For Irvine online advertising startup Specific Media Inc., it came down to going public now or waiting with a $100 million cushion.
“We talked about not taking the private equity funding,” said founder and Chief Executive Tim Vanderhook. “There is no doubt that we could do very well as a public company. It’s always been part of our strategy.”
The financing won out. On Nov. 1, Specific Media said it raised $100 million from Francisco Partners, a technology-focused private equity firm based in Menlo Park that’s providing the money in $50 million installments. Francisco is getting a minority stake in the company.
The funding, Specific Media’s second round, easily is the biggest in Orange County this year.
Three native sons,brothers Tim, Russell and Chris Vanderhook,started Specific Media out of their parent’s Yorba Linda home eight years ago.
“I was 18 years old when I started the business,” Tim Vanderhook said. “I went to my brother, Chris, who was 20, to borrow his credit card (to register a domain name) because I didn’t have one yet.”
Chris Vanderhook is chief operating officer. Russell Vanderhook is senior vice president.
The company makes money by buying up banner ad spots on Web sites and reselling the space to companies looking to advertise to specific groups of consumers.
The advertisers pay a 20% to 30% premium for the spots because of Specific Media’s “behavioral targeting” technology, according to Tim Vanderhook.
The company can go after people based on demographics, location and Web sites visited, among other criteria. It has a patent pending on its “demographic prediction system.”
“Ultimately we are tracking consumers from Web site to Web site and trying to figure out what products and services they are interested in,” Vanderhook said. “We are trying to match Web surfing behavior through ads.”
Customers
Customers include major television networks, news outlets and Fortune 500 companies.
Specific Media has grown to be the fourth-largest online advertising company, according to rankings by ComScore Inc., a Reston, Va.-based market researcher.
The company landed $10 million with its initial round of funding a little more than a year ago. It used the money to beef up hiring.
“The business exploded from June of last year,” Vanderhook said.
Specific Media is profitable, he said.
The company,which doesn’t disclose financial figures,has about 60 people in Irvine.
It’s kept a low profile while building up its customers.
“Until this point we have gone under the radar and that was by design,” Vanderhook said. “We are dwarfed by our competitors.”
Specific Media plans to use its $100 million in funding to buy smaller companies in the U.S. and Europe, Vanderhook said.
The company is looking to tap new forms of online ads, including text-based advertising (similar to Google Inc.’s sponsored links) and streaming video.
An initial public offering still is in the cards. The company is eyeing an offering in late 2008 or early 2009, according to Vanderhook.
Industry watchers say that would be an unusual move at a time when online advertising startups are being feverishly pursued by the Web’s all-stars, including Google, Microsoft Corp. and Yahoo Inc.
These companies often are willing to pay a premium to build their arsenals.
Case in point: In August, Microsoft paid $6 billion for online ad company aQuantive Inc.
And Google has bought nearly a dozen small Internet companies this year alone,more than twice the number it bought last year.
Buyout Offers
The big guys have come knocking, Vanderhook said. But the brothers have turned them down, he said. He declined to say which companies have approached Specific Media.
“Everybody calls our company trying to buy it,” Vanderhook said. “But we are not for sale.”
The $100 million will go a ways toward expanding the business without having to sell out, he said.
“To stay competitive and independent we needed a lot of capital,” he said. “It’s not about the money. It’s about building a sustainable, large-scale business and making Specific Media competitive with Google, Microsoft and AOL.”
He admits that some of the offers have been “very, very high”,a tempting deal for young entrepreneurs.
“The true drive for entrepreneurs isn’t the money,although money is very important,” Vanderhook said. “This is about building a long-term business. At 26, I don’t know what else I would do with myself.”
Working with his older brothers (each two years apart) isn’t difficult, Vanderhook said.
“In working with each other we have very defined roles and we understand what each other’s strengths are.”
As for their parents?
“They are pretty proud of their sons,”
he said.
