SBJ/20090126/SBJ In-Depth

Sites reach into own pocket

Tom Carter, founder and chief executive of a portal of sports fitness Web sites, boasts a growing amount of user traffic, material from a battery of prominent sports physicians and trainers, and a productive content-sharing relationship with Golf Channel.

Carter

And Carter for now is self-funding his startup business, unable to close a deal on venture capital investment.

“There’s simply a lot less conversation on that front now than there was a year ago,” Carter said. His Connecticut-based SportsMD.com portal includes health and fitness areas devoted to golf and tennis, and has three more sites devoted to cycling, running and action sports set to launch later this year.

“There’s no question this is something we’re spending more time on than we expected,” he said. “It’s really sort of a perfect storm in our space — it’s a lot harder to get [venture capital] money and a lot harder to get the kind of ad buys that help you get that money.”

Such is the other side of the recession, with the much-discussed “flight to quality” as big content brands position themselves as safe harbors for advertisers in the economic storm, leaving behind smaller, less proven operators. The result is a rising number of self-funded operations such as SportsMD.com, as well as more distress calls for funding from startups running out of cash to sustain themselves.

SportsMD.com is one of many sites
that are self-funded because of
limited venture capital.

“There’s still no shortage of ideas out there, but I’m definitely seeing a lot more reliance on angel financing, friends-and-family type of things as opposed to formal Series A, Series B type of deals,” said Chris Russo, chief executive of Fantasy Sports Ventures. “Just in the last 60 days, we’re getting lots of calls from smaller sites looking for capital, looking to affiliate, looking to merge — anything to keep going. Twelve months ago, it seemed that about 80 percent of the [venture capital] deals out there were focused on growth opportunity, capital development, and 20 percent were these distress-type of things. Now it’s reversed.”

One likely avenue for several startups will be business development and partnership alignments with big portals in which a formal equity investment is not made. Rather, the common deal structure is a revenue-sharing alignment in which the larger media hub serves as the advertising and back-end business entity for the smaller content developer.

“A lot of smaller sites don’t necessarily need to build out a full infrastructure,” said Mike Marquez, CBS Interactive executive vice president for strategy and corporate development. “So there are a lot of interesting things beginning to happen in that [business development] space.”

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