, 2008 at 6:53 pm

    20M isn’t that good of a multipul.. But when you sell to an adult dating network they don’t pay much.

    Avidlifemedia is a front for ashleymadison.com ie A dating site for married people that want to cheat.

  33. TechFaceCrunchBook

    February 11th, 2008 at 6:54 pm

    Facebook makes less profit (if any) and is worth $15B. Hot/Not sold for about 10x ebitda? Guess they didn’t have very good lawyers :)

  34. lawrence

    February 11th, 2008 at 6:58 pm

    it’s a good deal, and good time to sell for the founding duo.
    they did good.

  35. EH

    February 11th, 2008 at 7:38 pm

    LOL@32: Nice datapoint!

  36. EH

    February 11th, 2008 at 7:40 pm

    All good points though, I’m sure the HoN peeps are fine to GTFO for the cash just to be able to stop telling people at parties they own a famous site that everybody USED to visit. “Oh really? Yeah I remember you guys!” Kind of like being the President of Friendster in 2005.

  37. Toronto Fan Boy

    February 11th, 2008 at 8:44 pm

    The buyers are a group of young Internet dealmakers from Toronto (Glenn Graff from Kaboose, a few of his cronies as well). The idea is to purchase a portfolio of niche media sites/communities and milk them for all they’re worth. What can I say? Blame Canada.

  38. looks like crap

    February 11th, 2008 at 8:54 pm

    and still got a nice purchase price…… note to all the web2.0 css loving, ajax overloading developers there…relax with the eye candy…make it functional, make it interesting.

    But lets be honest…It looks like crap ! :)

  39. BayStBanker

    February 11th, 2008 at 8:54 pm

    @37 is right. The team includes Kaboose/HomeStores/JumpTV’s Glenn Graff and Noel Biderman as well as Ted Steube backing and acquired very young startup Fivelimes along with the 25 year old founder, Raja Bhatia. They have raised several tens of millions to acquire non performing online properties in a roll up play.

  40. Mr. James

    February 11th, 2008 at 8:55 pm

    They had a great run, and without any innovation, it was time to sell. It will be interesting to see how the next generation of social rating community sites fare, especially ones with mobile applications like snapplink.com.

  41. Marzipan from Toledo

    February 11th, 2008 at 9:10 pm

    good shit james….

  42. wanabe

    February 11th, 2008 at 9:48 pm

    Correct me if I’m wrong, but from all the reading I’ve been doing about VC funding, the typical scenario has the original founders ending up with about 8% of the company after all is said and done.

    That makes this sale without VC for 20 mil equivalent to them selling with VC for 250 mil doesn’t it?

    Sounds damn good to me…

  43. Too Many Spammers on TechCrunch

    February 11th, 2008 at 9:54 pm

    It’s always incredible how dumb most people commenting on this blog are. 10x cash is not bad for a site that won’t even have traffic in 5 years. Wake up. Not everything is valued like Facebook.

  44. Wanna

    February 11th, 2008 at 10:33 pm

    Oh my ghost! 20mil is huge for HOTorNOT. Still wonder if HoN deserves it??

  45. i am under age

    February 11th, 2008 at 11:58 pm

    @43
    i think ppl just try to blow the bubble so their trash gets sold as well.

    ppl don’t realizez how much 20Mil is worth and what other business can give them that much return.

  46. anon

    February 12th, 2008 at 12:06 am

    I have definitely lost brain cells reading these comments. I’ve never seen so many horrendously bad viewpoints.

    Assuming the deal is around $20m, Rev/employee and company value/employee are identical to GOOG. Avid gets $2m in earnings on $5m in revs and a good property for $20m…not bad.

    How many times must we reiterate that “lousy” site design is frequently a key driver of success (ex: hotornot, Craigslist, ebay, myspace, etc).

  47. SiliconValley-JOBS

    February 12th, 2008 at 12:24 am

    Congrats to James & Jim! They’ve shown us that a simple idea could become very profitable.

  48. Mark

    February 12th, 2008 at 2:17 am

    It was the right time for them to bail out, HotOrNot is SO Web 1.0 :) Good traffic for the buyer though

  49. chrisco

    February 12th, 2008 at 3:03 am

    Congrats fellas. Hopefully you got an earnout or some other form of upside.

  50. Rushabh Choksi

    February 12th, 2008 at 3:32 am

    time will tell us how profitable it will be.

  51. Eric Borgos

    February 12th, 2008 at 4:05 am

    I recently sold Bored.com for a similar earnings multiple. Bored.com is a very Web 1.0 type site that could use a Web 2.0 makeover to stay current. Like hotornot.com, Bored.com never had any VC and has stayed pretty much the same since I started in in 1997.

    I was hoping to get a crazy high price like some of the other recent website sales, but in the end I settled for a reasonable price like hotornot.com did.

    - Eric

  52. AK

    February 12th, 2008 at 5:09 am

    20M is a huge amount for 2 people who casually started a website!

    It’s a nice story to get inspired and kick some ass and build that thing which you felt was a bad idea!

  53. Danny Levine

    February 12th, 2008 at 5:39 am

    Great ROI and great idea and implementation. Poor design, but very addictive ;-)

    —————————————-
    See my comment log: SignMyContent_kOEMjb5J79rZxWEvt6mU_SMCEND

  54. Chris Sukornyk

    February 12th, 2008 at 6:39 am

    I was founder of Fivelimes and sold it to Avid back in the summer. This latest acquisition makes perfect sense given that they already own Ashley Madison. Clearly they are building up their ‘dating’ portfolio but I haven’t seen how they are going to integrate Fivelimes (a green social network play) into their overall strategy. But Glenn is a smart guy so I’m sure it’s part of the master plan

    http://chris.sukornyk.com/gene.....ot-or-not/

  55. rubu

    February 12th, 2008 at 6:57 am

    http://whatisnasdaq.net/ I was hoping to get a crazy high price like some of the other recent website sales, but in the end I settled for a reasonable price like hotornot.com did.

  56. Gideon Greenspan

    February 12th, 2008 at 7:46 am

    Sure, VC hype has a role in over-valuing companies. But the difference between the Reddit and HotOrNot exit valuations is about growth vs revenue. One company is bought for future promise, and the other for the money it has proven it generates.

    It’s just like the difference between “growth” and “value” public stocks.

    HotOrNot’s traffic is a given, and probably couldn’t be leveraged to go in a new direction. One for the value investor. By contrast, Reddit’s traffic was exploding at the time of their exit, although its subsequent plateau was surely a disappointment:

    http://siteanalytics.compete.c.....ornot.com/

    Bottom line: this was a fair valuation for HotOrNot, not a great deal, but not a bad one either. The founders were simply (and understandably) ready to move on.

  57. 113.com

    February 12th, 2008 at 8:44 am

    Impressive earning power of a simple site with a simple business model. Congrats to the HotOrNot owners! ;-)

  58. Tony T

    February 12th, 2008 at 9:22 am

    Congrats to the founders of HotorNot. i remember friends visiting that a site a lot back in college.

  59. androo

    February 12th, 2008 at 9:56 am

    awesome..!
    i remember when the site first started… (and all the mimic sites came there after)

  60. John Erik Metcalf

    February 12th, 2008 at 10:19 am

    .. not sure what “HotOrNot Media” is going to be, but the name sounds similar to this site (who btw say they had 1M visitors last month):

    http://commandshift3.com/

    “CommandShift3 is like Hot or Not. Except, instead of clicking on hot babes, you click on hot websites.”

  61. bmiles

    February 12th, 2008 at 11:07 am

    The way I see it money is money. They can always invest their cash and make more. They had taken out a nice income from the company for years prior to their sell. They weren’t desperate for cash, but overall received a great return on a website they creating with just a couple hundred dollars. That is the beauty of the internet… great ROI.

  62. married woman

    February 13th, 2008 at 11:39 am

    After doing some digging it appears that avid media is owned by Kaboose.com who say “Kaboose was founded in 1999 and is now one of the largest family-focused online media companies in the world ” and they own ashleymadison.com a site for cheaters. WHat is the company trying to instill??? family values??

  63. john smith

    February 15th, 2008 at 9:24 am

    Sorry bmiles, but money is not money as their swapped wealthy for rich because $20m in the bank is not going to earn them $2m a year in interest more like $800,000 a year.

    They should have sold it for $50m the buyer got a bargain.

  64. Siu La Ba

    February 15th, 2008 at 10:26 am

    rumor has it that the founders didnt get along…

    also there is actually a hispanic version of HoN that has double the traffic (according to Alexa) and is still growing very fast. sexyono.com is identical, but does not seem to be associated to HoN… how much is that going to be worth!?

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