Having Reached Heights, Entrepreneur Returns to Roots

By DARRELL SATZMAN

Staff Reporter

Matthew Kropp is right back where he started.

As he nurtures two startup businesses out of his home office in Topanga Canyon, the 30-year-old entrepreneur is a little savvier and a good deal richer these days than when he got into the Internet game in 1995.

His latest ventures are prmtv, a boutique Web design company, and Kropp Medical Data Systems, a software company that has created an application to simplify medical payment records.

He got married last fall and calls the current time in his life “a recovery period.” Not because he is burned out or embittered, he says, but rather because he’s enjoyed plotting his next move from the comfort of the home he shares with his wife, Karen Rosenquist, and an Akita-chow mix named Rocky.

“I’m ready to get out and start interacting, doing some other things,” he says.

Kropp’s experience reflects that of countless Internet pioneers, who rode the wave, took their lumps, and now, for better or worse, must move on whether in another startup or an established business. “It was a painful process for a lot of people in this space. The demise took the wind out of a lot of people’s sails when their expectations weren’t met,” says Rosenquist, who met Kropp when they were both at USWeb.

Kropp actually started out with a bachelor’s degree in aerospace engineering at UCLA and was en route to a Ph.D. even though he was not much interested in the field. Computers, a fascination since he started doing rudimentary programming when he was a kid in Marin County, “seemed too nerdy,” he now says.

But Internet mania had exploded, and Kropp felt that was where he ought to be. “I ditched the Ph.D. program,” Kropp reflects over bagels and cappuccino at a coffee shop in Santa Monica.

After a short-lived Internet marketing venture, Kropp, a friend and two others put up $5,000 to start Lot 11 Studios, a Web design and software development company named for the UCLA parking lot where Kropp and partner Chris Varosy held band practice during their college days.

“There was Internet development before that, but business was slow,” Kropp says. “In 1996, companies were saying, ‘OK, we’ve seen the Netscape IPO, we’ve got to do something.’ It was really easy to drum up business.”

Early success

Lot 11 was the classic garage startup. “Through a friend of a friend we did a Web site for a company and they gave us 150 square feet of office space in their offices on Wilshire Boulevard in Beverly Hills. It was three desks jammed into this tiny room. But it was free, so it was great,” he says.

Lot 11 quickly lined up several jobs with then-L.A. Times parent Times Mirror Co., thanks to connections of the other partners, all of whom had worked for the company.

“They kept hiring us back. The first job was about $2,000, the second job was $15,000 and the third job was like $80,000. That was it, we had a business,” Kropp says. Soon, Lot 11 rented an old craftsman house near the sand in Hermosa Beach, where it landed clients like Northrop Grumman Corp. and Walt Disney Co.

Kropp took the title of chief executive, which was a good fit, according to Andrew Inesi, a one-time lawyer for Stamps.com who was a partner with Kropp on a later venture.

“Matt is the kind of guy who can quickly become an expert at anything,” Inesi says. “A lot of people can talk the talk, but they don’t know the nitty-gritty of what’s going on. He has the technical understanding and the people skills that are really necessary for being successful.”

By the end of the first year, there were 10 people on staff.

In 1997, Kropp got a call from a friend who ran another Web development company asking if Lot 11 would be interested in selling out to USWeb, the now defunct Web development and consulting firm that was one of the more aggressive players during the mid-to-late 1990s.

“My first reaction was no way. We knew about USWeb, all the small shops did,” Kropp says. “They were trying to franchise. We had heard that they were the Kinko’s of Web development.”

Earlier, USWeb had approached Lot 11 with a pitch that involved the smaller company paying USWeb $50,000 and a share of revenues in exchange for the right “to slap the USWeb logo on their door,” Kropp says.

This time, however, Lot 11 was a successful business. USWeb upped its offer: salaried jobs and 200,000 shares of the then-private company. Kropp and his partners thought USWeb would go public at $12.50 a share, valuing their deal at $2.5 million, and they bit.

Shares hit the public market in December 1997 at $7.50 and then doubled within a week. Soon, USWeb was trading at $20, and within a few months the company, which eventually changed its name to MarchFirst, was trading at nearly $50 a share.

Kropp spent two years with the company, managing its Los Angeles office and such accounts as Kaiser Permanente, Columbia Records and Sony Music before moving to Irvine as a partner in that office, a job that paid in excess of $200,000. Kropp sold most of his shares before the stock eventually tanked.

European adventure

He left USWeb in April 2000 just as the Internet bubble was starting to burst to start Velodea, another Web design and consulting venture, with Inesi and another partner. The idea was to tap into what they expected to be a burgeoning Italian Internet market.

“This was in reaction to seeing the American market collapse,” Kropp said. “We speculated, and it seemed like a good bet at the time, that the rest of the world would also catch the boom. It turned out we were wrong.”

Still, Velodea raised $4.5 million from Onetone, an Italian VC firm. Velodea grew to 35 people in a year with offices in Los Angeles and Milan. The deal soured, however, when Onetone bought a larger competitor and began to steer its major clients to that company. There wasn’t room for both of us in that space,” Kropp says.

Velodea is still running, but Kropp and the other American partners sold off their stake to Onetone last year for about $90,000 each.

He launched prmtv in June with two of his Lot 11 co-founders, Varosy and Wendy Ficklin, both of whom were laid off when MarchFirst went bust. Each of the partners works from their respective homes.

Prmtv has done some work for Paramount Picture’s “Star Trek” Web site and his contacts in the business have kept him busy while many of his peers have been hurting. Even so, his expectations for prmtv are modest.

“When we agreed to do this, we said, ‘We’re not going to hire anybody, we can only bill what we make and we are just going to market ourselves,'” he says.

On the other hand, Kropp has high hopes for his software venture, which he wants to sell, perhaps to a large public company he’ll be meeting with next week.

Although Kropp rode the Internet wave to good effect and readily admits the dot-bomb was as much a shock to him as everyone else, he also claims to have never really understood the hype.

“I don’t think anyone could have predicted how fast and how deep the Internet market collapsed,” Kropp says. “There’s a lot more competition now. Some months have been good and some months have been dry. The good news for those of us who have been in the business for a while is that we have the good contacts that keep us working.”