How to Valuate a Blog for Venture Capital Funding (A Primer)
I recently saw an Internet controversy over a very popular natural hair blogger who blogs about curly hair or natural hairstyles for and by black women.
But according to the natural hair community, she “sold out” MAJORLY last month by featuring a white curly haired woman on her blog.
All hell broke loose among the African American and Black natural hair community interwebs and especially after the discovery that the blog was bought out by a company owned by white women, Texture Media, two years after its founding!
Normally, I’d be all over that natural hair debate, as a woman who has worn her hair in braids for over a decade, I usually am opinionated in these matters, but alas, I was too distracted by the fact that the blog, Curly Nikki, was bought out a mere two years after launch!
That is virtually unheard of as many out-of-the box blogs with no prior affiliation or connections usually take a while to catch the eye of an investor that would deem a stand-alone blog worthy to acquire.
However, what you can do when trying to place a price tag on your blog is factor in qualitative factors and quantitative and add a multiplier for good measure
The only true and definite quantitative numbers are your expenses and revenue. However, many blogs make nominal amount of money and have nominal expenses. Thus, the numbers on paper come out to virtual pennies to major investors.
Your blog wouldn’t even qualify to be presented before them with those numbers.
Oh but she “sold out”. Yeah. Yeah. As a digital entrepreneur and independent digital publisher (this definition includes bloggers), you should not just be blogging willy nilly.
Blogs need Exit Strategies too
Your blogging is a business and like most business model it should have an exit strategy for getting out in case:
1) you want to pursue other endeavors but would like the venture to survive without you;
2) you need capital to start a new venture and expand and need to find Angel, VC or Mezzanine level funding as fund managers would need you to have an idea of how they can recoup their investment plus some modest dividends and divest if need be; and/or
3) you might just find the business/blog has run its natural course and want to cease operation.
Getting #2 is hard as a stand-alone one blog but this woman has managed to do it.
I had a conversation with venture capitalist who said that generally, investors do NOT invest in stand alone blogs. They prefer to fund companies that publish numerous sites that target different audiences and are all generating revenue and are well branded and established. They need the scale to make the investment worthwhile and would rather not dump money in one website.
Stand alone blogs are rarely funded by VC, though they may get angel funding. And even for those, it is hard to get independent Angel funding unless the blog gets a tremendous amount of traffic and is raking in ad revenue in the millions annually.
Needless to say, there are not that many sites that will qualify.
Another option is to be a name brand or have a following (a la Andrew Sullivan or Ezra Klein) and be part of a ecosystem that trusts you will be able to build a multi-million dollar site and the following to show for it.
Again, most people do not qualify. To start, how do you put a price on a blog?
Putting a price on your blog is always a good idea no matter at what stage you are with your blog. You want an idea of the value of what you are pouring all your hard work and sweat into.
Current Automated Website Valuation Tools Online SUCK!
But it is a very hard to get an accurate valuation of a blog and the current online automated ones are inaccurate. The free valuation tools commonly available online focus on general and too broad measurement tools like page views, unique views, minutes on the page, Google Page Rank or Alexa Rank.
Therefore, to elevate your blog’s valuation numbers to upper hundreds of thousands of dollars to millions of dollars, you have to play up the subjective areas such as: the brand cache, the reputation of the blog among others in your niche area, whether it is cited by competitors or news organizations, the social media reputation.
Here are the objective and subjective factors to consider:
The OBJECTIVE FACTORS
Expenses – Does your blog take a lot to manage it? What are the hosting costs, software upgrade costs, SEO or social media costs? Do you have an editorial assistant or paid intern? What about the software and app productivity upgrades and blog security and hosting costs? Then the big ticket, your time as the blogger. If you were working for an employer, how much would you make per hour and then allocate that time towards the expenses. If you are seeking venture capital, you will need to include your salary in the expenses column. Your effort to build the brand and blog counts towards sweat equity. But also add it back when considering the multiplier because your time and work and effort sacrificing employer-based income brought value to the blog.
Revenue Analysis – How much does the site earn? Do a month-to-month breakdown of how much it earned. This will represent realistically how much revenue it will come. Identify what are the major revenue sources. You want to have multiple sources: Ads, Affiliates, eBooks, Seminars, Products, etc. to be able to valuate the blog higher. Relying on Google Adsense alone when you can barely crack the $100 threshold needing to send you a check is not good.
You cannot invent revenue that doesn’t exist, but you can put a number on ongoing projects you are working on that you hope to bring in income.
Traffic Sources – Does the blog have high search engine rankings? How many feed subscribers? Is there a mailing list / newsletter? If so, how many people get the mailing list?
Site Age – Older sites are established and reflect that it’s had a longer time to build a reputation. Unless you are a celebrity or come from another major site, with an established branding, it’s going to be harder to get a high valuation as a start up blog.
The SUBJECTIVE (The Premium)
Niche Potential – To determine if your site is a niche leader, you will need to take a qualitative measurement of the audience and the source of traffic. Does your analytics show visits from The White House, Department of Justice and major universities? If so, chances are your site is influencing major political figures who rule the world. Screen capture any traffic data that shows this. You can also capture and take note of influential followers you have in social media, especially those who do not follow a lot of people back. It shows that you are an influencer of the influential even if you don’t have a large number of followers yourself. [This is my situation for this blog]
Brand Cache – Is the blog known and mentioned by mainstream media sites. One thing I noticed is that shortly after Ezra Klein‘s new website, Vox, launched, many mainstream sites quoted it often which helped solidify it as an expert source for information. Having others in your industry recognize the value of your blog and talk about it on their sites is great! Is the content worth much to search engine rankings or traffic?
Active Comment Section – Having an active comment section is plum because it means you have built a community and brand of followers. You have a captive market for promoting other blog projects. Also an active comment section means repeat guests which should be reflected in blog traffic.
Domain Brand – What is the value to the domain name? You can factor in those independent sites that try to put a price tag on domain names and use that to show that the domain is a commodity and independent third parties recognize the value of it.
Social Reputation – Beyond its reputation among competitors, is the brand popular and known among audiences as a leader in the segment? Do niche bloggers and readers also read the blog? In social media, like Twitter, for example, are updates from the blog always part of the “Top Tweets” in certain category, meaning that many people will see the blog listed among other top Twitter account holders in a niche area?
Affiliates – Is the brand affiliated with partners or are an off-shoot of spinoff of an existing top blog or site? Has the blog done advertising campaigns or featured ads from major brands? The appearance of certain brands on your site is a positive indicator that the blog is ad-friendly and marketable. It means that finicky brands trusted the quality of content on your site enough for their hard-established brand identity to be linked to it.
All of the aforementioned factors are valuable pluses of your site. Apportion a value of 1-20K for each category or higher, perhaps add $1,000 for each factor in each category.
Now that we’ve determined the definitions, next is to plug in a formula:
The Blog Value is: Premium (all the subjective) + (Monthly Revenue – Monthly Costs) (all the objective numbers) x Multiplier.
After you figure out and assign numbers on the premium, and plug in the hard objective numbers, the next step is to decide what that multiplier should be.
This is a hard one
Digital, electronic and online businesses usually have a multiplier which is 1 or 2 times the yearly profit, where for brick and mortar businesses that number would be 10 times of yearly profit (plus premium).
But if your blog is a top one among its niche area, you could get 5 x profit and thus your multiplier can be 5.
If you have multiple monetization methods, have built a great brand, have grown an active community and have established your blog as indispensible in your niche, you can give yourself a higher multiplier.
If your blog gets traffic exclusively from Yahoo, only earns from AdSense and is unknown outside your niche, it’s not going to get more than a 1x multiplier.
SAMPLE VALUATION: My calculation
When I plug in the factors above, for this blog, I estimate its worth at about $250,000.
$49,000 (The Premium) + $1,000 (Objective) x 5 (Multiplier) = $250,000.
That is for a niche, tech, policy and industry analyst blog with influential followers and readers, that is regularly updated, is nearly 5 years old, with a good brand cache and social reputation and domain branding and has a Google Page 4 Rank.
I have about four other blog properties of varying value which I would pitch together and try to make a compelling case to an investor to invest $1,375,000 to help them grow to their max potential.
If you have more than one blog property like I do, after you valuate all of them, you too can organize them under one company and pitch for funding based on the scale and the cumulative value.
Have you valued your blog? If so, please share your methodology and what factors you considered most important.
images: Getty, iStock, MorgueFile