Capital Chaos

Glam Media (Brisbane, CA) reported that they have finalized their fourth round of funding for $85M of which $65M is in cash and another $20M in venture debt.  This all comes on top of the already $30M raised over the past four years that Glam has been around.

This latest round included a slew of investors Draper Fisher Jurvetson, Burda Media, Accel, Hercules Technology Growth Capital, Duff Ackerman & Goodrich, GLG Partners and Information Capital.

Even though Glam continues to lose money and has an alleged valuation now around $500M, investors continue to pour money into this fashion and lifestyle website for women.  I also find it amazing that in typical web-forecasting models, the company which lost $3.7M on $21M in revenue has projected revenues of $150M in 2008 with a profit of $40m.  Now I am not trying to question either Glam’s business model, its investors or its opportunity but in years of evaluating and operating companies, a company that is a few years old doesnt accelerate revenue from $21M to $150M.  It just doesnt happen and while I understand that the they had to create a forecast to justify valuation I am just in awe that these well versed bankers would accept these terms - except for the fact that they need to support these level to protect their previous investment and justify a high valuation for purposes of an exit strategy.

The current investment - if it is true that it’s pegged at a valuation of $500M, basically presume a multiple of 12X revenue.  To give you a refernce, Google is trading at around 9.5X revenue.  How on earth is Glam getting a better valuation than Google?

We have covered Venture Debt deals in the past and Hercules Technology Growth Capital has been pretty busy in issuing notes alongside or post earlier VC rounds (See Hercules most recent Venture Debt deal that we covered). 

While I can appreciate what Glam is hoping to achieve by being a centralized portal of fashion, style, beauty, gossip etc. the site is an amalgamation of other sites which are more niche based and do a better job at covering their respective areas of interest.  In a time when sites like iVilliage have tried everything under the sun, including a deal with NBC that just flopped, for some reason the space attracts a more fragmented audience that is looking for specific things from different sites.  Whether it is gossip from TMX or Perez Hilton, or fashion advice from the various brands or stylists, this is not an easy space to capture market share from.  However, it should be noted that Glam is attacting a significant amount of people to the site (25.4M US unique visitors from the US in Nov/07 and 44.5M globally) but the revenue just isnt coming in the way I am sure they expected and I am VERY suspect of the $150M target they put out there for this year.  Time will tell.