Like many, when I heard that venture capitalists Sequoia - of Yahoo!, Google and Youtube fame - had plunked down $5M in PopSugar.com, the “addictive celebrity blog,” I fell off my chair. 

Had the VC in question been any other VC, I would have chalked it up to irrational exuberance over blogs.  The blogosphere is indeed robust as a whole, but this only means that it’s ever harder for individual blogs to gain much traction. 

According to Technorati, who tracks 57 million blogs, 100,000 new blogs are launched every day (though this includes spam blogs, or “splogs/blams”).  Of course, it’s key to state that no two blogs are identical, and I personally think that we need to differentiate between personal diaries, online magazines that use blogging software, link dumps that use a blog platform etc.  But the lines between these are fairly unclear and blogs (whatever category they fall in) tend to morph as opportunities and threats appear. 

All to say, I knew I had to dig deeper.  You will have to forgive me for not being very familiar with PopSugar.com, after all, I am certainly not in their target market.  Given the pedigree of the VC in question, I had to dig deeper, but between analyzing the value of Wikipedia.org were it to be a for-profit, estimating when Google could overtake Microsoft in market value and managing the Mojo Supreme network of sites, investigating the “PopSugar rationale” kept falling on the backburner.

This week I spoke to Eric Olsen of Feedburner, a company we’ll be working with over the next little while on our own BloggerMojo.com blog network.  I checked out his blog, and came across a post on the recent added interest from VCs over blogs.  Of course, blogs are not anything new.  Mark Cuban financed Jason Calacanis‘ blog network Weblogs Inc. a few years ago and the company had a successful exit in the sale to Time Warner’s AOL unit for a reported $25 million.

But the fact remains that in that deal, it was not the McDonald’s of blog networks (as some unfairly consider Weblogs Inc.) that really got AOL excited (or the $1M annual run rate), it was perhaps Calacanis himself, who was on his second successful dot com venture and could offer some young blood to the company’s bench over years to come.  This turned to be true as Calacanis was handed the tough mandate to turn things around at Netscape (though it was doing fine and needed no such thing) and remake it into a Digg-clone.  I’m not knocking Netscape by calling it a Digg clone, that’s just the vibe that the new Netscape is giving its own users as it searches for an identity. 

So Weblogs Inc. notwithstanding, the blog network model was still largely untested from a VC perspective, after all, Mark Cuban was more of an angel investor and not a traditional venture capital.  While numerous other networks have made a name for themselves and carved out a profitable niche - like Nick Denton’s Gawker Media - the truth is that most VCs were excited about the bells and whistles (or helmets and shovels) that could help blogs and bloggers, but not the blogs themselves. 

Case in point, I was shocked to see the number (and quality) of VCs who invested in Feedburner: the company is funded by Mobius Venture Capital, Portage Venture Partners, Sutter Hill Ventures , Draper Fisher Jurvetson and Union Square Ventures.  That’s a hell of a lot of backers for one company.  Then again, they know something I don’t.

But when a VC like Sequoia writes a $5M check for a blog, you have to pause and take notice.  Of course, upon further digging, you realize that the company behind PopSugar.com is Team Sugar, and behind Team Sugar is Sugar Publishing.

And when it comes to Sugar Publishing, you can’t help but look at its bench.  If VCs invest in people and management, then Sugar deserves what it got.

Women’s Market

The company consists indeed of a blog network, targeting women mainly.  Other blogs include FabSugar, DearSugar and FitSugar.  In fact, Sequoia has taken an interest in the blog network and/or the women’s publishing market.  When iVillage gets acquired for a cool $600 million by GE Universal, I can understand the excitement.  More importantly, iVillage’s audience, according to online audience measurement services was 15 million or so.  While the largest of web properties have hundreds of millions in uniques, iVillage’s 15 million count is not a high number, and suggests that a blog network targeting women primarily could hit those numbers and create a valuable holding for a VC.

Social Networking Element

Of course, investing in content alone is so passe.  And, the advertising market for blogs is fairly nascent so there is no guarantee that Pop Sugar and its related blogs could hit such lofty revenue numbers, of course, underneath all of the content, trackbacks and comments is the fact that PopSugar also boasts a social networking element, and we know how excited VCs are with those, especially in light of MySpace $580M sale to News Corp. and Facebook’s $1 billion price tag being thrown around.

Consolidation in Linkdump category

One thing that I have expected is for there to be a consolidation in the linkdump category of websites: Fark, and company (Fark is essentially social bookmarking before the term came in vogue). 

I was expecting for someone to come in (private investors or a VC), consolidate a number of the linkdump sites with little or no content, amalgamate a massive audience of 10-25M and be in a position to ask for better advertiser clients, higher rates and what not. 

The main challenge that sites like Fark.com face in in fact that they have no proprietary content.  I know Fark’s Drew Curtis and he is one of the smarter entrepreneurs out there, but the fact that he has no content of his own will always handicap him a bit with marquee advertisers.  This year Dennis Publishing, publisher or uber men’s magazine Maxim decided to buy/sell inventory on Fark.  I am sure there was even some talk of an outight sale, though this is unconfirmed. 

The content that Fark bookmarks from around the Web is somewhat controlled and filtered, so it will not have as much of a hard time as social networks (who have larger audiences but far more risque content) to monetize the traffic with quality advertisers.  With Maxim’s magic touch, it has already started.  But there is one Fark for a million… others.

While there has been some consolidation in the segment, it never really materialized (InterActive Corp. for example bought another popular link dump site, College Humor, though College Humor has over the years added its own content and cannot simply be seen as a link dump).  One reason I personally think this whole consolidation did not materialize is that VC or private equity investors would probably not feel comfortable in the management depth chart of some of these sites.  As such, they passed up on the opportunity.

Consolidation in Blogosphere

This is important in this context because while many blogs have content to speak of, the bulk of the “action” on the sites consist of links out to other sites.  A blog is a broad term and can in fact be many things, but it can be seen as a beefed up link dump on steroids.  As such, it is highly possible that blogs, with their low overhead and scaleability will be consolidated over time, because for a blog to be really successful when 100,000 are launched every day, you need a lot of content, all the time.

This is a key variable and differentiator: for an online magazine to keep the content coming, it has an arsenal of writers, editors and partnerships to keep it coming.  For a blog, it requires passionate people who live online and whose fingertips are attached to the keyboard.

All Road Lead to Rome

In other words, while many standalone blogs will remain that (and God bless those), over time many more ambitious and economically driven bloggers will become integrated into blog ad networks or publishing networks; conversely, other blogs will spawn as blog networks immediately. 

At Mojo Supreme, when we planned and devised the Blogger Mojo blog network, we picked ten categories that we felt we wanted to have a presence in from Day 1:

- ArcadeMojo.com: Video Games & Comics
- DriveMojo.com: Cars and Automotive
- EscapeMojo.com: Travel
- FashionMojo.com: Fashion, Trends & Style 
- FlickMojo.com: TV & Film
- HipMojo.com: Internet
- MDMojo.com: Health
- SoundMojo.com: Music
- WarMojo.com: Sports
- WorldMojo.com: Business & Politics

I personally consider this network to still be in somewhat stealth mode, because we were concurrently building a Web TV property (WatchMojo.com) and a vertical search engine (MetaMojo.com), as well as numerous other properties.

Our objective is to launch ten more in year 2 (2007).  We would never want to become like Weblogs Inc. and have over 100 blogs.  b5Media, another blog network that got financing also boasts over 100 blogs.

The point is that the same way that no two blogs are the same, no two blog networks are similar either.  Of course, it’s fitting that much the same way that our blogs are branded to the Mojo moniker, Sugar Publishing runs sites with “sugar” (the founder’s last name, mind you) and blogger flavour du jour Michael Arrington runs Crunch-branded sites (TechCrunch, MobileCrunch, TuneCrunch, and CrunchNotes).

The one common thread though, perhaps, is that some entrepreneurs are allergic to content while others are passionate about it.  There is money to be made in the industry, but the successful ones who can offer something of value, build an audience, and then subsequently engage outside financing if they think it can actually help their business; in other words, securing financing for the sake of securing financing might take a lot of the fun and freedom that comes from blogging away.

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