3.8.07 Only truly big sites deserve VC investment
(Via Tim O'Reilly) Venture capitalist Jeremy Liew says any investment needs to have potential to reach $50 million. If your brilliant idea is for an ad-supported Web 2.0 site, here's how big you'd have to get to make Liew's investment pay off. With today's CPMs, really big.
1. Be a site with a broad reach (say general social networking, communications, news). At large scale, without a great deal of targeting possible, a startup’s “run of site” or “run of network” advertising might be able to get to the $1 RPM range (Revenue per thousand impressions). To get to $50m in revenue you would need 50 billion pageviews in a year, or just over 4 billion per month.
2. Be a site with demographic targeting (say a Latino portal, or a sports site (targeted at men) or a social network targeted at baby boomers). Although in TV and in magazines, demographic targeting can generate double digit CPMs, online at scale, RPMs tend to be in the low single digit range. Lets assume a $5 RPM. To get to $50m in revenue you would need 10 billion pageviews in a year, or just over 800 million per month. (More than Microsoft.com.)
3. Be a site with endemic advertising opportunities (say a site about movies that movie studios will want to advertise on, or a site about cars that auto manufacturers will want to advertise on, or a site about travel that hotels and airlines and online travel agencies will want to advertise on). If you have a highly targeted audience that is interested in buying a specific product, you can command RPM’s well into the double digits. Lets assume a $20 RPM. To get to $50m in revenue you would need 2.5 billion pageviews in a year, or just over 200 million per month.
Pretty nasty stuff. So you don't want an exit strategy, just make enough to pay the bills and have a good time, as Tim suggests. He also thinks there's an aggregation option:
The other option, implicit in Chris Anderson's long tail hypothesis, but not mentioned by Jeremy, is that you aggregate a lot of other sites. There are different models for this: Gawker and Weblogsinc launched multiple sites, publishing blogs like they were books, with some expected to succeed and others to fail; FM Publishing (in which I am an investor) doesn't aggregate ownership, but provides marketing services to an aggregate of clients.