Technology

Investors Digg Kevin Rose


The Web wunderkind dreamed up Pownce in his off-hours from his other hot ventures, Digg and Revision3. Investors are ready to, well, pounce

Venture capitalists would love to do business with Web entrepreneur Kevin Rose, who has yet to cash in on his first two ventures, the popular Digg news site and the Web video production house, Revision3. But since neither company is accepting any more venture funding, investors angling for a piece of Rose's stardust will have to settle for Pownce.

This third endeavor, which went live on June 26, is a hybrid site that seeks to combine social networking, instant messaging, and file sharing. Users assemble a list of buddies, then swap messages, invitations, photos, music, and other files with one another. Created by Rose merely to distract himself in his spare time—with heftier input from three associates—Pownce is a classic next-generation Internet company: built on the cheap, reliant on users for much of its content, and launched with a low profile. Yet investors are already clamoring for a share.

Eager Investors

"I probably would invest in Pownce if he's going out for funding," says high-tech angel investor Ron Conway, who's invested in Digg and Revision3. "I like to invest in great entrepreneurs, and he's a great entrepreneur." Conway cites the potential size of the social networking market and the "pedigree" of Rose's team as reasons to invest.

Another Silicon Valley investor says he plans to quiz Rose at an upcoming meeting on how Pownce will differ from Twitter, a cell-phone-oriented social network, and other services within the increasingly crowded field. But Rose's history of creating sites that draw "a lot of excited users" could trump those concerns, this investor says, on condition of anonymity. "Kevin has been a source of much joy the last couple of years," he says. "Whatever he decides to do, I'll pay attention."

Launched in 2004, Digg has become one of the Web's most popular sites—recently ranking 95th among the top 100 online destinations, according to audience measurement company Alexa.com—by letting users vote for their favorite online news stories about technology and other topics. The ad-supported site attracts about 20 million unique visitors a month, according to Jay Adelson, chairman and CEO of both Digg and Revision3.

Digg, Revision3: Fully Funded

Digg has raised $11.3 million from Greylock Partners, the Omidyar Network, and angel investors (see BusinessWeek.com, 8/14/06, "Valley Boys "). If Rose and his backers decide to sell Digg, the site could draw interest from major technology companies such as Microsoft (MSFT) and Google (GOOG) as well as from media concerns like Time Warner (TWX) or News Corp. (NWS).

Revision3—think Internet video with better production value—was launched last year and closed an $8 million financing round from Greylock and others on June 25, adding to $1 million in startup financing. Each month, users download 2 million episodes of the site's homemade shows. The most popular, Diggnation, draws 250,000 unique viewers a week to watch Rose and sidekick Alex Albrecht sit on a couch with beers and laptops, riffing on Digg's most popular stories. The company plans to quadruple its advertising sales staff of two in an effort to generate more revenue from its shows, says Adelson.

There's no question Rose, 30, has learned to generate industry buzz and that he is quickly becoming a serial entrepreneur of the new, user-driven Web. "Kevin has become a really savvy businessman in the last few years," absorbing lessons in product development, fund-raising, and public relations, says Adelson. "He's learned a lot about starting companies." Given Revision3's recent capital infusion, Rose's first two ventures are "fully funded to profitability," Adelson says—meaning they have enough money to eventually turn a profit without needing to raise more.

Pownce: In-Crowd Appeal

That leaves Pownce, which also looks to generate profit from ads as well as premium subscriptions. Available by invitation only for its test phase, the service is accessible through either a Web browser or desktop software built with technology from Adobe Systems (ADBE) that can speed performance. Sponsors can buy text ads that appear on users' profile and message pages. A version with no ads and support for large file transfers costs $20 a year.

While Pownce could struggle to find a mass market, it may appeal to the roughly 20% of Web users who are early adopters of new online media, says JupiterResearch media analyst Barry Parr. "This definitely feels like a product for that 20% and their friends," he says. "That's not necessarily a bad thing. You're talking about a pretty elite audience—they're the social backbone of the Internet."

So far, Rose is keeping a low profile with Pownce. He didn't respond to an interview request, and a spokeswoman says he isn't talking about the new venture. Adelson also declined to comment, other than to say he uses the site, and that Rose "doesn't work on it when he's at Digg."

That awareness level could change, though. Megatechtronium, the company behind Pownce, has begun talking to potential investors. Likewise, the public relations firm for both Digg and Revision3, Karbo/Fonkalsrud Communications, has started handling some Pownce work. Notably, invitations to join Pownce (free if you know someone in the network) have been showing up on eBay (EBAY) auctions with asking prices of up to $10.

An Increasingly Crowded Field

But the site clearly faces headwinds, from industry heavyweights such as News Corp.'s MySpace to the professional networking site LinkedIn and newer entrants like Twitter, which has soared in popularity by letting users broadcast text messages about what they're doing from moment to moment (see BusinessWeek.com, 4/2/07, "Twitter: All Trivia, All the Time ").

Pownce's launch also comes as Web companies wrestle with the knottier implications of user-generated content. When the audience supplies the reading matter, a site risks losing control of what's posted. Case in point: Digg in May sparked a user revolt after it removed links to articles containing a code to bypass the copy protection on high-definition DVDs (see BusinessWeek.com, 5/3/07, "Digg's Mob Rules"). Users then flooded Digg's site with even more links to the code, overwhelming Digg


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