August 21, 2006 1:08 PM PDT

Friendster scoops up $10 million in funding

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Friendster has landed a $10 million investment, providing the struggling pioneer of social-networking sites with funds to try to recapture defecting users and establish new friendships.

The company, which over its three-year history quickly lost its social-networking lead to such challengers as MySpace.com and Facebook, received the investment on Monday from venture capitalists DAG Ventures, Kleiner Perkins Caufield & Byers and Benchmark Capital.

The funds will be put to use to increase the reliability and speed of the Friendster site; problems in those areas had contributed to a defection of users. The company also will add new features to serve its user base of urban 20- to 30-year-olds, said Kent Lindstrom, Friendster's president.

Features recently introduced include an automatic update, which allows users to list their friends' latest activities, such as a new photo or blog, on their home page. Another added feature lets people post videos to their site with the push of a button.

"We want to make it easier and easier for people to keep in touch with their friends," Lindstrom said.

Friendster has undergone a string of revisions during its short history. The company has narrowed the age range of its users to 20-somethings from its previous 18-year-old and above category. In addition, it has curtailed such features as voice over Internet Protocol.

It also has seen a rapid change in its lineup of executives who oversee the company. CEO Scott Sassa resigned in May and handed the reins to Taek Kwon, formerly an executive vice president at Citysearch.com.

Last fall, the social-networking site was seeking a buyer, after it found itself running out of money and increasing its debt.

But in February, Friendster was able to secure its first round of venture financing via a $3 million investment from Kleiner Perkins and Benchmark Capital. With this latest round, the company has raised a total of $13 million in venture capital and has received a bump in its valuation.

"We didn't particularly need to raise this ($10 million) round, but it will allow us to invest in growth and be opportunistic," Lindstrom said.

Friendster has also been been working to build up a patent portfolio in the area of social networking.

Lindstrom added that the company is no longer seeking a buyer and expects to become profitable in the near future.

While other industry watchers may pit Friendster against MySpace and Facebook, Lindstrom said he does not view them as rivals.

"We're not looking at MySpace as competitors," he said. "They have become trend central and do all media-related things...but our goal is to stay focused on our core group of users who want to keep up with their friends."

He added that given the older age group that Friendster serves, the company is more likely to retain its users as they age, versus other sites that cater to teenagers and college students who may later outgrow those sites.

"We looked at the users who stayed loyal to Friendster and said, 'This is who our market is, and we need to serve those folks really well,'" Lindstrom said.

See more CNET content tagged:
Friendster Inc., Benchmark Capital, venture capital, MySpace, investment

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Funding A Dead Site?
It's odd to me why people would want to fund a dying site. Friendster had it's day, and now it's basically dead as far as usage is concerned. MySpace & Facebook are clear victors at this moment in regards to social networking. Why would an investor dump money into a site which has very low appeal to new users? I would think it'd be better spent on new startups like 'zooomr'/Flingr/etc. - At least they show promise.
Posted by PhelixTheKhat (3 comments )
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