Social media startup Ning valued at $750 million
I am posting an update to a social media valuation post from last week. There is a growing chorus questioning the high valuations and viability of business models of the social media start-ups.
More fuel was thrown on the fire this week with the announcement of the results of the latest round of fundraising at Ning.
Ning, a social networking start-up, raised $15 million at a $750 million valuation this week. The application allows anyone to launch their own personalized social networks (i.e. an entire network of Brüno aficionados, fans of the HBO show the Wire, or the Silvio Berlusconi support group).
Ning has a lot going for it: vip pedigree of founders - Andreessen and Gina Bianchini, approximately 200,000 active networks created to date, 30 million registered users, and it is revenue positive from the placement of Google ads.
To beef up the revenue model, the company will be rolling out is own proprietary advertising scheme, $25 premium service network subscriptions as well as virtual gifts. This series- E round led by Light Speed Venture Partners showed significant valuation growth over last year’s $500 million D-round.
The latest successful fundraising round however does not change the fact that revenue will still trail far behind the valuation. David Dines pointed out that even if 10% of the 200,000 active Ning networks subscribers pay up for the $25 “premium” monthly service upgrade, this would generate $6 M of revenue per year.
Using the advertising multiple for big social network sites suggested by Raj Kapoor (Managing Director at Silicon Valley’s Mayfield Fund) of $.20 month of on site advertising revenue per user would add from $6 million active users an additional $14M per year for an approximate total revenue of $20 M per year.
Even for optimists, this kind of revenue numbers stand out sharply in contrast to the $750M valuation.