Venture capital investments for blogs

So reading recently of individuals looking to either sell or purchase blogs got me thinking about is there an investment opportunity in the blogosphere?  If there is an opportunity for venture capital (VC) to invest in blogs and help them grow?  If so, what is the return on investment (ROI) and what is the exit?  How could you evaluate potential investments?  Let’s talk about this.

ROI and getting out

So the first question a venture capitalist (VC) will ask is what is my return, and how do I get paid?  Given that it seems difficult to know which blogs or bloggers will be runaway hits from the beginning, I would think that the returns would have to be fairly large to entice venture capital money.  The odds of the homerun investment would likely cause the terms of any investment to be somewhat draconian.  With the exception of some fairly large and well known blogs that were able to get buy-out offers (such as Get Rich Slowly) most of the blogs would probably be cash flow properties at best and simple failures otherwise.  Even the cash flow sites would be of varying quality and income.  So this seems to be the way a VC would get their money out.  Given the limited returns and fewer buy-out opportunities, a true VC likely wouldn’t be interested, and certainly not in individual blogs, as there simply isn’t enough opportunity for investment on a dollar basis.  So any investment would need to be along the lines of an angle investor, a partnership or cash flow investor.

Evaluation of potential investments

So how would you evaluate what makes a good blog investment and what doesn’t?    Is there a page view or visitor growth rate or other metrics that could tell you how a site was performing and what type of income it could produce?  What about search ranks on certain terms or Alexa rankings?  Given the differences in monetizing opportunities vary by the type of blog, some page views for a credit card blog, would probably return more than the same number on a video game blog.  So the evaluation seems difficult, but there are a bunch of metrics and data available, and with enough history for both successful and unsuccessful blogs, trends and rules of thumb could likely be developed.

So how and what would you be funding with an investment in a blog or blogger?

Many VCs like to see tiered investments, only releasing funding as certain milestones are met.  For example, one you have 1,000 unique visitors a day for a week, we’ll release the next $10,000.  Given the metrics we mentioned above, tiered investments seem fairly easy to put together, and would allow milestones and progress to dictate funding releases.  But what exactly would you as the investor be funding, and what are the terms?  There are a number of potential funding methodologies that could take place, including:

• Essentially a pay-by-article method, where a blogger receives payment based on their article productivity.  However, this content creation could also be outsourced like the niche websites that have popped up everywhere.
• A link building and\or networking plan where the blogger and investor try to gain other advertising, products, or sponsorship.
• Multiple sites could be funded, run by a single blogger working full time.  In this case a straight salary may work best, but is related to the by-article method above.  This could also involve outsourced content creation.

If you do invest or partner, then you have a different set of issues.  As a venture capitalist, how do you exert board-level control?  As a partner, what is the best ways to enforce the agreements, and who owns what?  There should obviously be a central entity that owns all the content created as well as the brand and technical databases, with financing equal to in-kind contributions valued on an hourly or project basis.

Need something bigger?

The above works fairly well as a framework for creating a new blog and investing at the startup stage, but there are also options for existing blogs.  If an existing blog is seeking funding or a sale, what are the best ways to re-monetize it or increase the income level?  If it is an older blog, perhaps revisiting the content and rewriting it with an eye toward SEO, updating the adsense properties, or adding a new private advertisement  on more popular pages.  Any of these could increase the income of a blog.  If the blog hasn’t been updated in a while, adding new content and getting the search engines to re-index could go a long way.

If a single website or author doesn’t provide the total return that an investor is looking for, then greater plans are needed.  You could either visit or setup a marketplace where buyers and sellers come together and do more volume, or you can join or create a blog network such that each blog would become more popular and valuable.

Readers, what would you value your blog at?  How did you come to that number?  Would you sell it now or are you hoping to grow it?  Looking to buy or have bought, what are you experiences?