5 Questions for Ted Murphy, CEO of PayPerPost

PayPerPost tomorrow will announce that it has raised $7 million in Series B funding, from insiders Draper Fisher Jurvetson, Inflexion Venture Partners and Village Ventures. The controversial company essentially matches up bloggers with advertisers, with the former being paid to write (positively) about the latter. Consider it a model that would ace business school, but flunk journalism school.

My initial reaction to PPP was self-righteous horror, although it’s subsided a bit thanks to a recent requirement that bloggers disclose that they are being paid per post. In fact, I think the real money play here might be companies paying select bloggers to review their competition – like a public focus group. Or for strategic acquirers doing due diligence (which PPP itself has done). Anyway, I’ve got 5 Questions for PPP founder and CEO Ted Murphy:

1. PayPerPost has used just a portion of its $3 million Series A round, so why go out and raise another $7 million?

The thing for us is being sure we have the capital to executive on our long-term business plan, which involves us getting more aggressive in development and sales and marketing efforts.

2. VC-backed companies typically look for an outside lead on Series B rounds. Why did you close with existing shareholders?

Well, we haven’t stopped getting calls from VCs since we closed the first round, but I was speaking at the Florida Venture Forum, and mentioned to one of our investors what we would be looking for in terms of valuation. And our investors came back within an acceptable percentage of what I had been looking for, so there was really no reason to bring in someone else.

2a. Any chance you’d care to share that valuation?

Sure, but I’ve been asked not to…

3. When a blogger gets “contracted” to write a post, is it a review or an advertisement?

It’s a combination of the two. We say that the platform is about content, creativity and influence. Some people use it for product reviews, but we used the platform when we were going to do our due diligence about buying Performancing. We asked bloggers to tell us what they really thought of the product.

It’s not just about reviews or product placement, it’s about the voice of the consumer.

4. How has the inclusion of a disclosure policy affected PPP’s business?

It’s been huge for us. In many ways, the disclosure move is probably one of the biggest and best things we’ve ever done – and our marketplace has really exploded since we did it.

Before disclosure was required, I think there was fear of backlash from the advertisers standpoint. They were scared of what might be said about them for using the service. But that’s now largely gone. To me, it’s very analogous to what happened when paid search began identifying sponsored links as sponsored links – that’s when paid search really took off.

5. When you launched without the disclosure policy, did you not expect the controversy?

I realized there would be some pushback, although not as much as there was. But I think that it really demonstrates the power of the blogosphere… We got a tremendous amount of feedback from our bloggers and our advertisers and, once you looked at all the data, it was like: “Duh, this is what we should have been doing from the beginning.”