A big congratulations to the team at FetchBack for their successful sale to GSI Commerce! This deal is very special for me and Metamorphic Ventures as it validates and confirms so much of what we are about for our entrepreneurs and investors alike. Here are some perspectives on this deal.
Our investment strategy is greatly focused on the belief that the primary revenue source on the Web to date, technology driven advertising, is experiencing a long overdue shift closer towards eCommerce, and likewise we believe that eCommerce is experiencing a long overdue shift towards advertising. I was fighting for this in my first start-up in partnership with AOL in 1996 when we termed it content-to-commerce, and now this has evolved to what we call Transactional Media. Online advertising and electronic transaction processing are both rising tide markets and will be for a long time coming, so we focus on B2B monetization services that support this investment thesis. We have also built a charter towards capital efficient companies that reduce risk while increasing return at low exit burdens, all while being entrepreneur supportive.
It was almost exactly three years ago when Chad Little, Seth Page and I sat down for a lunch in Phoenix to discuss Chad’s new business idea over fajitas and beautiful mountain scenery. Chad had set his sights that FetchBack was to become a leading provider of retargeting services. Essentially, when a user visits an eCommerce site, the industry average is about 1% convert to a purchase. By running ads targeting the other 99% when they are subsequently on other sites, these conversion rates can average 8-10%. There is a good bit more to it than that, but you get the gist and Chad was planning incredible depth of technology-driven analytics and reporting to increase optimization and yield management. At the time, Fetchback was also taking advantage of the fall in display ad rates, the incredible infrastructure built by huge capital intensive Web media companies, the precipitous drop in start-up tech costs and the corresponding acceleration to market for new products. Advertising technology that drives eCommerce transactions with the opportunity for capital efficiency.
This was to be Chad’s third start-up and he wanted a capital efficient approach that gave him flexibility. Chad and I had both experienced raising large amounts of capital for prior ventures and know the positives and negatives (much debate online these days about lean vs fat start-ups). Our charter at Metamorphic is designed for lean, capital efficient start-ups. Chad and I discussed FetchBack raising a $1MM seed round and we quickly agreed on a reasonable valuation and for Metamorphic to lead the round (which included an LLC conversion to Delaware C-Corp). We introduced Chad to some great co-investors and board members, including Geoff Judge, Erik Matlick, Jeff Stewart and Bill Benedict. Coincidentally, we were also joined in the round by Bob Ellis who I co-founded my first venture backed start-up with, the second in partnership with AOL, back in 1998.
Chad and his team were all about speed and laser focused execution from day one. Get the product live ASAP so they can get customer #1 live, get revenue in the door, learn and improve. Repeat and accelerate this process over and over again. We spent a lot of time discussing strategies and tactical plans together – Chad was driven to take this over the goal line as FetchBack quickly became profitable and cash flow positive without the need for additional capital. As the market turned from an educational sale to a “why us” sale, FetchBack’s superior analytic and reporting began to shine against the competition, producing exceptional yield management on eCommerce conversions, proven by the 97% renewal rate across 500+ advertisers. And when Chad told us he thought it was time for FetchBack to partner up (sell the company) to accelerate FetchBack’s position in the market against ever growing competition, we discussed the reasons, the positives and negatives, and then helped him make it happen. As a capital efficient start-up, FetchBack was able to sell for a reasonable exit valuation and produce it’s investors a 9.7x multiple of capital invested – that could not have happened if Chad had opted to raise large capital. And GSI Commerce is a fantastic $1B revenue company and fit, where 1 + 1 = far more than 2. And more so, GSI is founded and run by Michael Rubin, a friend who was an angel investor in my first venture backed start up. Let me say that if you liked FetchBack before, you are gonna love it now with these complementary forces working together…unless you are the competition.
Thanks Chad and team, we enjoyed working together on this one, learned a lot from it, and look forward to the next one.
