CNET is reporting that tech-focused advertising network Federated Media (which sells advertising on our behalf) is looking for a new round of financing. CNET is basing this partially on our previous report that they hired investment bank Savvian to represent them after they turned down a $100 million acquisition offer, plus a new source that says the company is looking at term sheets now.
From what we hear, Federated Media is looking at both financing and new buyout offers, but wants a valuation way beyond the $100 million floated to them last year. Founder John Battelle is said to be looking for more of a Glam-like valuation, in the $400+ million range. Glam has a similar business model to Federated Media, but focuses on womens sites. Glam also guarantees significant revenue to its partners, which resulted in a loss last year of $3.7 million on $21 million in revenue. Federated Media doesn’t guarantee revenue, and is reportedly profitable (they better be, with how much of our revenue they keep).
Federated Media is reportedly generating gross revenues in excess of $2 million per month, and they keep 40% of that after the split to partners.
It’s unlikely the company will get buyout offers in the price range Battelle is looking for, so a new financing is likely. But part of me wonders why they’re doing this at all. A new financing means a bigger valuation, which means they need a much higher price down the road when they do eventually sell. And with competitors springing up all over the place, margins can take a hit.
Perhaps Federated Media intends to take the Glam approach and go in the red for the sake of growth and begin to guarantee revenues. That’s a slippery slope, but it may also get Battelle his payday.
Nothing to do with the post: I like the changes you’ve made on CrunchBase information. Seems like it’s now retrieving CB data faster. And there’s a new Buzz up! =)
Btw, Buzz up! doesn’t work with this post because “it is not yet live on Yahoo buzz.” Clearly doesn’t work like digg.
If FM were to worth over 100M, then what would a real value of OpenX ad server business that powers its business? should be HUGE
What’s the advantage of even using a company like FM, over simply hiring someone to sell your advertising (maybe a 2-day a week job, max). It’s much, much cheaper, and at the end of the day you’re simply selling slots on your website.
I’ve just always been incredibly confused as to why anyone would choose to give away a significant percentage of ad revenue, when they could just take it all with a little extra effort.
Paul - FM hates it when I do this, but here’s the truth:
pros - they sell really, really well, at very high CPMs, often to very well known brands. The head of sales, Chas Edwards, is a stud. Really, that’s all that matters when it comes to an advertising partner. Revenue.
cons - they keep a lot of the money (which is standard). And since they sell into a network, a lead coming from us may be sold but the buy may be split between us and other blogs to try to keep everyone happy. Of course, that can work in our favor, too, but I believe on balance we lose more than we gain.
Overall we’re happy, and we’ve stuck with FM since late 2005. My only real issues with the company were tech/lag related (long since solved), and one time when Battelle, in my opinion, threw us under the bus when one of his experiments went wrong. They pushed us to run these stupid ads, and when people yelled conflict of interest Battelle distanced himself.
http://www.crunchnotes.com/?p=410
But it is a good company, responsibly run. And they should have taken that $100 million offer.
You bet they should’ve taken the offer. The many buyouts last year — Right Media, Quigo, Tacoda and Blue Lithium were are substantially larger companies than Federated, and all built their own ad servers/technology/optimization engines. Federated is a NON-technical rep firm, not a real ad network. They use OpenAds.org — how quaint.
They are also very vulnerable to the big loss. I don’t think Chas is very happy, either.
From a certain distance, it looks like they’re just projecting the faith of this company long-term, I disagree that they should’ve sold.
Why would anyone pay a premium valuation for a company that didn’t have the wisdom to build their own ad server? 2007 was all about ad networks and the companies that got bought were great at selling, pricing and serving ads across lots of web sites. FM is a rep firm which means they are at the very low end of the valuation range. Period.
1) I would be extremely hesitant to second guess John Battelle in regard to business strategy.
2) Michael - Where is the note/disclaimer in your post in regard to TechCrunch ads and FM.
Thanks.
they do a great job; i’m happy to deal with advertisers a one-man show would never be able to reach out to.
@Alex- the first line of the post has the disclaimer: “which sells advertising on our behalf.”
Here is why FM should have taken he 100m offer;
- It’s not a unique business; the talent and resources needed to enter this market is abundant.
- In a recession, when internet marketeers need to cut expenses, overpriced “branding” display advertising is usually the first to go. So it’s quite likely that the growth will slow down soon and even reverse!
- Your big partners like TC, should get their name’s worth as far as percentages go so they don’t have to complain publicly
You are right. I missed it. Sorry.
Why do you think FM hasn’t decided to purchase content sites, and to try and build a content network backed by their sales company?
Exponential (owner of the Tribal Fusion network) has been purchasing content sites, Gorilla Nation is going the same route, and rumor has it Google could be going this route as well.
This would allow FM to create more revenue channels (shopping, content licensing etc) while actually owning a valuable media network. It’s better to own 100% than splitting profits with sites you do not own.
I would be curious to get their thoughts on this. Otherwise it looks like he wants a quick flip.
*Note: Glam is doing this the other way around. Creating a content site, then adding other sites as a way to increase pageviews/revenue.
I doubt they will get an offer that they are hoping for. They just don’t have the revenue to support that kind of buyout offer
$400 mill for $2m*12months*40% = $9.6million in annual revenues? Nucking Futs!