The Deal
Thursday, July 24, 
11:42 pm

[Posted on October 9, 2007 - 1:44 AM]
pop_sugar_logo.gifSequoia Capital general partner Michael Moritz refers to them as "the engineers". But, the employees at the Google and Yahoo venture capitalist's latest portfolio company are not developing breakthrough technology. Far from it. These "engineers" are actually writers banging away on their shiny new Mac keyboards. They post photos and write articles about topics of interest to 20 and 30-something women. Recent gems include Lindsay Lohan's latest rehab stint and the pitfalls of a 'Friends with Benefits' relationship.

Venture capitalists aren't known for developing the next great media company. But that isn't stopping Moritz. As the only venture capitalist on the board of Sugar Inc., a women's media company based in San Francisco, his contrarian approach to investing appears to be paying off once again.

Formerly known as Sugar Publishing, the company is the brainchild oflisa_brian_sugar.jpg Lisa and Brian Sugar. At the suggestion of publishing entrepreneur Om Malik in March 2005, Lisa began blogging about celebrity news and was attracting 5 million page views within one year of starting. Entrepreneur Brian saw an opportunity and took some of the windfall from the sale of a previous company to get started.

Since then, Sugar has raised two rounds of funding worth a total of $15 million from Sequoia and NBC. The 56-person company doesn't need to worry about advertising like most media companies because of a three-year agreement with iVillage-owner NBC (NYSE: GE) that calls for the media giant to resell ads for the site. While Sugar certainly leaves money in NBC's pockets, Brian said it allows the company to do what it does best, create content.

The first challenge in that regard was to expand beyond Lisa's flagship blog, PopSugar. The company succeeded in spreading its voice to a variety of topics from home design, fitness and, of course, love and sex. After PopSugar, style blog FabSugar, beauty blog BellaSugar and community site TeamSugar are the company's most popular properties. PopSugar now accounts for less than 33% of the company's traffic. In the works are environmentally responsible blog EcoSugar, politics blog CitizenSugar and personal finance blog SavvySugar.

The company is profitable and has $12 million in the bank, according to Brian. Not bad for a company that bought its first keyword on Google two weeks ago.

After successfully expanding into more than ten new verticals and announcing a content acquisition today, Brian considers overseas expansion the company's next big challenge. He knows how difficult it will be to pick the right countries and hire the best writers that can translate its voice for a different culture.

Sugar faces competition in the US from Robert Pittman's DailyCandy, Time Warner's TMZ (NYSE: TWX), independent sites such as PerezHilton and PinkistheNewBlog and Silicon Valley startup Glam Media. Sugar's rivalry with Glam.com is one of Silicon Valley's fiercest. Mention Glam.com to anyone involved in Sugar and it usually takes less than three seconds for the viability of Glam.com's network model to be brought into question.

Aside from a fight for eyeballs and ad dollars, the crux of the dispute lies in the two companies' differing business models. Glam.com claims to be the largest women's media company on the web. It does this by operating an ad network that syndicates content and resells ads for independent women's blogs that agree to share revenue and sign over their Comscore traffic to Glam Media. Sugar operates a social network at TeamSugar, where women can contribute content, but all of its branded blogs are produced by full-time employees and published on web sites that are owned and operated by Sugar.

While Brian declined to discuss any revenue figures, if one assumes the 50 million page views the company currently claims leads to 200 million impressions per month selling for an average of $12 per thousand impression, of which NBC keeps half, the company is recording $1.2 million per month. As the company's traffic grows through international and brand expansion, and it layers on e-commerce revenues via last month's ShopStyle acquisition, Sugar could be looking at a high-margin $50 million in annual revenues within two years.

Maybe Sugar's advice blog, DearSugar should try to answer this one: Who says venture capitalists can't profit from media company investments? - Joshua Jaffe


Comments
From: Tom,

When I faced investor questions for our beauty-related startup about whether our Drupal CMS can scale--and why not use Rails--I leaned heavily on the fact popsugar made it work.

Sugar cut over from wordpress and has pushed Drupal into the bleeding edge. It's great to see them takeoff. I owe Brian (and reserve the right to blame him) for sticking to it.


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