Tumblr Gets More Money, Now It Just Has to Make Some

Blogging platform Tumblr has raised another round of financing from its existing venture backers, Spark Capital and Union Square Ventures, putting additional pressure on the 3-year-old company to start generating some revenue — something Union Square partner Fred Wilson says the startup is now focusing all of its attention on. The $5 million in funding was what’s known as an “inside round,” in that no new investors joined the financing group, and brings the total raised by the startup to $10 million. Generating revenue could be a tall order, however, given that Co-founder and CEO David Karp has said that the company is “opposed to advertising.”
Karp, who is 23, made the comments to the Los Angeles Times last week, adding that the idea of putting ads on Tumblr pages company “turns our stomachs.” Instead of relying on ads, which many other publishing companies depend on for revenue, Tumblr has been experimenting with charging users for add-ons, including professional-quality themes and other features. The site considered a premium version of its service called Tumblr Plus that would have incorporated some of these features and enhancements, but rejected that idea based on feedback from investors, according to the LA Times. Tumblr competes with other blogging platforms such as Posterous and WordPress.com (see disclosure below).
Meanwhile, Fred Wilson suggested in comments on a blog belonging to entrepreneur Scott Rafer that the latest financing round will be Tumblr’s last for a while, and that the company is now focused on maximizing revenue. After Rafer suggested that multiple rounds from the same group of investors tends to put pressure on startups to “optimize for growth, not cash flow,” Wilson responded sarcastically that this “sure didn’t work out very well for jack, ev, and biz — nor did it work for zuckerberg or pincus either,” referring to the founders of Twitter, Facebook and Zynga, respectively. Wilson added that “some businesses should be allowed to scale and that takes capital — going for revenues and profits too early in some businesses is a mistake.” Tumblr has grown fairly rapidly over the past year, and now brings in more than one billion page views a month.

Rafer also said that while the founders of Tumblr might want to “dream the big dream,” funding such a company beyond two rounds requires that it be “super hot for revenue not to matter” and that the founders were “playing it way too risky.” But Wilson responded that “revenue is coming in nicely now” and that the recent financing “will be it, given the focus on revenues.” Now all Karp and his team have to do is come up with some.
Disclosure: Automattic, maker of WordPress.com, is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, Giga Omni Media. Om Malik, founder of Giga Omni Media, is also a venture partner at True.”
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