I’ve heard from three independent sources that YouTube may have very quietly raised another $25 million in venture capital after raising two rounds totalling $11.5 million from Sequoia Capital. YouTube’s last round ($8 million) was announced just a month ago, on April 5, 2006.
There are two reasons why I think this rumor may be accurate. First of all, YouTube is on a roll: 35 million videos are watched daily and they have 13 million unique monthly visitors. Bandwidth costs for all of these videos adds up: Forbes reports that YouTube’s bandwidth fees are approaching $1 million per month. Since YouTube is revenue-free (they just started placing ads on the site in March), they need more than $11.5 million in capital to keep up with growth.
Second, it is also understandable that they would raise a lot of cash over two rounds given that Sequoia Capital is involved and almost certainly has veto rights over new rounds of financing. Sequoia will want to maintain their equity share of the company (probably in the 25-30% range), but won’t want to pay current prices for those shares by participating in a new market valued venture round. The solution? Do a round at a lower valuation where only Sequoia participates, and then follow up with a subsequent round (possibly only days later) with new venture capitalists at a significantly higher valuation. This is the VC game, and funds like Sequoia can pull this off with their hotter startups.
Like I said, this is only a rumor (and I’ve been dead wrong with YouTube rumors in the past), but this one makes a lot of sense.