Deal Radar 2008: Tagged In Exit Freeze Danger Zone?

Tagged, launched in 2004, is a rapidly growing social network for teens aged 13 – 19. It is quickly becoming the number one teen site. The site’s early innovations include the use of slides and YouTube as a part of its graphical interface.

In February 2006, Tagged raised $7 million in its first venture capital funding led by Mayfield Fund. It raised $1.5 million from angel investors in September 2005. In July 2007, Techcrunch reported that it has raised another $15 million round, on a $102 million pre-money valuation (unconfirmed).

Tagged has 30 million registered users and users spend over 20 minutes per day. Tagged generates 1 billion monthly page views. 45% of daily visitors visit multiple times/day. In May 2007, Tagged was adding more new users per day – 350,000 – than MySpace. Growth at Tagged.com is driven by the site’s strategy allowiing users of any age to join, a Facebook copy no doubt, and not necessarily encouraging due to its dilutive nature.

22.7% of Tagged’s users are from North America, 14.6% from Latin America, 23.4% from Europe, 10% from Africa and the Middle East, and 29.2% from the Asia Pacific region (comScore). Tagged has grown a whopping 774% from 1,506,000 unique visitors in June 2006 to 13,167,000 unique visitors in June 2007.

The site is earning $600k/month mostly from a search deal with Ask.com and low CPM display ads. Tagged is profitable.

After the high price paid by Microsoft for its 1.6% stake in Facebook, Tagged would presumably be looking for something outrageous as well purely on the strength of its traffic momentum. It has over 13 million monthly unique visitors, which means, however, the per user monetization rate is extremely low. While the entrepreneurs and investors would be looking at a minimum valuation of over $300 million, that amounts to roughly $23+ per user. At its current rate of monetization, this valuation equation doesn’t seem to balance. The $600k monthly revenue run rate amounts to per user ad revenue of ~4 cents per month per user / ~50 cents per year per user.

Tagged, with its teen-focused user base, rapid growth in new memberships and page views, is nonetheless a good acquisition target for teen / youngster focused media companies like Viacom and Walt Disney if the valuation is reasonable.

If the $100 Million+ Series C valuation is accurate, then the company, however, is in the same reality distortion field zone that Facebook is in, and it will freeze things up.

I think, many investors are viewing 2008 as a year when the highly over-invested web 2.0 space
will start to crash. Companies that have exit-worthy momentum, need to start looking for exits soon. The one that have monetization models cracked and proven will continue to do just fine, and can stay around for the long haul. But those that have traffic without proven monetization
models will have a harder time.

This segment is a part in the series : Deal Radar 2008