Photobucket sale develops return for VCs

News Corp.’s $250 million acquisition of image publishing site Photobucket Inc., which was completed last week, delivered a fast return for Trinity Ventures and other backers.

Photobucket, a Palo Alto, Calif.-based Web 2.0 startup, allows users to post images and video that the company hosts for such sites as MySpace (owned by News Corp.), eBay and LiveJournal. The company, which reported $6.3 million in revenue during 2006, raised $14.5 million in venture funding last year, according to Thomson Financial (publisher of PE Week).

The right to finance the company was fought over by investment firms, which also included Red Tail Hawk and Land Meets the Sea, according to a regulatory filing. “While we were meeting [with the company], the founder’s cell phone was ringing off the hook from other VCs dancing around the company,” Trinity General Partner Larry Orr told Venture Capital Journal (PE Week’s sister publication) last fall.

Photobucket did not disclose terms of the acquisition, although a Wall Street Journal article previously pegged the purchase price at about $250 million in cash, citing a person familiar with the situation. The price is less than half the $580 million that News Corp. paid in 2005 to buy MySpace.

Gus Tai, a company board member and general partner at Trinity Ventures, said investors were pleased with the return on investment.

“It was a terrific outcome for us, and we’re really thrilled about it,” Tai said, adding that MySpace and Photobucket had been discussing the possibility of a deal closing for some time.

Tai attributed Photobucket’s fast growth rate, vast audience and popularity with MySpace users as key draws for News Corp. Photobucket has 41 million users and hosts nearly 3 billion images, according to its website. Additionally, the site attracts an average of about 90,000 new users a day, Tai said. However, few users access content directly from the Photobucket home page, but rather check out pictures and video from MySpace and other sites that incorporate Photobucket content.

Most notable about the Photobucket deal is that it may also help other startups that provides services for MySpace and other social networking sites. For instance, SnapVine, a voice player that plugs into MySpace, has raised $8 million in a Series B round from Draper Fisher Jurvetson and former Kleiner Perkins Caufield & Byers investor Russ Siegelman.

The startup had raised $2.1 million in its Series A round last summer.

Meanwhile, Fox Interactive Media, a division of News Corp., announced last week that it would also acquire privately financed Flektor, another site for editing and publishing photos and videos, in a move to extend its online reach.

Venture firms have funded several other companies in recent months that provide services to MySpace users. The startups include Slide and netPickle, two sites for assembling slide shows, and mVisible Technologies, which develops tools that move content from MySpace and other web pages to mobile devices.

However, Tai said that he is not aware of any plans by News Corp. to purchase other companies developing applications with traction on MySpace.

Still, when news of the Photobucket deal came to light last month, Erin Breen, an assistant account executive at Matter Communications, sent emails to journalists touting major customer traction milestones from client PhotoShelter. The startup is backed by General Catalyst Partners and caters to professional photographers, allowing them to sell their photographs online. PhotoShelter raised $4.1 million in a Series round in March.

Alexander Haislip contributed to this story.