Ex-Maker Studios CEO Zappin sees $5 billion valuation for new venture

By Devika Krishna Kumar

By Devika Krishna Kumar

(Reuters) - Two years after his messy departure from Maker Studios, the YouTube network he co-founded, Internet entrepreneur Danny Zappin has big plans for his newest venture, Zealot Networks.

Zappin says he expects the digital media company, which announced the purchase of viral content website ViralNova on Thursday, to be worth at least $5 billion in about two years.

The ViralNova deal is valued at about $100 million, a source close to the matter said.

Zealot, founded in August 2014, helps digital media startups connect with media companies, brands and advertisers.

With the ViralNova acquisition, Zealot gets a company that it says averages 100 million monthly users and is on track to exceed $35 million in revenue in 2015.

Zappin, in an interview with Reuters, said he was aiming to triple Zealot's revenue run-rate by the end of 2016 from the current rate of about $100 million.

A round of funding led by British broadcaster ITV Plc in December valued Zealot at about $100 million, Zealot said at the time.

That's a long way from $5 billion - a figure Francis Gaskins, president of IPOpremium.com, called "ridiculous."

"(Zappin) has to acquire a lot of profitable companies and then grow top line revenue," Gaskins said.

Zealot has experienced steady growth since its launch less than a year ago, mostly through acquisitions.

The ViralNova purchase is the biggest of about a dozen the company has made since going on a buying spree in December.

Zealot is in early talks to buy more companies, Zappin said, but will be focusing more on developing audiences than on doing deals in the near term.

Zappin said it would take at least two years to get Zealot ready for an initial public offering.

"We want to build something that's long lasting, that we're proud of and that we can be a part of for a long time," he said.

Zappin co-founded Maker Studios, one of the largest video production networks on YouTube, in 2009 but left before its sale in 2014 to Walt Disney Co in a deal valued at up to $950 million.

Zappin stepped down as Maker's CEO in May 2013, and later sued the company and its board for breach of contract and alleging that they had illegally issued shares to themselves and diluted the common stock for their own financial gain.

The company says the lawsuit is without merit.

Zappin's departure also followed a public feud with Ray William Johnson, one of Maker's biggest YouTube stars, who put the spotlight on his past as a convicted felon for drug possession.

(Reporting by Devika Krishna Kumar in Bengaluru; Editing by Ted Kerr)