VCs see opportunity in blogosphere

While investing in companies that produce blogs has been common, funding individual ones is a new twist.

Venture investors normally cite the strength of a company's management team as a key reason for investing in new technologies and ideas. But two new venture investments in widely read blogs have taken this concept to a new level: investing directly in people for the content they produce.

Earlier this month, SoftBank Capital of New York led a $5 million first round of funding for political-group blog HuffingtonPost.com, the site and one-time California gubernatorial candidate Arianna Huffington.

A few weeks earlier, nascent Silicon Valley firm True Ventures completed its first-ever investment, a small funding for GigaOmniMedia of San Francisco, the operator of the personal blog of influential technology journalist Om Malik.

"We think the news of the future will look like The Huffington Post. It includes breaking news, instant commentary, blogs and community, with a comments section that can be almost like a miniblog."
--Eric Hippeau, managing partner, SoftBank Capital

Increasingly viewed as an alternative to traditional mainstream media, the blogosphere is variously regarded as more opinionated, faster-moving and less factually reliable than other outlets, including an older generation of online journalism. As SoftBank's Eric Hippeau pointed out, the popularity of blogs may hold clues to how news will travel in the future.

"We view this as an investment in a news site," said Hippeau, whose firm invested alongside Apax Worldwide Partners co-founder Alan Patricof. "We think the news of the future will look like The Huffington Post. It includes breaking news, instant commentary, blogs and community, with a comments section that can be almost like a miniblog."

Similarly, Malik's blog is notable for breaking tech stories nearly every day, particularly in the areas of broadband Internet and the new communication technologies collectively known as Web 2.0. Malik offers opinions, speculates on future possibilities and responds to others in the blogosphere, creating a site widely regarded as a must-read among Silicon Valley watchers. The site now includes additional entries from four other writers and sports a support staff of five.

Although investing in an individual seems risky, both sites are diverse enough to distinguish themselves from the stereotypical pajama-clad individual spouting off unfiltered remarks. Hippeau said the depth and breadth of contributors and topics found on HuffingtonPost differentiated it from other blogs, and GigaOm's recent redesign seems to foretell a future as a more ambitious media company.

"We were interested in news sites that are not involved with a legacy brand," Hippeau said. "We view The Huffington Post evolving as a media company, to build an audience and sustain its value. We think people will use it as a primary source of news. We want to build a franchise."

Indeed, he suggested that HuffingtonPost could one day be larger than online newsmagazine sites such as publicly traded Salon.com of San Francisco and Slate, operated by The Washington Post. Statistics from Amazon.com's Alexa Internet show that HuffingtonPost is nearing Salon and Slate in Web traffic. Technorati ranks HuffingtonPost as the fifth most popular blog on the Internet, while GigaOm ranks 46th.

Although various companies that host, search or provide tools for blogging have received funding in the past, rarely have specific blogs gotten funding. Blog search engine Bloglines was acquired by Ask Jeeves in 2005 and is now a part of InterActiveCorp of New York. Time Warner online division AOL bought blog aggregator Weblogs for an undisclosed amount believed to be less than $35 million last year. (Engadget, the most commonly linked blog on the Web, according to Technorati, is a Web?logs property.)

Still, most top blogs remain independent. Boing Boing, which Technorati claims is the Web's most popular blog, is copyrighted to Happy Mutants. Another top political blog, the liberal-slanted Daily Kos, is published by Kos Media.

Blogs typically make money through advertising revenue, though Hippeau said there is "clearly an opportunity to diversify" HuffingtonPost's revenue stream through syndication and subscription-oriented products. The amount of revenue blogs garner remains difficult to track, however.

HuffingtonPost also has "a wide variety of avenues" in terms of an exit for venture investors, Hippeau said. While it could conceivably go public one day, it seems more likely to become an acquisition candidate--either for a Web portal, a traditional media company or a content-driven online suitor.

Hippeau said he was unconcerned about HuffingtonPost's left-wing political slant upsetting limited partners and did not regard the investment as akin to a political contribution. "We have no involvement in the editorial side, and we are a minority shareholder," he noted.

As a former chairman and CEO of Ziff Davis Media, Hippeau said he had always respected the separation between editorial and financial control in the media business and expected to do likewise as a stakeholder in a blog. "You learn from managing media companies to let editors and journalists have their voice," he said. "You can't break the trust of your audience by changing content for business reasons."

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