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Source: Federated Media to raise second round of funds

Funding would add to earlier investments in FM of an estimated $4.5 million from JPMorgan Partners, The New York Times, and the Omidyar Network, among others.

Federated Media Publishing, which sells advertising for a network of online publishers, plans to raise between $20 million and $30 million in a second round of financing, according to a source familiar with the deal.

The funding would add to earlier investments in FM of an estimated $4.5 million from JPMorgan Partners, The New York Times, and the Omidyar Network, among others.

Last month, FM hired investment bank GCA Savvian Advisors to handle investment queries, according to a report from PaidContent. According to TechCrunch, FM turned down a $100 million buyout offer from one interested party last month.

John Battelle, founder and CEO of FM, confirmed that he hired Savvian, but would not comment on any details of a potential deal. "Who knows how this will play out?" Battelle said, adding that there was nothing new to report.

According to the source, FM was looking at term sheets from potential investors this week.

The amount that Federated will ultimately raise is a moving target, but the company is in an undisputed sweet spot of Internet growth and investment. So-called vertical advertising networks--companies that sell ads for a collection of Web sites targeted to audiences like women, sports fans, or kids--are popping up left and right. Some of the larger ad networks include Glam Media (women), GoFish (kids), and Sportgenic (sports). Even, a veteran Web search site, is reorganizing itself to cater to search and advertising to women on the heels of this trend.

Some of these networks are commanding investors' attention. Glam Media, for example, recently raised almost $85 million--$64.6 million from investors led by Hubert Burda Media, and $20 million in debt financing. Glam, which plans to earn $100 million in revenue this year, has a reported valuation of about $500 million.

FM stands apart from rivals because it doesn't cater to one audience group, but many market segments, including technology, business, design, and women. FM's network of 150 sites represents professional authors of blogs, such as Boing Boing, along with high-trafficked sites like Digg. By recruiting higher-quality niche sites, FM can sell ads for a higher rate (in the range of $12 to $20 per thousand impressions) than standard banners (which can sell for as low as 50 cents), according to Battelle, who co-founded Wired and the Industry Standard.

In less than three years, FM is profitable, so it doesn't need to raise the money. Last September, it started issuing checks to its publishing partners worth a total of $1 million, thanks to the advertising revenue. But the company's no doubt looking to expand its network and improve its ad technology. In an economic downturn, the funds could also serve as a financial stabilizer.

FM, based in Sausalito, Calif., employs about 55 people.