5 questions with Tim Cadogan

While the economic downturn is slashing many advertising budgets, venture firms are still forging ahead with investments in online ad-focused startups.

So far this year, VCs have invested $362 million in 47 companies with business models tied to online marketing, according to Thomson Reuters (publisher of PE Week).

One recent funding recipient in the sector is OpenX, a provider of ad serving technology to Web publishers. OpenX last week announced the close of a $10 million Series C round, bringing its total amount of capital raised to $30.8 million. Investors include DAG Ventures, Accel Partners, Index Ventures, Mangrove Capital, First Round Capital and former AOL CEO Jonathan Miller, who recently left Velocity Investment Group.

Tim Cadogan, a former Yahoo senior vice president who joined OpenX as CEO last spring, says that while overall ad spending may be down, he expects certain sectors, such as highly targeted display advertising, will hold up comparatively well. And while the company still hasn’t spent all of its $15.5 million Series B round that it raised in late 2007 (from Accel, Index, Mangrove, First Round and O’Reilly Alpha Tech Ventures), Cadogan tells PE Week Senior Editor Joanna Glasner that the new funding will help the company expand.

Q: How do you plan to spend the Series C funding?

It’s full speed ahead on our current strategy. The funding enables us to tap the gas in certain areas and hire a couple of people here or there where it makes sense. But most of the funding goes into the bank, frankly. We still have the money from the Series B round, but we decided additional funding would give us the ability in the future to more quickly move into other areas, such as mobile advertising.

Q: Was it difficult to raise venture capital in the current climate?

We raised a big round at the end of 2007 and we still have quite a bit of that left. So we were more opportunistically talking to people who expressed an interest. It ended up moving along pretty quickly. Along with bringing in DAG as a new lead investor, our existing investors participated in the round, and we were actually somewhat oversubscribed.

Q: Who uses your software?

I’d say our sweet spot is the mid market, such as online publishers TechCrunch, ReadWriteWeb and TheStreet. They aren’t one of the top 1,000 sites, but they’re good-sized.

We also have a lot of sites that are smaller that may be recording 100,000 to more than 1 million ad impressions a month. For example, I was talking to a guy recently who runs the top motorcycle portal in Brazil and uses our platform. It’s a small operation, but it’s in a vertical where you can generate valuable advertising.

Q: To what extent are these sites making money from advertising?

If you’re in a really well-targeted niche, you can generate $5 to $10 cost per thousand impressions. Multiply that out by the number of people visiting your site, and you can generate a large sum.

Q: How has the economic downturn and a drop in overall ad spending affected your business?

I’m a bull in terms of online advertising. I spent a lot of time working in Internet search, and the last couple years in display, and I think display in particular has a tremendous opportunity.

This year will likely be flat to slightly down, but over the next several years, there’s a lot of growth potential for display. For search, I think there’s a little less upside.