Redpoint profits from Yahoo purchase

Redpoint Ventures is the latest VC firm to benefit from media acquirers’ robust appetites for digital advertising assets.

The Menlo Park, Calif.-based firm is the sole venture stakeholder in Right Media, developer of an exchange for buying online ads. The company announced last week that it will sell its remaining shares to Yahoo for about $680 million in cash and stock. Over the past two years, Redpoint has invested just under $17 million in Manhattan-based Right Media, beginning with a $12 million round in April 2005.

“It’s definitely a good outcome,” says Chris Moore, a Redpoint partner and Right Media board member, regarding the acquisition. He declined to specify Redpoint’s stake in the company.

Judging by Right Media’s rise in valuation over the past half-year, however, Redpoint’s exit appears to be very profitable. Yahoo purchased 20% of the advertising services company last October for $40 million as part of a $45 million Series B financing round in which Redpoint also participated. Yahoo’s purchase seven months later of the remaining 80% of Right Mediais indicative of the sharp growth in demand for high-growth online advertising assets.

Right Media is one of several companies in the sector to fetch a premium as an M&A target in recent months. In April, Google agreed to pay $3.1 billion to buy online ad services company DoubleClick, which had been taken private a year earlier by buyout firms Hellman & Friedman and JMI Equity for $1.1 billion. In January, French media company Publicis completed a $1.3 billion purchase of interactive agency Digitas.

Meanwhile, venture funding is also flowing to advertising startups. Adify, a San Bruno, Calif.-based startup that develops technology for serving ads online, raised $19 million in April from Venrock Associates, U.S. Venture Partners and NBC parent company General Electric. New York-based Eyeblaster, a developer of software for creating rich media ads backed by Insight Venture Partners, raised $30 million in later stage funding in March from private equity investors. And Tacoda Systems, another New York company that develops technology for delivering ads tied to Internet users’ behavior, raised $7 million from VCs including Masthead Venture Partners, Rho Ventures and Union Square Ventures.

Moore envisions Right Media having an edge in the market for display advertising. He sees the company’s key value in the exchange platform it has developed for buying and selling banner ads and other displays through an auction-style mechanism. The approach is similar to the services Google and Yahoo already offer for auctioning text ads tied to keywords entered in search queries, but is a less mature platform.

“Really the fight over online Web advertising is shifting from the search market,” Moore says. “It’s shifting to display… the advertising that’s on those 97% of page views that aren’t search results.”