Hotbar.com Surfs On $14.5M Two-Part Deal
by Robyn Kurdek
It looks like at least some dotcoms are still able to get VC funding.
The winner, at least for the moment, of this precarious game of tech
survivor is a New York-based start-up called Hotbar.com. Not only has
Hotbar's standout performance over the past year kept it from being booted
out of Silicon Alley, but also recently helped it earn $14.5 million in a
two-part venture deal.
Although it continues to show substantially increased monthly revenue and is
projecting profitability by year-end, it did not have an easy time raising
its latest VC round. Besides the dotcom moniker, which already counted as
one strike against it, the company started fund-raising almost immediately
after tech stocks took their first big swan dive a year ago.
"It's a tough time to raise money these days because the market is very
hostile," said Oren Dobronsky, co-founder and chief executive with Hotbar.
"People who tend to invest are now much more afraid. Although they're in the
venture business, which is in nature very risky, it's not easy. Companies
need to show figures and proof [that they can stay the course]."
Apparently, Hotbar was able to convince both its existing investors, as well
as a few new backers, that it was ready and willing to do just that. The
company, which has developed a browser plug-in to enhance and personalize
Web-surfing, landed $11 million in the first tranche of its Series B deal in
December. Last month, C.E. Unterberg Towbin Private Equity Partners upped
the ante by adding another $3.5 million to its original $1.5 million
contribution. The deal's second tranche was done at the same valuation as
the initial portion, Dobronsky said, although he declined to disclose the
company's post-money worth.
Other participants in the round included Deutsche Bank, which co-led the
deal with C.E. Unterberg Towbin, as well as Series A players Eurofund, an
Israeli investment vehicle backed by Bertelsmann, and Technorov, which is
backed by one of the largest banks in Israel.
When asked why the company kept the round on the small side, Dobronsky said
that this financing is expected to bridge Hotbar to profitability and, as
such, he didn't want to raise any more money than needed to get there.
"We're making revenue that covers a substantial part of our burn rate, so we
didn't need any more money [than we took]," he said.
Essentially, Hotbar offers Internet users a customizable toolbar that gives
them access to a plethora of Web content, including sports, movies and
games. Additionally, the company recently added a function to the toolbar
that uses RealNetworks' Real Player technology to deliver streaming rich
media content such as music videos and movie trailers. It's also planning
the imminent launch of a series of ticker-related services that will provide
news, stocks and sports via the toolbar.
"Basically, it's the best of the Net coming to you - everything is there and
one click away," Dobronsky said. "All of these things are things that really
make [Web] surfing easier from a user standpoint."
What's more, Hotbar can integrate any toolbar updates with millions of
browsers overnight.
Still, on the surface, it would seem that content provider plays are a bit
over-baked at this point. However, Hotbar considers itself more of a
technology and software provider than anything else. Further, most of its
revenue comes from the companies providing the content. Essentially, they're
paying for exposure to the masses that they'd be hard-pressed to get
anywhere else on the Internet, Dobronsky explained.
"From an advertising standpoint, for example, their campaign can be
integrated with millions of browsers - something they can't get in any other
campaign," he said. "Also, as a desktop application, our product is more
dynamic than a Web site. When a user chooses to leave a Web site, he loses
the information he was looking at. With Hotbar, the information is always
there and always immediately accessible."
Of course, Dobronsky acknowledged the crawling online advertising market,
but he said that Hotbar's revenue stream is becoming increasingly
independent of pure ad sales.
Vered Sharon, a managing partner with C.E. Unterburg Towbin and Hotbar's
newest board member, agreed that the company's technology is truly
compelling and, thus, can overcome obstacles such as declining online ad
sales.
"I believe that the way the Internet is going right now is a sort of
pendulum effect," she said. "Internet stocks have been over-hyped to the
hilt, and now they're being under-hyped. As an early-stage company
generating revenue, however, Hotbar will be one of the mainstays of the
Internet."
Sharon also emphasized that Hotbar has made a conscious effort to get to
know its customer demographic, something she hasn't seen its small
contingency of competitors do in the past. "Getting to know the customer is
really an art, and it's really complex to distribute something virally [as
Hotbar does]. Not that many companies have been able to do that," she said.
As for a potential Wall Street debut, Dobronsky said it's too early to tell
what the company plans may be in the near term. However, if it continues to
meet revenue projections and reaches profitability within the year, Hotbar
may consider doing an IPO as early as the fourth quarter of this year.
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