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 Community
Portal Backfence To Raise $2M To $10M 1st Round For
Expansion

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By Marine
Cole

5/16/2005

Almost two weeks after launching
its first local community Web sites, Backfence Inc. said it is currently raising
between $2 million and $10 million in its first round of financing, which is
expected to close in about six months.

Backfence provides a platform for
local residents to post news, concerns – anything related to their local
community. "We provide design templates and tools," said Susan DeFife,
co-founder and chief executive of Backfence. "But the power belongs to the
community and they need to decide what’s important."

The company selects
items for the front page, but it doesn’t monitor content as it would then be
held liable for it. "We create a culture, an environment," said DeFife, "but the
community creates its own governance."

The company was founded in August
2004 and launched its service on May 3 in Reston,
Va., and in
McLean,
Va.

Backfence is planning to spread the service to 16 metropolitan markets
within the next 36 months and has started talking to investors to fund the
expansion. It also plans to begin licensing its proprietary technology. The
order in which new markets will be launched depends on whether the financial
partners that sign on with Backfence are venture capital firms or major media
companies.

"A minimum of $2 million will get us to a major metropolitan
market," DeFife said, "while $10 million will get us far into our expansion plan
to 16 markets. VCs would prefer that we go into one market to prove
scalability," she said, but media companies would be more interested in
expanding into more markets.

Mark Potts, co-founder and chairman of
Backfence, said that Backfence is a low-cost model as it relies on
user-generated content, but it requires spending capital in technology and in
sales. Relying solely on its users to create content is a risk, however. Since
launching last week, over 100 users have registered to Backfence and about "a
couple dozen" users are contributing to the Web sites.

"We knew it was
going to be a slow start," Potts said, adding that Backfence has mainly been
conducting grass root community marketing attending local fairs and talking to
local leaders. "The content will come."

Backfence’s main revenue stream
comes from advertising in the form of displayed ads, classifieds and yellow
pages. For instance, a consumer can post a classified ad for free and add a
picture to the posting for $10. Businesses can post a classified ad for $50 per
ad per month. The yellow pages component, which will be unveiled this week, is
available to businesses for $120 a year.

Potts said it will be primarily
local advertising from local merchants such as hardware stores and pizza
parlors. But as Backfence expands into additional markets, regional advertisers
and national advertisers – especially the ones with a local angle such as
automobile dealerships and franchise restaurants – might be
interested.

Media companies see in Backfence an opportunity to reach
consumers at the local level. "They don’t get down to the neighborhood," said
Potts. "We give them access to the last-mile level." He also said that Backfence
can allow major media companies to do "citizen journalism," but not under their
own brand. As to competition from small free local newspapers, Potts said they
don’t usually have the sufficient number of reporters to properly cover a market
and they rely often on stories from news agencies.

Several start-ups,
such as Insider Pages, ReachLocal Inc. and LiveDeal Inc., are already offering
localized content, but they mainly focus on advertising and marketing or on
recommendations of local businesses by consumers. Greensboro101 for its part has
created a citizen media portal for Greensboro,
N.C.

"Many sites focus on one
thing," Potts said, adding that Backfence is a community site that users visit
more than once a day for diverse reasons.

Backfence is currently funded
by founders’ money, consulting revenue from media companies and one individual
investor.

In his career, Potts co-founded WashingtonPost.com, part of
The Washington Post Co. He also
served on the founding team of the @Home Network. DeFife previously founded a
local technology community called womenConnect.com, where she served as
CEO.

The Falls Church, Va.-based company currently has five employees and
one part-time sales employee. It anticipates having 12 to 15 employees by the
end of the year.

Mike Orren is the Chief Product Officer of The Dallas Morning News; President of Belo Business Intelligence; husband to Crystal Orren; and a Mungarian at Munger Place Church in Dallas, TX. All opinions herein are mine alone.