HuffPo Gets VC Funding

Last month, this space reported that was close to securing $5 million in VC funding. Yesterday came the official word, so it’s probably worth discussing further. I’ll be doing so in notes form, so as to avoid the requirements of competent cohesion: 

1. For the uninitiated, is a multimedia website launched last year by omnipresent political pundit Huffington Huffington. It was initially dismissed as the Drudge Report’s liberal doppelganger, but has since grown in popularity due to a robust mix of news, blog commentary and user interactivity. It also will soon expand beyond politics (and political media coverage), in coordination with the September release of Huffington’s new non-political book. 

2. The elephant in this deal’s room has been why HuffingtonPost needs to raise any institutional capital, let alone $5 million. After all, Huffington isn’t hurting for money, nor are the wealthy angels that helped her originally bootstrap HuffingtonPost — including partner, and former AOL Time Warner exec Kenny Lerer. Why sell equity, when you can simply keep your arm wrist-deep in the aforementioned deep pockets? 

The basic answer was that she could (how many of you would turn down $5 million?). HuffingtonPost did not seek out venture capital, but rather venture capital found it. Softbank Capital managing director Eric Hippeau is a former Ziff Davis CEO (think ZDNet), who was looking for an investment in the news area. He was attracted by HuffingtonPost’s demonstrated ability to find an audience, and began selling Softbank as a financial partner that could help the site expand into a full-fledged new media organization. 

“A large part of our decision had to do with Eric,” Huffington says. “We were getting someone who was very knowledgeable about new media and where we wanted to take it… We’re not just acquiring $5 million, but we’re also acquiring a very significant partner.” 

Softbank is providing $4 million, with the remainder coming from initial angels and Greycroft Partners, the firm formed earlier this year by former Apax Partners patriarch – and occasional HuffingtonPost contributor — Alan Patricof. 

3. One other big question is whether HuffingtonPost can produce VC-level returns. Remember, we’re talking at least 10x here, not just modest profitability with a dividend. Hippeau obviously thinks the answer is yes, based on expectations that the online advertising market will continue to grow. He’s not even worried about the inevitable ad market downturn, because he believes advertisers will simply move from pricey print to cheaper online. 

I hope he’s right, because it would really be great for people like me. Unfortunately, I’m more of the mind that an ad downturn would mean companies would cut back on overall advertising, rather than simply shifting to a cheaper medium. Moreover, the more advertisers that buy space online, the more expensive online space will become. HuffingtonPost and its peers will not hold on to cut-rate prices for the sake of sentimentality. 

4. It’s also worth emphasizing that I have not seen HuffingtonPost’s books, and my only piece of tangible info is that the company is not yet break-even. This deal is expected to help them get there shortly. 

5. I also don’t know the deal’s valuation, although an educated post-money guess would be anywhere from $9 million to $15 million. Hippeau wouldn’t tell me, and Huffington claimed she didn’t know. Before rolling your eyes at this last part, I really think she was sincere. It’s possible that she simply doesn’t know the pat response of “We’re not disclosing valuation…”, but she really sounded like she was searching for an answer. If true, it probably just confirms two facts: (A) Lerer is the tandem’s business brain; and (B) She’s rich enough not to care.