With Profits, Internet Ventures Get Set for Revival of IPOs

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With Profits, Internet Ventures Get Set for Revival of IPOs

By KAREY WUTKOWSKI

Staff Reporter

Google Inc. grabbed the headlines when it filed for its $2.7 billion initial public offering last month, but the wider hunger for Internet and technology stocks has investors in local dot-com survivors starting to think about exit strategies.

“Market conditions are certainly going to create some excitement about search engines,” said Tim Spicer, managing partner at eCompanies Venture Group, an early backer of Santa Monica-based Business.com Inc.

And while noting that eCompanies were in no rush to cash out, he said the VC is starting to weigh its options.

Many have reached that level already this year. Since the start of 2004, 32 Internet and related businesses have filed for IPOs, 10 of them since Google’s April 29 filing.

The charge to market differs distinctly from the exuberance of the IPO market of the late 1990s. The key point: many of the companies that have filed or considering it are turning profits.

Executives at L.A. Internet firms Business.com, PriceGrabber.com Inc. and BizRate.com Inc. said several factors have combined to enable them to bring in more cash than they are spending. These include technological advances that make tracking advertising effectiveness more accurate, a reviving online ad market and the sites’ narrow focus.

Jake Winebaum, founder and chief executive of Business.com, said the business portal’s revenues have grown 20-fold in the past two years gains seen as a result of technologies that let advertisers track results from their ads. Since 2001, after slashing overhead and operating with a minimal workforce, Winebaum said Business.com has been bringing in more cash than it spends.

“It’s become more like direct marketing, and the measurements are becoming more credible,” he said. As return-on-investment measurements improve, he added, online advertising has increased and specialty search engines have seen their revenues soar.

Chuck Davis, BizRate’s president and chief executive, said the company has doubled its revenue for the past two years and expects to do so again in 2004. (Winebaum is a director of the company.)

BizRate, founded in 1996 as an online research firm, transformed itself into a consumer-oriented comparison-shopping site. Advertising takes two forms: merchants pay to gain premium positions within rankings and retailers buy banner ads or placement in a list of sponsored links.

Davis said the company turned cash-flow positive in April 2002 and has operated in the black since, although he wouldn’t give sales figures. He did say that fees from merchants accounted for 90 percent of its revenues.

Still, turning cash-flow positive does not mean investors have seen any substantive return on the millions they poured in. The rebound of the capital markets offers venture capitalists a chance to cash out portions of their equity before true profitability is reached.

There’s a lot to recoup.

In September 2000, Business.com secured $61 million in financing led by the Financial Times Group and Cahners Business Information. Other backers included IndustryClick, a subsidiary of Primedia Inc. and McGraw-Hill Cos. The company has also received money from eCompanies and publishing magnate Mort Zuckerman, owner of U.S. News and World Report and the New York Daily News.

BizRate.com was backed in part by a $20 million round of financing in 1999 from Attractor and Hambrecht & Quist and a $50 million investment in 2000 from Mission Ventures, Media Technology Ventures, Vignette Corp., Attractor and Access Technology Partners.

“The company is a very valuable proposition at the moment,” said Robert Kibble, managing partner at Mission Ventures. “We would make a lot of money from it.” Mission has invested $6 million in several financing rounds since 1998.

He said the shopping comparison site is keeping its options open. Those options include being acquired or going public.

Kamran Pourzanjani, president of PriceGrabber, agreed that mergers, acquisitions and IPOs among niche search engines are on the rise and he did not discount the possibility of his company being among them.

Formed in 1999 with the backing of a few angel investors, PriceGrabber has not taken VC funding, but would consider proposals.

“Any good businessperson will look at all opportunities and make the right decisions,” Pourzanjani said.

That thinking, whether from VCs seeking to cash out or companies like PriceGrabber, combined with the buzz surrounding Google’s planned initial public offering, is drawing even more attention to these sites.

John Ardis, vice president of corporate strategy at Westlake Village-based online marketing company ValueClick Inc., said its clients are turning to niche search engines instead of Yahoo and Google because they are able see greater returns on their investments.

That appeal is one reason ValueClick might dip into some of its $240 million in cash to buy one of the niche engines. “From an M & A; standpoint, the niche search engines could be attractive to us,” said Ardis. “They have great names with a good critical mass and good flow of customers.”

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