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Tagged, the San Francisco social networking company that many people consider an “also ran” because it trails the more Facebook and Myspace, has raised $5 million in venture debt.

Steadily, over the past year, Tagged has asserted itself as the third largest social network in the United States. It has about 5 million monthly unique visitors in the U.S., it says, citing its internal Google Analytics (Comscore’s U.S. traffic data for Tagged confirms that, above). This comes after Tagged received significant criticism back in 2007 for making it almost impossible for new users to avoid spamming their friends with invites to the service.

The growth puts it ahead of other players like Friendster and Hi5, even though those other networks may have more traffic globally. Strength in the U.S. is considered valuable because it’s an easier place to monetize Web sites. Reasons include the the relatively vibrant online advertising market and household income levels. Thirty percent of Tagged’s traffic is in the U.S.

More impressively, Tagged’s spokesman Louis Willacy says the company is now “comfortably profitable.” That’s why he says the company chose to raise debt, instead of equity. Profitability means it has the money to pay back the debt over time. Equity would have come with harsher terms, now that venture investors are more hawkish about the way they invest.

The company is also positioning itself as the last free-standing player desirable for acquisition. MySpace and Bebo are owned by larger companies. Facebook has priced itself out of the market for many potential acquirers, because it raised money at sky-high valuations (Microsoft valued it as high as $15 billion, for example).

So who uses Tagged, and how is it different from Facebook and MySpace? Well, Tagged has focused over the past year on engaging users who want to “discover” new friends, realizing that this activity is an area where Facebook is weak. Facebook is useful mainly in letting users manage the friendships they’ve already established offline.

The company says it has now completed the first two of its three-phase growth plan. First was user growth, which it realized in 2007, by growing to 60 million registered users from 12 million. Then, this year, it focused on user engagement. Again, it focused on “discovery” features, such as making browsing large numbers of profiles super easy. Now it is moving to focus on making money. It has hired a new VP of sales to help it.

The debt funding was led by Horizon Technology Finance and Leader Ventures.

In a statement, co-founder and chief executive Greg Tseng said Tagged’s page view traffic has grown 500 percent this year. The company was backed earlier by Mayfield Fund.


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