Demand Media Adds $100 Million

Domain name aggregator Demand Media has raised $100 million in third-round funding, peHUB has learned. The Santa Monica, Calif.-based company has now raised $320 million since being founded just 18 months ago, including earlier infusions of $120 million and $100 million.

Goldman Sachs is the big new investor coming in this time around, with return participation coming from 3i Group, Generation Partners, Oak Investment Partners and Spectrum Equity Investors.

The company has not yet returned requests for comment, but sources say that this will likely be Demand Media’s final foray into the private equity market. “I’d be surprised if they did another private round,” said someone close to the company. “It’s raised a lot of capital and is generating enough cash-flow to at some point be a good IPO candidate.”

If another round were to be raised, the source said, it would need to come with a post-money valuation in excess of $1 billion. It’s not the $10b-$15 being estimated for Facebook, but still not bad for a company founded (sorry, got to repeat it) just 18 months ago.

Demand was formed in March 2006 by Richard Rosenblatt, former head of MySpace parent company Intermix Media (he negotiated the sale to News Corp.), and Shawn Colo, who was a principal with Spectrum Equity Investors. Rosenblatt now serves as Demand’s CEO, while Colo is fulltime as head of M&A.

The company’s basic business model is to buy high-traffic Websites and Web domain names, add some Web 2.0 functionality (user-generated publishing tools, social networking, etc.) and reap the advertising dollars. It also has a substantial domain name registration business, having made early purchases of both eNom and BulkRegister.

Demand obviously has competition in terms of domain registration, but so far hasn’t run into much in terms of the core website consolidation business. That’s particularly true in terms of VC-backed competition, which is highly unusual – copycat companies almost always sprout up when a startup raises boatloads of VC cash. There’s Name Media (backed by Summit Partners and Highland Capital Partners), but that’s about it.

“I’d agree that there hasn’t been much VC-backed competition, but I’d probably attribute that to Demand having the best management team in the business,” says John Hawkins, a managing partner of Generation Partners and a Demand board member.

There is, however, a new rival on the horizon. In late August, Ross Levensohn (ex-president of Fox Interactive) and Jonathan Miller (former chairman and CEO of AOL) teamed up to launch Velocity Investment Group.

Details on Velocity have been few and far between, save for some PE backing from General Atlantic, but reports suggest that it will almost certainly compete with Demand. Sure it would be the second-mover, but only by (for the last time) 18 months…

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