In Return For Financing, Websites Feel Investors' Pressure To Be Ad-Supported

Mostly anecdotal but web start-ups looking for venture funding may be facing increasing pressure from investors infatuated with online advertising as a faster, easier path to success than sales, subscriptions or commission. despite the continuing rise of U.S. online ad spend, most of those dollars tend to gravitate toward a few large sites. The WSJ suggests that leaves many start-ups wondering whether they can grab a significant slice of that pie and grow into large-enough companies that could actually make money for their investors.

The thesis behind all this: the emphasis on supporting a site with advertising reflects investors’ declining appetite for risk. As that theory goes, ad-driven sites tend to be less costly to run as there is no need for a customer-service team or upfront costs for physical goods.

U.S. investors in the first half of this year put $317 million into social nets, blogs and other “Web 2.0″ companies with an emphasis on advertising, a gain of almost 21 percent over the same period last year, according to research firm VentureOne. While some sites with different or mixed models are getting backing, others, like photo-and-video service EnjoyMyMedia that runs a few ads but mainly offers a paid service, say they’re having a tough time attracting investors as a result. But one of the chief examples offered by the Journal — online real-estate brokerage Redfin Corp.may not be the best: investors. Founder Glenn Kelman tells WSJ there’s pressure from investors because it’s not ad based, while investors who talked to the Journal offer other reasons for holding back.