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Venture Capital Section
By Terrence O'Hara
Monday, July 5, 2004; Page E01

Lost in the ballyhoo over America Online Inc.'s $435 million purchase of Inc. is that AOL's cash has delivered the first major payday for a local venture capital investment since the tech bubble burst.

Grotech Capital Group and New Enterprise Associates, the region's biggest venture capital firms, each bought about 1.3 million shares in in two rounds for a total of about $6 million each. These two firms will walk away with about $50 million each after the AOL deal closes.

Baltimore-based sells an online advertising system in which the advertiser pays only for results. determines the best place and play for an online ad, and its clients pay if a potential customer clicks on the ad and responds in some concrete way to create a sales lead.

It was founded in 1998 by brothers Scott and John Ferber. Scott was a business manager at McLean credit card firm Capital One Financial Corp.; John was a Towson University grad who had developed the original software to track online ad viewing. Scott, the chief executive, is 35. John is 30. pulled in $132 million in revenue and had $18.7 million in profit in 2003. It also had growing cash flow from its operations for two years. Its business model was creating money, so America Online, the Dulles-based Time Warner subsidiary, which had been an investor in one of's earlier venture rounds, offered to buy the company for $40 a share -- about $435 million -- in cash.

The biggest winners in the deal are the Ferber brothers, each of whom owned 19 percent of the company. They will each walk away with more than $70 million for their stock. They had sold the rest of the company for $66 million in two venture rounds, in 1999 and 2000.

In 1999, the company desperately needed working capital. Web sites were demanding payment the minute an ad was posted, but didn't get paid (if it got paid) until the ad was acted upon by a consumer.

"We started out in 1999 thinking we should raise $500,000," Ferber said. "But the business was growing so rapidly we decided to go for big money." Ferber hopped on a plane to Silicon Valley and started cold-calling the big venture capital firms. The trip was fruitless, except that every one of them told him to go home and raise money here.

".'Why are you here?' they asked me. What I learned was that no one in California would invest unless someone in my hometown invested first," Scott Ferber said. He had never heard of Grotech or New Enterprise Associates, even though his father had worked as an accountant for Frank A. Bonsal, the co-founder of New Enterprise, 30 years earlier and had remained close to Bonsal, 67.

Jonathan R. Wallace, founding partner of WWC Capital Group in Reston, introduced Scott Ferber to Bonsal. Ferber had hired Wallace in 1999 to help him arrange venture financing. "Thank gosh for John Wallace," Ferber said. "He earned every penny we paid him."

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