GigaOM

Update: financing details added to end of Monday’s post.

Startup VideoEgg is launching a video advertising network today. The release reflects a change in strategy for the young company, which started out as a toolmaker but has transitioned to a media delivery network.

VideoEgg isn’t a CDN itself (it uses Akamai) but it coordinates video for a growing group of online social networks and tools, including AOL, Bebo, Current TV, Dogster, hi5, Tagged, and Six Apart, delivering up to 20 million streams per day. The company’s tools help members of those sites quickly upload a variety of video formats with free bandwidth and storage.

VideoEgg is now trying to build on that access by attaching permission-based video ads, sponsored content, post-roll ads, and interactive ads in Flash.

Providing ads for user-generated video is definitely a big opportunity. YouTube has the luxury of its market share and indulgent venture capitalists, so it has been more experimental with its advertising. But slapping on traditional ads can bring in money immediately, as upstart Postroller is showing.

The oft-repeated assumption that video advertising slots are sold out only applies to a top-tier sites like CNN and MTV, say Postroller CEO Tod Sacerdoti and VideoEgg CEO Matt Sanchez. User-generated content is a whole different story, with advertisers nervous about being juxtaposed with inappropriate, unflattering, or copyrighted content.

To assuage those concerns, VideoEgg promises each video will be reviewed by a real person before it is paired with an ad. Sounds like a fun job.

It was only a year ago that I met VideoEgg at the Demo fall conference – which I am coincidentally flying to today. Since then, the company raised money from August Capital, moved to San Francisco from New Haven, and brought in management from places like Yahoo and Organic (though first-time CEO Matt Sanchez, three years out of college, is still in power). Check out a profile I did of them at the end of last year. We have heard they have raised another funding round alongside this launch – expect an official announcement soon.

Update: VideoEgg’s new round, announced September 28, was $12 million, for a total of between $16 and 17 million raised by the company to date (this is a new number, as the amounts of previous rounds were kept under wraps). The funding was led by Seattle-based Maveron and joined by previous investors August Capital and First Round Partners. It is to be put towards hiring and the new ad project detailed above.