NYT: Investment In Sex-Related Businesses On The Rise

As someone who's seen the look of feral hunger on a VC's face, I was kind of surprised to hear the following from the New York Times this morning. According to an article by Matt Richtel, in addition to questioning the sustained profitability of sex-related businesses, a number of VC's used to avoid being associated with them with all. In speaking with P. Holt Gardiner of investment bank Ackrell Capital, Richtel goes on to illustrate that this stigma is just now starting to wear off--making investment in companies like Palo Alto's own Adult Friendfinder (NSFW) increasingly appealing:

". . .a key selling point in getting these deals done was to give the mainstream investors some public relations cover by repackaging the company in a more conventional way. For instance, [Gardiner]
said, a company can still get a big chunk of revenue from the pornography industry but also branch out into mainstream business."

Gardiner even shows how this has worked in the wild with the Waat Media/Charismatix repackaging:

"He cited as an example a company called Waat Media, which aggregates and distributes content to cellphones and has deals with several makers of explicit pornography, like Penthouse and the Vivid Entertainment Group.
In September, Spark Capital, a mainstream venture capital firm, led a
$12.5 million round of financing for Waat, but changed the company’s name to Twistbox Entertainment and packaged the company as a mobile content distributor."

One would think that the world of the VC is ruled almost entirely by the almighty dollar, but apparently image and public approval are just as paramount. Social networking sites and the latest Web 2.0 hullabaloo have done a good job of capturing a lot of VC interest (and investments), but when the bubble bursts it'll be interesting to see if they fall back on what we've known all along--sex sells.

Photo: Steve Lekowicz