PlanetOut Is In Like Flynn

The leading gay and lesbian site is winning the support of some key mainstream VC firms.
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PlanetOut, in its own words "the No. 1 online community of gay, lesbian, bisexual and transgender people worldwide," is coming out. Out, that is, seeking mainstream backing from Silicon Valley's elite venture capitalists.

A prototypical "affinity portal," San Francisco-based PlanetOut isn't well-known outside the gay and lesbian community, where 150,000 people receive PlanetOut's weekly email and 250,000 are registered users. But as Web sites that cater intensely to a particular audience rise in popularity, businesses like four-year-old PlanetOut increasingly are on the radar screen of people who matter: advertisers trying to reach a demographically desirable population.

"It's becoming clear that this is a very interesting place for advertisers," says PlanetOut President and CEO Megan Smith.

The site's advertisers include

barnesandnoble.com

(BNBN)

,

United Air Lines

(UAL) - Get Report

,

Procter & Gamble

(PG) - Get Report

,

IBM

,

GM's

(GM) - Get Report

Saturn

unit,

Starbucks

(SBUX) - Get Report

and

Reel.com

(an online video retailer). PlanetOut's Web-industry connections impress as well. It occupies a site on

America Online

(AOL)

(an early investor) as well as on

Yahoo!

(YHOO)

and

Lycos

(LCOS)

, the last of which signed an agreement in June for PlanetOut to supply information to its gay and lesbian channel.

With such operating relationships lined up, now PlanetOut is doing what any good Internet start-up that's generating buzz and momentum does: It's raising money.

Smith is mum on specifics, noting that no VC firm has signed on the bottom line yet. But various potential investors include staid outfits like

Sand Hill Road's

Mayfield Fund

and

August Capital

, as well as

Access Technology Partners

, the venture-capital unit of investment bank

Hambrecht & Quist

(HQ)

. Britain's

Eden Capital

and

Moore Global Investments

also are looking hard at PlanetOut. Smith says PlanetOut may raise "a couple million" dollars. The VCs she's talking with think the number will be significantly higher, between $10 million and $15 million.

"There's a lot of activity around human-being affinity portals," says Allen Morgan, a lawyer-turned-venture capitalist at Mayfield who's evaluating the PlanetOut investment.

Such a move would be something of a coming out for Mayfield, well-known as an investor in the nuts-and-bolts technologies that made Silicon Valley great, but clearly an also-ran in the Internet. Ditto for August Capital, where, despite founding general partner David Marquardt's perch as a longtime

Microsoft

(MSFT) - Get Report

board member, the firm generally has missed the Internet boom.

PlanetOut founder Tom Rielly likes to call his creation "

iVillage

(IVIL)

for homos," a reference to the successful women-oriented Web site. But supporters of gay and lesbian publishing argue that PlanetOut's potential is greater. "The audience is limited, but far more loyal," says Charles Walker, managing partner of H&Q's VC unit. "And the demographics skew extraordinarily high."

Walker says his outfit plans to invest in PlanetOut, but only in its last round of financing, which this apparently is not. H&Q likes to invest as close as possible to a potential initial public offering at least in part in the hopes of winning that business for the investment bank.

As for loyalty, Smith plugs the site's allure because it's one of the first venues for openly gay people (as well as those who remain "in the closet") to participate in a community. And the site tailors mainstream content for its members. PopcornQ reviews gay- and lesbian-oriented films ("gay and lesbian film festival for the other 51 weeks of the year," quips Smith); "Ask Betty" features sensitive advice from Betty DeGeneres,

Ellen's mom; and a travel section offers tips on welcoming venues for gay and lesbian visitors.

Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at

alashinsky@thestreet.com.