Digg digs up $28.7 million

September 24, 2008, 5:02 PM UTC
Fortune

For all those of you waiting for the news-as-popularity-contest site Digg to get bought by Google (GOOG), Microsoft (MSFT), CBS (CBS), or (insert your favorite rumored media company here), looks like you will have to wait. Digg is announcing a $28.7 million venture capital round today, led by Waltham, MA-based Highland Capital and with return appearances by prior investors including Greylock Partners, Omidyar Network and SVB Capital. The round brings the total capital raised by the company to $40 million over three rounds.

Digg is one of those original Web 2.0 companies that, now four-years-old, has been rumored to be in talks with just about every plausible acquirer. Whether it was the price – widely discussed as between $200 and $300 million – the business, or both, no one pulled the trigger on a deal that suited both sides. Digg CEO Jay Adelson wouldn’t comment on any of the past rumored deals, but made it clear that the present round of funding gives Digg a war chest to super-charge growth and the value of the company. “My investors expect an ROI at some point,” Adelson says. “The plan we presented from the beginning was many year, and involved the kind of international growth and world domination that we are going after with this round. We would be leaving a lot of cash on the table if we didn’t fulfill that opportunity.”

The cash will be used to double the number of employees at San Francisco-based Digg by the end of the year, Adelson says, to better roll out features and expand agressively around the world. About 40% of Digg’s traffic, some 30 million unique visitors a month according to the company, already comes from folks outside the United States.  One of the issues Digg faces is there have been clones of the company’s service around the world, which allows users to suggest and vote stories to the top of the online site’s news pile, or bury them at the bottom. Putting the service into different languages, and pushing it into new regions ought to give’s Digg’s growth a big boost, but the company needed the funding to do it quickly. “There is getting there, and getting there with gusto,” Adelson says. “This is the rocket fuel the company needed.”

The privately-held company does not make revenue figures available. Adelson says revenue from the ad-supported service tripled this year. While it is not profitable yet, it was on the path toward cash-flow break even, Adelson says. “It’s not that this round of funding was critical to getting to profitability,” he says. “Before this round we were fully-funded.”

In raising a large round for the Web 2.0 company,  Adelson says DIgg was influenced by other Web 2.0 startups like Slide and Ning that both raised very hefty rounds earlier this year. “We all agreed that the opportunity for raising capital was a 2008 thing,” Adelson says. “If you are going to try and raise capital, do it this year.

“There is no question we are going to have some degree of a downturn in the next couple of years, if you have the opportunity to invest money and grow your business in times like that, it’s a great time to go out and conquer while the other guys are hurting. How much do you need to get through the times ahead? The number we raised is $28.7 million. It’s more than enough to get us through any downturn.”