N.Y.-based IAC to open Bay Area venture

N.Y.-based IAC to open Bay Area venture

By Constance Loizos
San Jose Mercury News
Article Launched:06/03/2007 01:39:19 AM PDT

IAC/InterActive Corp., the New York-based media and e-commerce conglomerate run by former Hollywood mogul Barry Diller, already has pieced together an empire of dozens of Web properties, ranging from ticket seller Ticketmaster.com to loan site LendingTree to the dating service Match.com.

And it's just getting started.

That's the message it's sending to Silicon Valley, where IAC is opening a venture investing arm called Primal Ventures in the next couple of weeks.

"We're interested in things that will complement IAC's portfolio," said former Match.com CEO Jim Safka, who is moving from Dallas to San Francisco to launch the operation. Its goal: to incubate some companies, roll up others and find promising start-ups that it can bring into its fold.

Safka says he'll be shopping first for wireless and video start-ups, companies in the jobs and recruitment category, and sites focusing on the consumer-content side of health care.

The move marks a dramatic shift for IAC, which, unlike Web media giants such as Yahoo and Google, has never before invested with venture capital firms but instead tends to buy companies outright.

In addition, Primal will be chasing start-ups after years of IAC's almost exclusive focus on more established businesses. LendingTree, for example, was 7 years old when IAC purchased it in 2003; search engine Ask.com (formerly Ask Jeeves) was 9 when IAC snapped it up in 2005.

How IAC will be received on the West Coast remains to be seen, but Safka is already doing what he can, including establishing "strategic relationships" with "five to 10" valley venture firms that he declined to name. "We'll get plugged into their deal flow and we'll get them plugged into IAC to share with them what our needs are."

Safka may have a harder time persuading entrepreneurs to work with IAC.

Though Safka's intention is to "help start-ups with everything from distribution to technology development to search optimization to access to talent," IAC has been criticized for practices that seem to run counter to the increasingly open and flexible nature of Web businesses and those who run them.

Tight control

For example, according to senior research analyst Jim Friedland of Cowen & Co. in New York, there is little to no symbiosis between IAC's properties beyond the power IAC's assets give it when it comes to buying advertising, and the financial help units can provide one another.

IAC "isn't like an eBay, accelerating transactions by integrating PayPal into its site," Friedland said.

He pointed out that some of Ticketmaster's profits have been redirected to beleaguered LendingTree, which earlier this month announced 440 layoffs following disappointing quarterly results.

"Ticketmaster would almost do better as a stand-alone company again," said Friedland, saying it could create an online ticket exchange if it were independent.

Fiercely independent entrepreneurs might chafe in such a tightly controlled system, he suggested.

IAC has also been criticized by some competitors in the valley for its aggressive legal tactics.

Attorneys for its subsidiary Evite, a 10-year-old social event-planning site with more than 11 million registered users, last month sent San Francisco-based Socializr, a months-old event-sharing site with roughly 2,000 registered users, a letter threatening to sue it for copyright infringement.

The letter was "completely absurd," said Jonathan Abrams, Socializr's founder, the creator of social-networking site Friendster, and a popular valley entrepreneur. He has since launched a public campaign against IAC, including posting a 2,500-word diatribe against the company on his blog – a rant that was immediately picked up by sites such as Valleywag that are followed closely by start-up founders.

IAC has a much bigger battle brewing, as well. In mid-April, Ticketmaster filed a lawsuit against San Francisco-based StubHub, a ticket reseller acquired by eBay in mid-February for roughly $300 million.

Ticketmaster claims StubHub improperly obtained premium seats to a spring concert tour featuring Lynyrd Skynrd, and that it has, for two years, schemed to "diminish Ticketmaster's role in the sale of tickets generally."

StubHub, too, is taking on IAC very publicly. "Assertions that we've tried to strong-arm venues is ridiculous," said StubHub spokesman Sean Pate. "The tickets we have were provided to us from the band, which is basically choosing not to work with Ticketmaster."

An Evite spokeswoman said the company "can't comment beyond that the (Socializr) matter is being handled legally and internally." A Ticketmaster spokeswoman said that the company "cannot comment publicly" on the suit.

`Important roles'

Julius Genachowski, an eight-year veteran of IAC and its chief of business operations until 2005, disputes characterizations of IAC as heavy-handed, dysfunctional or unfriendly to Web entrepreneurs.

"A number of founders (to join IAC through acquisitions) have stayed at the company and taken on important roles," he noted, pointing to IAC president Doug Lebda, who founded LendingTree.

Safka also defends IAC's strategy and tactics. "I really believe in the operating company that Barry is creating. We share best practices. We share talent. In my view, the operation works extremely well."

And while Safka admits that he will need approval from both Diller – a Hollywood legend who ran Paramount Pictures and helped start the Fox Network – and Victor Kaufman, vice chairman of IAC, before he and the small venture team he is assembling can make investments, he also says that's just fine with him.

"I've worked with Barry and Victor for three years, running Match.com," said Safka, who joined IAC in 2004 after executive stints at AT&T Wireless and the online brokerage E-Trade. "I chose to do this (new venture) with them for many reasons, including that these guys have tremendous instincts, and they make decisions."

Added Genachowski, who today is a special adviser to the East Coast private equity firm General Atlantic, said "VCs need to get approval from within their firms, too. The conditions in which Safka will be operating won't be at all unreasonable."

Leave a Reply