Del.icio.us nabs VC financing

Del.icio.us tastes funding | CNET News.com: “Web bookmarks manager Del.icio.us has drawn its first investors, selling a minority stake of the company to Union Square Ventures, Amazon.com and Netscape co-founder Marc Andreessen, among others.”

This is an interesting development as it follows a flurry of other significant corporate development announcements from similar Internet e-commerce and services-based start-ups, such as Yahoo! acquiring Vancouver, BC-based Flickr owner Ludicorp Research & Development Ltd. for an amount reportedly in excess of $15 million, HP doling out undisclosed gobs of cash to take free photo-sharing and Internet photo finishing site Snapfish off the hands of mail-order photofilm processor District Photo Inc., or even United Online buying PhotoSite from, and signing a related technology licensing agreement with, Homestead Technologies Inc. for an estimated $12 million. While del.icio.us is a bare bones Web site operation that allows people to set up their own account to manage and “tag” bookmarks to, or Web resources for, other sites and the aforementioned buys of free photo-sharing sites are different business models at first glance, they’re all in the collective business of social-networking. That is, they allow people to create, share, or organize content and then gather around that content to “meet and greet” new people.

The deal, which also includes BV Capital and Internet entrepreneurial pioneers Esther Dyson and Tim O’Reilly taking small stakes in the Web resource and bookmark manager, is interesting on another, less intellectually-stimulating level. It adds yet another success story of how a one or two person team of young guys created an Internet start-up from an apartment, basement, dorm room, or garage and attracted the deep pockets of various venture capital firms to an already-growing list.

Also, of related note, one of the co-founders of Craiglist.org who was given a 25% stake in the company as compensation for his efforts sold that stake to Internet auction house and marketplace eBay Inc. in August of last year. Craigslist.org employed the same bare bones site design, basic principles of classified ad selling, and user retention practices that have it turned it into a lucrative money-making machine. Similarly, Internet search advertising seller Marchex, Inc., acquired southeast Asia-based Name Development Ltd. earlier this year for $160+ million in a cash-and-stock deal that saw Marchex buy its portfolio of 100,000 squatted domain names (ultimatesearch.com, as one example). Those 100,000+ sites use the same Web design and have entirely contextually-targeted and vertically-categorized search result advertising. It had a staff of less than five with rumoured annual revenues of $20 million and an 80 or 90% profit margin – meaning $16 to $18 million per year was pure bottom-line net income. Marchex, which until this deal had struggled with elusive profits, instantly become a profitable enterprise and now has a virtual license to print money and can subsidize its other unprofitable operations.

It remains to be seen whether del.icio.us can make money from this operation, but a look at lead investor Union Square Ventures’ current portfolio of investments offers an interesting insight. It is a major shareholder in privately-held Tacoda Systems, Inc., a start-up Internet advertising technology firm in the contextually-targeted ad market whose AudienceMatch product competes with Google AdSense. Is a deal with Tacoda to place contextually-targeted ads on its site in the cards? If past, similar deals and my own intuition are indications, I would say: “Yes, indeed.”

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