Online Ad Start-Up Raises $48 Million With Eye On Google, Yahoo

Online Ad Start-Up Raises $48 Million With Eye On Google, Yahoo

March 17, 2006

With help from the former president of Intermix Media Inc., an online contextual-advertising start-up has raised $48 million in venture capital to quickly take a bite out of market giants Google Inc. (GOOG) and Yahoo Inc. (YHOO).

Adknowledge Inc., which places behaviorally targeted ads in Web pages and emails, aims to provide an alternative to text ads tied to keyword searches.

Brett Brewer joined the company last fall as president, after leading Intermix – the publicly traded parent of social-networking marvel – through a $580 million sale to News Corp. (NWS).

Together, Brewer and Adknowledge Chief Executive Scott Lynn talked with a half-dozen venture capital firms before settling in with Technology Crossover Ventures, the sole investor in the Series A round.

Investors at TCV, which closed the largest venture capital fund last year with $1.4 billion, already knew Brewer from Intermix, having considered an investment in the company in 2004.

TCV General Partner Henry Feinberg said the firm was attracted to the team, as well as the company's technology and the exploding online-advertising market, which could reach $19 billion in revenue by 2010, compared to $9.3 billion at the end of 2004, according to JupiterResearch.

"Most advertisers start out advertising in the search channel," said Brewer. "Now search engines are getting competitive, their margins are very slim … people are looking for other ways to get clicks."

Adknowledge, targeting small and medium-sized business, creates and places behaviorally targeted ads on Web pages and emails from more than 400 content providers. While Adknowledge designs the ads, its customers provide text and links to their businesses.

"Previously those companies have been able to only buy [text-based] advertisements in search," said Brewer, adding that behaviorally targeted, well-designed ads are often beyond the financial reach of small businesses. "To do that you would have to hire an internal graphic designer and hire a media buyer."

Adknowledge buys ad space directly from content providers and charges its customers on a pay-per-click model that can range from 30 cents to as much as $6 or $7 per click, said Brewer. The company claims to have more than 20,000 keyword advertisers, including Venture Direct Worldwide Inc. and Debt Settlement USA.

Because it acts as a middle man for advertisers and media companies, Adknowledge says it is a step ahead of companies like Revenue Science Inc. and Tacoda Inc., which sell their behavioral marketing technology to media companies directly.

Other start-ups, like Sequoia Capital-backed start-up Adbrite Inc., are also angling for a slice of the pie, competing with the likes of Google Adsense and Yahoo's Publisher Network, which, still in "beta" form, aims to help online publishers display targeted advertising and earn revenue from clicks.

Adknowledge will use the infusion of cash to bolster its sales and marketing, and will be used to open offices in San Francisco and New York, and to build its network of content providers and advertisers. The company has been profitable since 2004, said Lynn.

Technology Crossover, a later stage firm with nearly $5 billion under management, is an attractive partner, Lynn said, because of its strong online portfolio. TCV is a stakeholder in companies including Expedia Inc. (EXPE), dating company eHarmony Inc., movie ticket Web service Fandango Inc. and Inc. (NFLX). Adknowledge has not yet inked deals with any of the portfolio companies, but said one potential deal was in the works.

Technology Crossover and Adknowledge were mum about the size of TCV's stake, but the deal falls well within TCV's $30 million to $50 million comfort range and affords the investors a significant minority stake, said Feinberg. "We are typically the growth capital that potentially takes a company from their late stage to their IPO," said Feinberg, though he declined to speculate on Adknowledge's plans for a public offering.

Lynn founded Kansas City, Mo.-based Adknowledge in early 2003, buying the trademark out of bankruptcy from CMGI Inc.'s Engage Technologies Inc. Formed in the 1990s, the previous Adknowledge raised venture money from top firms including Kleiner Perkins Caufield & Byers and the Walden Group before it was sold in 1999 to publicly traded Engage. The company was later sold again, to online ad firm Bluestreak Inc.

(This story originally appeared in VentureWire, a daily email newsletter that provides in-depth analysis on venture capital and high-tech start-ups. Dow Jones Newswires, publisher of VentureWire, runs select stories from the newsletter.)

 -By Clancy Nolan, Dow Jones Newswires/VentureWire; 201-938-4288;

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