By Sarah Lacy January 18, 2008

After cashing in big with PayPal, Max Levchin could be at it again with his social network tool. The latest funding values Slide at a half-billion

When Max Levchin started Slide, the popular tool that lets users create slide shows and other bling for social network pages, it wasn’t because he felt passionately that photos needed to be surrounded by animated hearts and glitter. It was because Levchin, who co-founded and later sold PayPal, wanted to prove he could do it again—this time, generating more than the $1.5 billion PayPal fetched from eBay (EBAY) in 2002. As of Jan. 14, Levchin was about one-third of his way to his goal—at least on paper.

Valley Girl has learned that Slide has raised $50 million in a round of funding that values the company at more than $500 million. In this fourth round, the investors are not your typical Silicon Valley funding crew, either. This time, Wall Street heavyweights Fidelity Investments and T. Rowe Price (TROW) are getting behind so-called widgets, applications like those made by Slide that are all the rage on social networks and other sites these days. If you know Levchin at all, you know he’s building Slide with an eye toward an initial share sale, not a quick flip. Engaging Wall Street names drives the point home.

No doubt the valuation will revive talk that we’re in the midst of a bubble. How could a widget company be worth half a billion dollars? What is the revenue model? How could it ever make a profit on slide shows running on other people’s sites? The naysayers have a point, but I’ve long thought Slide was a far more valuable property than the Silicon Valley masses gave it credit for.

Potentially Compelling Ad Vehicle

Widgets raise doubts in large measure because they’re not bound to any one site. While sites like YouTube (GOOG) and Facebook are struggling to wring revenue from the millions of people who come to their sites, they at least can run standard banner and display advertising to buy them some time; they control their own sites. Widgets are grabbing real estate off of everyone else’s pages. That’s an inherently riskier proposition with far fewer ways to make money. Levchin understands that risk, having built PayPal on top of eBay. But this time, he has several eBays (BusinessWeek.com, 8/23/07)—in the form of MySpace (NWS), Facebook, Bebo, and even more niche personal blogs and sites.

For the strategy to work, Slide needs to build a jaw-droppingly huge audience—so huge that advertisers will see Slide as a way of advertising across the hottest Web sites in one move, versus advertising on each of those places. In that scenario, Slide almost becomes like a huge ad network, only one that’s delivering advertising in a far more compelling way. It’s not in a banner ad that people routinely tune out. It’s ideally worked into a very personalized slide show of your memories.

According to comScore (SCOR) data for October, Slide ranked ninth in terms of its reach on the Web, right after Amazon.com (AMZN). Its applications had 150 million unique users, an increase of 142% over the previous year. The figures were outlined in a presentation for Slide investors that was obtained by Valley Girl.

Darwinian Fight Ahead

As much as Levchin works tirelessly to achieve his goal—believe me, he tweaks and alters his business focus constantly—Slide faces quite a different challenge from that of many Web 2.0 sites such as Digg and TechCrunch, which focus on catalyzing loyal niches. In its own way, Slide is trying to build the next Yahoo! (YHOO). This is not a safe bet. It’s a big, gutsy, swing-for-the-fences play, and those typically take a lot of money. Counting this round, Slide has raised at least $75 million.

But let’s get back to the question of whether Slide is worth $550 million, its evaluation including the most recent funding. At this second, the answer has to be no, by any normal valuation math. But if Levchin’s plans succeed, Slide will be worth far more. And obviously, investors are paying a premium for the team. The barriers to entry for building a widget are so low it is a Darwinian fight, and Levchin thrives in that type of situation. Levchin is one of the only people I know in Silicon Valley who actually grew more intense, more hungry after the huge Web 1.0 windfall bestowed on him and PayPal co-founder Peter Theil. That’s a big reason Slide is backed by some of the best investors in the Valley already, including Thiel and Vinod Khosla.

For whatever reason, Slide has never been the media darling that Digg, Facebook, YouTube, and others are. I’m betting 2008 is the year that starts to change.