Bill Gates and several other smart money investors have quietly acquired a major stake in a beaten-down microcap media company that is in the early stages of a turnaround.

San Francisco, Calif.-based PlanetOut Inc. (Nasdaq: LGBT) announced on July 10 the closing of a $26 million equity investment. Investors in the struggling media and entertainment company’s private placement financing included Cascade Investment, the investment vehicle of the Bill Gates family, Special Situations Funds, SF Capital Partners, PAR Investment Partners and well-regarded media investment banker Allen & Co.

This equity financing represented a “partial re-capitalization” for the increasingly cash-thin PlanetOut. The vertical media company, which focuses on the gay and lesbian community, has used this capital to pay off its indebtedness from previous acquisitions. This financing also gives PlanetOut sufficient capital for executing its turnaround plan.

Founded in 2000, PlanetOut has its roots in a collection of gay and lesbian websites, such as Gay.com, PlanetOut.com and Advocate.com, which collectively reach 5.5 million monthly visitors. Through several acquisitions over the past two years, the company has transformed into a big player in the gay and lesbian magazine and travel and events businesses as well. Print properties include The Advocate and Out magazines.   

Even before PlanetOut’s acquisition binge, the company had a rocky ride in the public markets. PlanetOut went public at $9 a share in the fall of 2004, and after hitting $10 a share on its first day of trading, action in the stock has been largely downhill since. After opening 2007 at the $5 level, things began to turn dire for PlanetOut in April after it announced another earnings warning in a string of misses. This was followed by a weak first quarter report in May and the disclosure by management that the turnaround of PlanetOut would take more than a year and that it was in need of additional capital.

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