If Craigslist Were Raising Money, What Would It Be Worth?

Zillow announced today that the real estate media company raised $30 million in a round led by private-equity firm Legg Mason. What’s interesting to us is how the world is reacting to one of the biggest venture investments since the 1990’s. Becky Buckman at the Wall Street Journal speculates that the valuation was $350 million, but without mentioning whether this includes the $30 million in cash.

Michael Arrington at TechCrunch is the only one to notice that Legg Mason was the same investor that led the other mammoth Web 2.0 investment this year, the $44 million round in Marc Andressen’s Ning from July 2007. VentureBeat reports the news on the heels of a depressing announcement that a 6^th-grader raised $6.5 million.

Seattle’s John Cook goes deep with a Rich Barton interview in which the Zillow CEO describes a money-raising effort that wasn’t an effort at all. What struck me most about this interview though was Rich’s reaction to Web 2.0 startups, which John described as trying to “build something very cheap with two or three engineers, you test it, you try to build it through a grass roots marketing campaign and then if it is successful, then you sell out, like Flickr.” Rich responds, “That is completely anathema to me.”

And we agree with Rich’s objections to startups that stay small so they can sell out early, having argued before how important it is for entrepreneurs to shoot the moon. But what if John had asked the question slightly differently, about startups that want to do something big, but don’t raise a lot of capital? This is Web 2.0’s $24,000 question. Can community — people selling dressers, taking pictures, arguing over Scientology — take the place that capital — sock puppets, fancy offices, huge financing rounds — once had in the ’90’s?

For all the baloney oozing out of warmed-over Web 2.0 startups, this was the one premise that seems really worthwhile and even precious: that we could combine existing web software to build sites where the people who use them create a lot of the value, all without spending too much money.

This has been on my mind ever since I heard Rich’s comments to a group of entrepreneurs in which he predicted that Wikipedia and Craigslist (first audio clip) would have to make a lot of money or lose to better-funded competitors. It was a fiendishly provocative statement, because those sites have special meaning to any Internet aficionado, which in turn probably explains why they have thus far flourished.

It still seems possible that a small number of committed engineers, supported by an enthused community of people, can change the world (you see this stuff on the back of cars ““ albeit never very nice cars ““ all the time). In so doing, the engineers can usually make money.

Zillow may of course have both a community that extends beyond the real estate industry as well as an unusually large amount of capital, but it’s the community — people talking about real estate on Zillow — that will drive their success, not the capital.

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