Yahoo’s Mayer buying Tumblr for $1.1 billion in biggest deal

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The deal will make a multimillionaire out of Karp, who founded the company using money and experience he had acquired as a software consultant for the website UrbanBaby. Prior to that role, Karp interned at online-video creator Frederator Studios and worked as a salesperson at a Tekserve store in New York, according to his profile on LinkedIn Corp.’s site.

Karp grew up on Manhattan’s Upper West Side and dropped out of high school before moving by himself to Tokyo when he was 17. He founded Tumblr after returning to New York and still hasn’t earned his high-school diploma. The company’s headquarters, located in New York’s startup-friendly Flatiron District, is adorned with eclectic artwork.

Yahoo, which makes almost all of its revenue from online promotions, will inherit the challenge of making money from a site while trying to preserve its cool factor, Reiss-Davis said.

“They have to balance keeping those users actively using Tumblr, while at the same time adding advertising and putting monetization around it,” he said. “Those are very difficult tasks to balance against each other.”

Tumblr’s Backers

Tumblr’s content may also pose the risk of turning off some of Yahoo’s advertisers. The site’s terms of service permit nudity and other controversial material, and at least one pornographic site ranks among the 20 most-popular Tumblr blogs, according to Quantcast Corp.

Among Tumblr’s backers, Union Square Ventures in New York and Boston-based Spark Capital are the biggest winners. The firms led Tumblr’s first two financings, a $775,000 round in 2007 and a $4.5 million round the next year.

Sequoia Capital joined as an investor in late 2010 as part of a $30 million funding round. Tumblr then raised $85 million the following year, with firms including Greylock Partners, Insight Venture Partners, and Draper Fisher Jurvetson’s Growth Fund joining the existing investors.

Yahoo’s acquisition of Tumblr also brings validation to the New York technology community, which has seen startup activity increase in recent years with the success of companies including Tumblr, Gilt Groupe Inc. and Etsy Inc., according Ben Lerer, CEO of Thrillist Media Group and managing director at Lerer Ventures.

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