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Did Kevin Rose Take Some of Digg's New Cash?

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Digg has raised $28.7 million in a Series C round of funding. The company made the announcement earlier this morning. Highland Capital Partners is leading the current round, which will see Highland partner Richard de Silva join Digg’s board of directors.

The company will use the funds to expand internationally and move into newer offices; it will also hire more people as part of its expansion. Digg had raised $11.3 million in two prior rounds from investors SVB Capital, Greylock and the Omidyar Network, along with a few angels. [digg=]

The rumor I heard is that Digg founder Kevin Rose got to a sell a nice chunk of his shares in the company, a trend that has become quite fashionable among the Web 2.0 set. Several founders have taken money off the table as their companies wait for a bigger payday. I am sure, however, that he is going to stick around. CEO Jay Adelson declined to comment on the news.

If that was the case, it was a good move for Kevin. Digg, however, is in a bit of a pickle. As this chart from Quantcast makes clear, Digg’s traffic is showing signs of plateauing. There has been a slight uptick in their traffic lately, but what’s troubling is that a mere 1 percent of its users (who can be labeled addicts) are generating 32 percent of the visits, according to Quantcast. They have 224.1 million page views a month, of which 156 million come from the U.S.

This round of financing has been in the works for a while. I was contacted about it by many of my sources, some of whom hinted that the San Francisco-based social news startups was raising a “gigantic” amount of money, but such rumors conflicted with other chatter I was hearing about the company being acquired by larger players. There was talk of Google buying Digg, but last-minute issues might have prevented that deal. Michael Arrington has reported that, “Google was in the due diligence stage of the deal, where they peer deep into Digg’s technology and financial statements,” but walked away due to several reasons.

One way or another, it looks like Adelson, Digg’s current CEO, is in it for the long haul with this company — and so are the investors.

35 Responses to “Did Kevin Rose Take Some of Digg's New Cash?”

  1. Kevin Rose’s DIGG keeps losing users because he is firing them! Banning regular users like a mad dog. Why on earth a permanent ban is being thrown around like candy against what is explained above as being the top 1% brings in ~30% of the hits is beyond me.

    Yes – thats it Kevin. Fire your users. Ridiculous. No wonder Google (who values their users) walked away. Shaking their heads no doubt at the wasted opportunity.

    DIGG is digging their own grave. Sad really.

  2. Trevor Plantagenet

    Money to founders was happening at the height of the Web 2.0 bubble when people were competing for deals. Given Digg’s current situation, I can’t imagine the competition was such that founder greenmail was required for them to get the deal with Digg.

  3. I think Digg’s momentum has slowed because its core audience keep digging the same kind of content/subjects. There is very little new that will delight new users. When Digg was a brand new thing, it was exciting because it was open and democratic. Now it is virtually controlled by a relatively small number of super-diggers.

  4. @David Mullings,

    I agree with you and makes a lot of sense for kevin to take some cash off the table.

    Microsoft buying Digg maybe seem like a good idea but my fear is that they are going to muck it up like some of their previous acquisitions in the consumer internet space.

  5. Congrats to Digg and I hope Kevin Rose took some money off the table since that is smart if you have the option.

    Maybe Microsoft can buy Digg to compete with Yahoo Buzz and the coming new front page for that portal and AOL (MS seems to like to compete in everything and some eye-poking seems to be going on now).

    I am still curious about this supposed Google-deal and why they walked away once they looked at the financials and tech.

  6. Hats Off to you Om on writing such an blunt and factual post in spite of your friendship with Kevin . Digg has done a right thing . with so much money being poured into advertisement networks there will be mad rush to find publication with significant userbase .This is where Digg will score . and as more and more add networks are buying publishing properties I am sure that digg will find a buyer soon . most probably Yahoo or Microsoft .