Thanks to Facebook, Twitter, and Tumblr, cat photos and rants from angry aunts appear in the same feeds as shared recipes and world news. Sulia is changing that by introducing subject-based “channels” where users can consume media about a single topic like technology, politics, or food. Moving away from a single crowded feed towards multiple focused feeds has the potential to be helpful to readers, publishers, and advertisers alike.

Pronounced “soo-lee-uh,” the company aggregates news in a style similar to Prismatic, but Sulia has significantly more traffic. Sulia reported a user base of 10 million users when it announced a $1.5M Series A in September of 2012 and has since, by our measures, more than doubled their traffic. Sulia’s VP of Editorial & Expert Operations, Josh Young tells me they’re on track to hit 15-20 million uniques by the end of the year.

Young emphasized that Sulia’s burgeoning traffic is now driving significant traffic to publishers – 100k monthly uniques to TMZ, 60k to Huffington Post, and 50k to ESPN to name a few. With distribution power like that, publishers would be wise to turn their attention towards getting their content on Sulia.

Sulia’s experience is comprised of individual subject-based channels, is mostly easy to use aside from an odd absence of headlines. Each channel is an endless scroll of relevant stories from publishers, like those mentioned above, and subject-area experts like Robert Scoble & Kara Swisher in Tech & Science, and Nate Silver & Anderson Cooper in Politics. In our interview this morning, Josh explained their “proprietary expertise index”:

“We index Twitters lists and sort them into subject areas. Then we think of membership in those lists as a “vote” for being interesting or having expertise in that area. For example, someone who is in 4,000 lists has more expertise than someone in 300 lists. This is how we know who the top people in each field are. From there we connect these social profiles with open RSS feeds. We filter the first sentence or so of those feeds to make sure they’re relevant.”

Twitter lists might seem like an odd place to start on the surface, but Sulia and Twitter lists have been inseparable since their inception. Initially founded in 2009 as TLists, the company helped Twitter build and manage its lists feature prior to Twitter’s redesign in September 2010. After that, the company pivoted to become Sulia.

Aside from Twitter lists, users can influence the content displayed in each channel by clicking the “trust” button on each expert or publisher for given interest channels. The more “trust” experts & publishers accumulate, the more likely the content their is to appear. Through this, Young says Sulia is building the first “trust graph,” their key to breaking through the noise on today’s crowded web. The methodology seems sound, if not at least difficult to “game.”

Building the Business

15-20 million annual uniques and interest-segmented audiences isn’t just good for publishers though, it’s also good for advertisers. In an interview with Business Insider in November Jonathan Glick, Sulia’s CEO, explicitly stated that the motivation behind organizing content by subjects is to segment audiences for marketers & advertisers. In his words,

“One of the things that’s difficult about organizing content in the way that Twitter, and Tumblr, and Facebook do it today, which is all intermingled without a subject, is that a marketing message thrown into the middle of that feels a little bit like spam…whereas if you’re in the cooking section [of Sulia]…an ad for a new kind of canned soup makes a lot of sense.”

With the rise of native advertising on sites like BuzzFeed it isn’t surprising that Sulia is experimenting with this format as well. Content from sponsors like Dyn, as seen below, utilize Sulia’s existing layout and story format.

Driving hundreds of thousands of hits to publishers and itself seeing unique visitors in the tens of millions with no plateau in sight, Sulia is on track to become a major player in business of online publishing, and potentially a model for advertising as well. In our interview, Young said their focus in the coming months will be refining and improving their core IP, the “trust graph” in the interest of building a more useful tool for readers, publishers, and advertisers alike.

Screenshots:

SpotRight was originally launched as part of TechStars Boulder in the Summer of 2010 and merged with Spot Influence in July 2012. According to the announcement of the merger:

“As a combined company, SpotRight unveils an unparalleled platform that helps direct response marketers access social data on their customers and act on it to create real business value.”

Yahoo’s stock price is now at it’s highest since May 2008 thanks to a steady stream of acquisitions including the purchase of the Tumblr blogging service for $1.1B today, policy changes and other positive PR for the company. While this is still a far cry from the 10 year high in late 2005, or peak price of over $100/share in 2000 prior to the dot-com crash, Mayer has done more to move the needle in her 10 month tenure than the 4 predecessors who came after Jerry Yang’s departure in 2009.

Scroll down to see Yahoo vs. Google stock price growth comparison for the past year.

Google vs. Yahoo Stock Price Growth – 1 Year Comparison

HT: Hacker News, Images via Google Finance

Project Decor is cofounded by Andy Appelbaum, Cliff Sirlin, and Aaron Wallace. CEO Appelbaum is a well-known New York angel investor and cofounder of online food delivery service Seamless Web, and previously founded several companies alongside Sirlin. Project Decor aims to help people decorate their homes, and is part of a hot space lead by Houzz and Tastemaker. AngelList currently lists 88 home decor startups on their site.

For their part Project Decor seems to be amassing a following, with more than 1,300 likes on their Facebook page and over 2,000 followers on Twitter. For a social shopping service building visibility and a community will be crucial, and we’ve added them to the Startup Index as one to watch.

The Wall Street Journal headline this morning reads href=”http://online.wsj.com/article/SB10001424127887324787004578493130789235150.html”>”Yahoo to Buy Tumblr for $1.1 Billion”, but last I checked the purchase of a company requires the consent of both sides. The same story reads:

“It wasn’t immediately clear whether Tumblr’s board had also approved the deal.”

I realize that it is highly likely at this point that Tumblr intended to do this deal (and readers point out they probably already have a letter of intent to be sold), but how can publishing this headline be considered legit without confirmation from a source? Couldn’t this even have a material impact on $YHOO stock price in the morning? Reporting the deal as fact when it is unconfirmed seems wrong… but now even the New Yorks Times is running with the story, so it must be true right?

@daniellemorrill @nickbilton no one is talking (but they are)

— Kara Swisher (@karaswisher) May 19, 2013

I’ll take this to mean they have sources speaking on background but can’t confirm anything. AllThingsD is widely known to always have the inside scoop on what’s going on at Yahoo

Why This Matters

The biggest issue here is that WSJ is a massively reputable news source, and this headline has lead to lazy journalism on the part of many other outlets who appear to have mostly copy/pasted the existing story and conveniently missed the part where Tumblr hasn’t confirmed. The public who aren’t watching closely will simply take these headlines at face value, after all they’re busy and this is all entertainment anyway so who cares if we bend the truth right?

• Geekwire: “Yahoo buying Tumblr for $1.1B”
• AllThingsdD: “Yahoo Tumblrs for Cool: Board Approves $1.1 Billion Deal as Expected”

(the “as expected” was added after the story was published). See Kara’s first tweet with the original headline and then the second tweet with the updated one.

• SFist: “Yahoo Will Buy ‘Hipster Blogging Platform’ Tumblr For $1.1 Billion”

Yahoo Tumblrs for Cool: Board Approves $1.1 Billion Deal dthin.gs/12Mgdc2

— Kara Swisher (@karaswisher) May 19, 2013

Yahoo Tumblrs for Cool: Board Approves $1.1 Billion Deal as Expected dthin.gs/12Mgdc2

— Kara Swisher (@karaswisher) May 19, 2013

Geekwire changed their headline to “buying”, but this tweet captures the original headline:

Report: Yahoo buys Tumblr for $1.1 billion goo.gl/fb/yCM0w

— GeekWire (@geekwire) May 19, 2013

To date investors have put $125M into the company, most recently infusing it with $85M more in September 2011 at a valuation of over $800M.

The company started selling ads in May 2012 and revenue was reported at $13M for the year. Tumblr’s source of advertising revenue is the logged in user “dashboard” where sponsored posts are displayed in the sidebar via Tumblr Radar, while recommended posts are injected directly into the feed by Tumblr Spotlight..

Tumblr claims 120M+ daily impressions on Tumblr Radar, which equals 3.6B+ monthly impressions. Assuming $10 – 20 RPM (revenue per thousand impressions), which is within the normal range for premium brand advertising, the total revenue opportunity for Q1 was $108 – 216M. Based on this calculation, at an annual run rate of $15M ($3.75M quarterly revenue) Tumblr is selling 1-4% of its total monthly inventory. If you think about this operationally it sounds reasonable, as the company is just beginning to ramp its ad sales.

Tumblr may also be enticing early advertisers by selling inventory for a fraction of the price it eventually hopes to charge. At $1 RPM $3.75M in revenue would have paid for 30% of the available impressions, and in order to sell 100% of its inventory in Q1 Tumblr’s average RPM would have had to drop to $0.35. Compared to Reddit advertising, which offers $0.75 CPM, and sub-$1 rates for Tumblr CPMs sound plausible.

Red Flags

There were signals of a possible revenue ramp miss in the first quarter of 2013 with the resignation of Rick Webb, who was brought on board just 10 months earlier to focus on revenue growth and work closely with Tumblr CEO David Karp. He is the latest in a string of senior executive departures characterized by Beta Beat as a “leadership vaccuum”.

The shutdown of Tumblr Storyboard in early April was another worrying signal. The project was touted as a “journalism experiment” but was more likely an experiment in figuring out how to work with brands to create effective content marketing on Tumblr’s advertising platform. The production value of the content and high profile editorial team likely cost the company millions but ultimately it “didn’t work” according to Karp.

The Initial Offer

The initial offer from Yahoo! is $1.1B in cash, but according to TechCrunch it may not be accepted:

“Tumblr employees feel that Yahoo’s $1.1 billion offer is “too low” and view it as “only a first offer,” according to sources close to acquisition talks.” – TechCrunch

Employees’ opinions aside, the lack of cash on hand and lack of trust in leadership to hit revenue milestones are likely having a negative impact on Tumblr’s negotiating position, which is probably contributing to what some consider a “lowball” offer.

Setting the Purchase Price

In an acquisition the purchase the price is usually set as a multiple of existing revenue or expected near-term revenue. For media companies a 10x multiple on revenue is quite steep Edit: but does happen (AOL paid $315M for Huffington Post, which exited with $30M in revenue), and with only $15M of revenue in 2013 that would put a Tumblr acquisition price tag at just $150M.

My first reaction was that Yahoo! or whoever else was involved in the acquisition talks was about to massively over pay. But Yahoo! isn’t stupid, so what’s going on here? Clearly this is about expected value, not actual revenue. If Tumblr were to hit their own stated $100M revenue target a 10x outcome would be $1B – but employees are saying this is a lowball offer. Why?

Looking at our numbers from earlier, at $10 – 20 RPM and 3.6B dashboard impressions a month (and growing) the annual revenue potential for Tumblr ranges $432M – $1.44B.

Why sell a company with such a substantial revenue opportunity on the low end of the range?

Pencils Down, Time’s Up

While employees hold onto the hope that the company will be valued on it’s ability to drive billions in revenue, the reality is that Tumblr didn’t pull it off in time. The vast majority of that potential was not realized in time.

It wouldn’t be a problem that Tumblr is lagging in revenue production if the board felt the odds of the company capturing this expected value were good, and that was probably the thinking when they invested $85M in 2011.

The path to keep the company independent would probably involve finding a replacement CEO, or at the very least hiring a COO to be Tumblr’s own version of Sheryl Sandberg and drive the company aggressively toward revenue. It would also mean raising a boatload more cash at significant dilution to everyone involved, cutting expenses, and buckling down to operate like a serious business generating meaningful ad sales revenues in the next 18 months.

Outcomes

In choosing to sell the company and hand Tumblr over to a professional management team with a track record for monetization through media properties, the board is implying that they do not feel putting more money into the company would enable the management team to achieve a better outcome in a reasonable amount of time. Investors who participated at the $800M valuation are probably welcoming the prospect of a $1.1B exit in cash – assuming some liquidation preferences were put in place they’ll get their customary 2x-3x late stage return, and the deal won’t negatively impact their respective fund’s overall IRR.

Selling now may also allow David Karp to remain in a leadership position at Yahoo! where he can continue his work to revolutionize advertising – maybe even leading Yahoo! to a more competitive position vs. Google for brand advertising and giving them a reason to drop the underperforming partnership with Microsoft in the long term. And if things don’t work out with Karp Yahoo! doesn’t seem to have any problem firing acquired founders who no longer fit with the company’s plans.

In the end Tumblr won’t see a bigger exit because they didn’t prove they could monetize their massive traffic before time (and money) ran out.

This article was quoted in: New York Post, Valleywag, and Mashable

Check out the companies whose funding has come across the wire so far today:

Kentucky-Based Frogdice Games Raises $576K for Online RPGS, Virtual Worlds, and Casual Games [Source: SEC Filing] The company has been around since 1996, and is lead by Michael Hartman. Titles include Coin ‘n Carry, Threshold RPG, Primordiax, Tower of Elements, and Dungeon of Elements. Investors in the round were not disclosed.

Chicago-Based Whoozat Raises $750K to Connect Social Affinity Groups. [Source: SEC Filing] The company is founded by Curt Conklin and investors in this round include Brill Street + Co founder Nancy Lerner Frej and former Ameritrade COO and Nebraska Senate nominee Peter Ricketts. The website currently says coming soon Summer 2013.

Skyword Raises $6.7M in Venture Funding. [Source: SEC Filing]
Skyword was formerly Gather.com (their site now times out and Twitter account has been deleted), which raised over $27M from 2004 to 2010, and the core leadership team remains the same. Between the two companies they have taken over $40M in investment.

AbilTo Raises $1.5M from Liam Donohue at 406 Ventures to Build Behavioral Health Programs for Adults Making Life Transitions. [Source: SEC Filing] The company is based in New York and founded by Michael Laskoff. The company announced a $3M Series A earlier this week lead by 406 Ventures, and the $1.5M in this filing is their portion of the capital committed.

Privlo, the Public Marketplace for Real Estate Loans, Raises $2.1M from QED Investors. [Source: SEC Filing]

English Helper Raises $750K More in Seed Funding, Bringing Total Funding to $1.3M for the Language Learning Startup. [Source: SEC Filing]

Variable Technologies, Creators of the Node Sensor Platform, Raised $2M. [Source: SEC Filing] To learn more check out this article in BusinessWeek, explaining how George Yu is building a sensor to measure anything.

Knowlagent Rebrands as Intradiem, Raises $1M for Call Center Management Tools. [Source: SEC Filing]

A Different Take on the “Cult of Money”: Francisco’s Money Speech – from Atlas Shrugged

“So you think that money is the root of all evil?” said Francisco d’Aconia. “Have you ever asked what is the root of money? Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force.

“When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others. It is not the moochers or the looters who give value to money. Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor – your claim upon the energy of the men who produce. Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money. Is this what you consider evil?

“Have you ever looked for the root of production? Take a look at an electric generator and dare tell yourself that it was created by the muscular effort of unthinking brutes.

“But you say that money is made by the strong at the expense of the weak? What strength do you mean? It is not the strength of guns or muscles. Wealth is the product of man’s capacity to think. Then is money made by the man who invents a motor at the expense of those who did not invent it? Is money made by the intelligent at the expense of the fools? By the able at the expense of the incompetent? By the ambitious at the expense of the lazy? Money is made – before it can be looted or mooched – made by the effort of every honest man, each to the extent of his ability.

“To trade by means of money is the code of the men of good will. Money rests on the axiom that every man is the owner of his mind and his effort. Money allows no power to prescribe the value of your effort except by the voluntary choice of the man who is willing to trade you his effort in return. Money permits you to obtain for your goods and your labor that which they are worth to the men who buy them, but no more. Money permits no deals except those to mutual benefit by the unforced judgment of the traders. Money demands of you the recognition that men must work for their own benefit, not for their own injury, for their gain, not their loss – the recognition that they are not beasts of burden, born to carry the weight of your misery – that you must offer them values, not wounds – that the common bond among men is not the exchange of suffering, but the exchange of goods. Money demands that you sell, not your weakness to men’s stupidity, but your talent to their reason; it demands that you buy, not the shoddiest they offer, but the best your money can find. And when men live by trade – with reason, not force, as their final arbiter – it is the best product that wins, the best performance, then man of best judgment and highest ability – and the degree of a man’s productiveness is the degree of his reward. This is the code of existence whose tool and symbol is money. Is this what you consider evil?

“But money is only a tool. It will take you wherever you wish, but it will not replace you as the driver. It will give you the means for the satisfaction of your desires, but it will not provide you with desires. Money is the scourge of the men who attempt to reverse the law of causality – the men who seek to replace the mind by seizing the products of the mind.

Money will not buy intelligence for the fool, or admiration for the coward, or respect for the incompetent. The man who attempts to purchase the brains of his superiors to serve him, with his money replacing his judgment, ends up by becoming the victim of his inferiors. The men of intelligence desert him, but the cheats and the frauds come flocking to him, drawn by a law which he has not discovered: that no man may be smaller than his money. Is this the reason why you call it evil?

“Only the man who does not need it, is fit to inherit wealth – the man who would make his own fortune no matter where he started. If an heir is equal to his money, it serves him; if not, it destroys him. But you look on and you cry that money corrupted him. Did it? Or did he corrupt his money?

Money is a living power that dies without its root. Money will not serve that mind that cannot match it. Is this the reason why you call it evil?

“Money is your means of survival. The verdict which you pronounce upon the source of your livelihood is the verdict you pronounce upon your life. If the source is corrupt, you have damned your own existence. Did you get your money by fraud? By pandering to men’s vices or men’s stupidity? By catering to fools, in the hope of getting more than your ability deserves? By lowering your standards? By doing work you despise for purchasers you scorn? If so, then your money will not give you a moment’s or a penny’s worth of joy. Then all the things you buy will become, not a tribute to you, but a reproach; not an achievement, but a reminder of shame. Then you’ll scream that money is evil. Evil, because it would not pinch-hit for your self-respect? Evil, because it would not let you enjoy your depravity? Is this the root of your hatred of money?

Money is the product of virtue, but it will not give you virtue and it will not redeem your vices. Money will not give you the unearned, neither in matter nor in spirit. Is this the root of your hatred of money?

“Or did you say it’s the love of money that’s the root of all evil? To love a thing is to know and love its nature. To love money is to know and love the fact that money is the creation of the best power within you, and your passkey to trade your effort for the effort of the best among men.

“But money demands of you the highest virtues, if you wish to make it or to keep it. Men who have no courage, pride, or self-esteem, men who have no moral sense of their right to their money and are not willing to defend it as they defend their life, men who apologize for being rich – will not remain rich for long. They are the natural bait for the swarms of looters that stay under rocks for centuries, but come crawling out at the first smell of a man who begs to be forgiven for the guilt of owning wealth. They will hasten to relieve him of the guilt – and of his life, as he deserves.

“Then you will see the rise of the double standard – the men who live by force, yet count on those who live by trade to create the value of their looted money – the men who are the hitchhikers of virtue.

In a moral society, these are the criminals, and the statutes are written to protect you against them. But when a society establishes criminals-by-right and looters-by-law – men who use force to seize the wealth of disarmed victims – then money becomes its creators’ avenger. Such looters believe it safe to rob defenseless men, once they’ve passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter.

“Do you wish to know whether that day is coming? Watch money. Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion – when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see that money is flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed. Money is so noble a medium that it does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot.

“When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask, ‘Who is destroying the world?’ You are.

You look upon money as the savages did before you, and you wonder why the jungle is creeping back to the edge of your cities. Throughout men’s history, money was always seized by looters of one brand or another, but whose method remained the same: to seize wealth by force and to keep the producers bound, demeaned, defamed, deprived of honor. That phrase about the evil of money, which you mouth with such righteous recklessness, comes from a time when wealth was produced by the labor of slaves – slaves who repeated the motions once discovered by somebody’s mind and left unimproved for centuries. So long as production was ruled by force, and wealth was obtained by conquest, there was little to conquer. Yet through all the centuries of stagnation and starvation, men exalted the looters, as aristocrats of the sword, as aristocrats of birth, as aristocrats of the bureau, and despised the producers, as slaves, as traders, as shopkeepers – as industrialists.

On the mission to see into the future, there is a tendency to over value the information and lessons of the past. With 20/20 hindsight it seems obvious that things would turn out the way they have. Cell phones? Computers? “If I had been alive back in the 1950s I so would have called that,” you say. Television? Telephone? Automobiles? “Obviously I would have been first in line to get mine!”

But would you have? Really? Massive changes in how we build things, operate our companies and think about technology have often taken place gradually, and met plenty of resistance along the way. Even visionaries miss great things all the time, just look at the Bessemer Venture Partners anti-portfolio, read Dustin Curtis’ “What a Stupid Idea” reflecting on early looks at Pinterest and Vine, or the long list of VCs who didn’t invest in Facebook early on but then made a late stage play to add the Facebook logo in their portfolio.

Echoes From the Past

Limited partners (LPs) complain that their venture capital investments haven’t had returns that were as good as in the 90s. Venture capitalists complain that companies founded today aren’t as innovative as they used to be or that valuations are higher than they used to be. And the press? Writers who have never been anything remotely close to entrepreneurs will continue to bitch about everything.

“Company ABC would never do that” – says who, Company ABC is like 4 years old? “I’m not a sales guy” – you’re a 22 year old computer science graduate, you’re not really anything yet! “Startups who tried that in the 90s totally bombed” – yeah well it is 2013 now, might be time for another go. “I wish we could invest, but founders who fit our profile have computer science degrees” – your profile is 20 years old, the Internet has gotten a lot more programmable since you were in school.

Fighting for the Future

Listening to these complaints and excuses for not doing something (e.g. changing strategy, trying sales, trying a model that previously failed, investing despite lack of founder credentials) is like hearing parents complain that the kids’ music is too loud, and rock was so much better in their day. And the worst part is that they try to dress all this up as some version of “pattern matching”, which is the one of those terms you can throw out to make people nod and stop arguing with you. One of these days I’d like to jump up from the boardroom table and shout, “screw your pattern matching, I saw the results and I don’t believe you!” just to see what happens.

Boardroom fantasies aside, people who are really great at pattern matching don’t get distracted by inessential details like what founders are wearing on 2nd street this week, what kind of parties they throw, the alma mater of the software engineering team, what Dave McClure said at a conference, or even whether the company is raising at a $5M or $12M pre-money valuation out of Y Combinator this batch. These are things that might matter for a moment in time, but quickly fade into the past. What matters most is trying to understand how a combination of past knowledge combined with present action will ultimately generate a favorable result.

Fight for the future, or get out of the way.

P.S. I’m not claiming I am some great visionary, but I’ve been placing some bets so we’ll see in 10 years or so.

Image credit: Bioepherma

I’ve been tracking many of these companies for awhile now and will certainly start tracking those I missed. It will be interesting to see how this rank and momentum scores at the beginning of the program compare to the end of the program.

Are you a future investor, employee or customer for these companies? Get on it.

My advise to the startups looking to increase their score? Every day we hustlin’ #500strong

Full Disclosure: I am a 500 Startups mentor. I haven’t written a full ethics statement for this blog but this is my rule of thumb: no free equity/options. I make investments from time to time, you can see them on my AngelList profile.