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Stick-To-It-Ness Pays: Rapt To Be Acquired by Microsoft


Rapt Inc. is being acquired by Microsoft, as reported over at TechCrunch by Erick Schonfeld. Rapt is an online ad optimization application, which fits Microsoft’s continued push into more and better advertising solutions. Rapt is also a great case of stick-to-it-ness. By that, I mean keep working at figuring what will make your business successful, and survive long enough to get there.

But let’s back up for a second. To greatly simplify things, one can say there are three types of outcomes for venture capital funded companies:

  • Supernova: legendary companies (Google, Microsoft, Amazon.com)
  • Moderate: cash flow positive (Rapt, SquareTrade, ebates)
  • Flameouts: bust (Pets.com, Webvan, Pay By Touch)

There’s plenty of press for supernovas and flameouts. But not so much for the moderate successes. The moderate successes represent a fairly broad range of outcomes. But they are an interesting study in starting a company, getting to profitability, and having the option what to do next. The three companies above – Rapt, SquareTrade, ebates – are each Web 1.0 holdovers who continue to be successes in today’s Web 2.0 world.

Rapt Inc.

Founded in 1998, Rapt started out life as some sort of procurement optimization provider for manufacturing companies. Here’s how their product Rapt Buy was described in 2001: Rapt Buy is a web-based application that gives companies real-time intelligence to optimize the procurement of strategic goods.

So the company was in the optimization game, but pretty far away from applying that to online advertising. But read what the company described itself as in that same 2001 press release: Rapt Inc. is a leading provider of software and services for enabling real-time, risk-optimized buying and selling decisions in complex business environments, and internet marketplaces.

Somewhere in there is the kernel of Rapt’s transformation from procurement of strategic goods to online ad optimization solution. I don’t know the success of Rapt’s original model, but they stuck with things and found a good market to apply their strengths. They came out with a series of products that enabled web media companies to optimize ad inventories. A March 2005 press release talks about Rapt being used by MSN to improve pricing for online ads. Subsequent client wins included iVillage, Yahoo, Tacoda, CNET and others.

Rapt did raise $55mm, so it needed a lot of capital to get where it is today. But by persevering through different markets and products, Rapt won many marquee clients and an acquisition offer from Microsoft.

SquareTrade

SquareTrade was started in 1999. Its original purpose was to be a mediator for disputes among buyers and sellers on eBay. The company received $9 million in VC funding back in 2000, and it hasn’t taken anymore since then.

The mediation services clearly paid the bills early on. SquareTrade also offers an eBay Seal, which tells potential buyers that a merchant has been reviewed and approved according to SquareTrade’s standards. Again, a nice little money maker for SquareTrade.

The absence of any new VC funding since 2000 tells you that the company is cash flow positive. Which is a nice place to be for SquareTrade. The company could live off the success of its model and dividend out the excess cash to investors and other shareholders. That’s something a lot of traditional, offline companies have done for years.

But you could view that cash flow in a different way. Your own source of “VC money”. Figure out new business lines, and self-fund their rollout. Forget the VCs. What a great option to have.

And that’s exactly what SquareTrade is doing. They’re trying to establish themselves as the largest independent warrany provider. Basically, sell the SquareTrade brand for warranties. I don’t know how they’ll do, but their established cash flow is going to give them the chance to stick-it-out and make a run of it.

ebates

ebates was established in 1998 by San Mateo County prosecutors. Huh? Well, what they created has lasted for quite a while. ebates gives consumers cash back on their purchases with 800+ online retailers. Basically, you just launch your shopping trip via ebates.com, and your purchase info will automatically be captured and your rebate calculated.

It was cool idea in 1998, and this is essentially the same thing ebates does today. Something like 1 million consumers are active on the ebates site. The company raised a $25 million round in 2000, and nothing else since then.

ebates is in a similar position to SquareTrade. Cash flow positive, and able to try new things. So far, ebates seems to be sticking with its 1998 model. More execution around its core model: more retailers, more consumers. Perhaps there’s something big brewing over there. But maybe not – they just enjoy the cash.

In Conclusion

The tech superstars garner the most press and certainly have the largest influence on the tech and business landscape. But the next level down, the cash flow positive moderate successes, do have some interesting things going on. Some keep hustling to position themselves for the next big thing, others enjoy the fruits of past labors.

Keep an eye on them, their cash flow gives them options.

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About Hutch Carpenter
Chief Scientist Revolution Credit

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