How do Venture Capitalists value websites?

By | November 20, 2007

According to some publications Venture capitalists look at the following metrics when valuing an Internet property:

Cost of Acquisition: At the most prized content sites, at least 35 percent of new users are enrolled by existing users. In other words, they are added “virally.” The best example of this is MySpace.

Site Stickiness: A site becomes more valuable if frequent repeat visitors make up a high percentage of its traffic. At Facebook, for example, nearly 65 percent of users visit the network daily. User-generated content – such as photos, reviews, and links – tends to increase the stickiness of the site and will increase it’s value.

Add-on Services: Sites that offer fee-based premium accounts have more opportunity for future revenues and will command higher valuations. Even a 1% take rate on premium services is considered healthy.