SAN FRANCISCO (Private Equity Week) - Less is more when it comes to website addresses, at least that’s the thought behind bit.ly, a New York-based startup that recently raised $2 million from venture capitalists for its Uniform Resource Locator (URL) shortening service.
The company’s free service takes a long website address and creates a new, randomly generated address with fewer characters, saving room for when users post the URL on blogs or social networking sites.
The startup rose to prominence on the coattails of micro-blogging service Twitter, which allows users to type only 140 characters per post. The space requirement made it difficult for Twitter users to post links to Web pages. Bit.ly said that it shortened 20 million URLs last week.
“We’re strong in the Twitter space, but we need to move into other spaces where shorter URLs are used,” says bit.ly investor Jeff Clavier, who founded early stage investment firm SoftTechVC.
In addition to Clavier, the company’s investors include former Yahoo executive David Shen; O‘Reilly AlphaTech Ventures, the venture capital arm of O‘Reilly Media, a technology book publisher; Social Leverage a seed stage venture fund founded in 2009 by Howard Lindzon, who sold video-blog WallStrip to CBS last year; angel investor Ron Conway; The Accelerator Group, an incubator run by Index Ventures Partner Saul Klein and his father Robin; Lotus123 founder Mitch Kapor; former Deutsche Bank executive-turned-angel-investor Roger Ehrenberg, who heads a fund called IA Capital Partners; and Reprise Media Managing Directors Josh Stylman and Pete Hershberg.
Bit.ly was spun out of Betaworks Studios, a New York-based media startup accelerator. Betaworks, which is supported financially by Messier Partners and RRE Ventures, has invested in several well-known new media startups, such as TweetDeck, which makes bit.ly the default URL shortening service for its Twitter-interfacing software.
Bit.ly was growing so fast, it made sense to bring in outside partners and spin it out of Betaworks, says a person familiar with the company.
The technology of URL shortening isn’t particularly complicated. At least one bit.ly competitor assembled its site using open-source free software. Similar efforts have led to a profusion of competitors, such as budURL, eweri, hex.io, idek.net, is.gd, lin.er, Poprl, SinpURL, TinyURL, twurl, UrlBorg and Zi.ma.
But technology isn’t everything when it comes to building an Internet business. Venture capitalist Fred Wilson of Union Square Ventures, which is not an investor in bit.ly, writes on his blog that what is important in URL shortening is an active user base that is engaged and getting a lot of value out of the service.
“And on that count, bit.ly is doing very well,” Wilson says.
The question is whether bit.ly will make money. The company is working to offer users tracking statistics based on how many people use a given shortened Web address-a data service that large companies might pay for, Clavier and other investors hope.
“We have to get ahead of the competition and that’s what the financing is for,” he says. “Once we reach the level when we have enough data, we’ll have packages and features that will allow us to make money.”