A Digg Acquisition: Running The Numbers
My favorite sites right now are Digg.com and Technorati, because between the two I can find 1) weblog posts on any topic, and 2) the most popular tech industry information at any given time. Combined they form a one-two information punch that can answer basically any question I might have, it’s just fantastic. Some people are wondering about the financial prospects for Digg, so here’s my take.
Digg Gets Money
It was reported that Digg received $2.8MM from various high-powered investors (Omidyar Network, Greylock Partners, etc.) and if I had to guess the pre-money valuation, I’d say it’s in the range of $7-9MM but I could be off — the only people who really know the percentage that investors now control are those that were involved in the deal. For the sake of this article, let’s say that Digg is now worth $8 million. So now that they have this money, what did they do with it?
In early November, Digg experienced some downtime because of the huge loads its site sees everyday, and because of this, C|Net reported that the site added around 18 additional servers to the infrastructure to handle the load. A few million readers per week will certaintly do that to a website.
It’s been rumored that Digg will be expanding its content into other categories as well and not just technology/programming anymore. That will be a great expansion. I’m sure the Digg guys will be adding more advertising to their site, considering the amount of traffic they have and the revenues they could potentially pull if they expand to all topics under the sun.
So if we guess that their pre-money valuation is around $8 million, I’d have to say that they won’t sell for under $20 million, just because venture capitalists expect a large return on investment, and they won’t get much of a return unless a Digg sale clocks up 8 figures or more. Now that VCs own a certain portion of Digg, they also have a say regarding to whom Digg can sell and for how much, so if deal comes across the table that isn’t high enough, the VCs can use their power to knock it down with the hopes of getting more money or going IPO.
