The competitive tension between Silicon Valley’s two leading venture firms rose today, upon the announcement (see LA Times story, may require registration) that Sequoia Capital is helping pump nearly $110 million into online dating site eHarmony. The valley’s other top-dog venture firm, Kleiner Perkins Caufield & Byers, has backed Sunnyvale’s Friendster, one of the leading social networking sites for dating.
True, the two dating companies are using different strategies, so this isn’t the titan-clash it appears on first blush. [Indeed, as Hunter Walk reminds us in a comment below, the two companies have signed a partnership agreement recently.] More interesting is how Sequoia and Kleiner may use their various overlapping portfolio investments to push alliances in new directions. Sequoia, for example, has backed social-networking company LinkedIn, which is going after the jobs space. Kleiner, meanwhile, has backed Visible Path, a related company focusing on the sales/relationships business, and Google, which owns Orkut, a social networking site.
When we met with some of eHarmony’s executives earlier this year, we got the impression the Pasadena company would pass on further venture money, using a bootstrap strategy — growing organically by churning revenues back into operations. It has angel backers like Greg Waldorf, formerly of Charles River Ventures up in Menlo Park.
What’s surprising is that Sequoia is entering so late. Sequoia has joined 13 other investors on the eHarmony investment, so it’s not shouldering the burden itself. But traditionally, Sequoia has backed very early-stage companies. Google is an example where Sequoia joined Kleiner in an early round in 1999 — way before Google really began to ramp up. Of course, we should add that the two firms worked together on Google largely on the insistence of co-founders Brin and Page. eHarmony was launched in 1998, the same year as Google. The eHarmony investment, which is the second VC round, is late by comparison, but not nearly as late as Sequoia’s recent investment in Zappos , which we wrote about here.
We’re not sure why the LA Times writes that another investor in today’s eHarmony deal, Technology Crossover Ventures, also was a backer of Google. It certainly wasn’t a significant one, if it was at all.
As the LA Times story notes, …
…the National Venture Capital Association lists the eHarmony deal as the fourth-largest funding this year, of 2,100 deals tracked since January. The NVCA’s president Mark Heesen rightly suggests this is a sign the VCs think there’s an IPO possibility very soon — another reason why Sequoia might be investing. Though, we thought Sequoia learned it’s lesson about the risks of investing late (see this story, but scroll down to “sequoia” part).
EHarmony is different from social networking sites in that it controls much more of the matching process. As the LA Times writes:
The service, co-founded by psychiatrist Neil Clark Warren, focuses on matching people for marriage. The foundation of the service is a 436-item questionnaire that seeks to match compatibility in 29 areas, including sense of humor and family background. Customers are not allowed to randomly search the company’s database, Forgatch said. They can browse photographs and profiles of pre-screened potential matches only after they’ve completed the compatibility survey.
EHarmony charges more for its service ï¿½ about $50 a month versus the industry standard of $20 ï¿½ but converts registered members to full-time subscribers at a rate that’s six to 10 times the industry average, Forgatch said. The service has 6 million registered members, he added. A privately held company, EHarmony does not disclose its annual revenue or say whether it is profitable.
Finally, here’s one other Sequoia investment announced today, again unusual because it’s an East Coast deal:
KAYAK.COM SECURES $7 MILLION IN SERIES B FINANCING
Sequoia Capital joins Existing Investors General Catalyst Partners and America Online Total Funding Increases to $15.5 Million
NORWALK, CT December 21, 2004 Kayak.com, a website that helps consumers get comprehensive and objective travel information, today announced the completion of a $7 million Series B financing round led by Sequoia Capital, a California-based venture capital firm. Kayak.com is only the third East Coast company Sequoia Capital has funded in the last two years.
The company has now raised a total of $15.5 million to create the next generation of online travel. The additional funding will be used to further product development and expand marketing.
Kayak.com was founded by the creators of Expedia, Orbitz, and Travelocity in January 2004 to satisfy the demand of internet users for a clear, objective and comprehensive source of online travel information. Web-based services are the foundation of the $55 billion spent on online travel in the U.S today. Yet online travel consumers exhibit limited loyalty, using an average of 2.5 sites and offline agents in their research . Kayak.com addresses consumer frustration by providing comprehensive rates and relevant objective information as well as giving users choice of where to book.
“Beyond the fact that the company has five letters in its name (like Cisco, Apple, Atari and Yahoo!), we chose to invest in Kayak.com because of its founders’ deep and genuine desire to provide a better, fairer and impartial travel service for the growing community of internet users,” said Michael Moritz, a Partner with Sequoia Capital.
“We are delighted to welcome Sequoia Capital as an investor in Kayak.com,” said Steve Hafner, Kayak.com CEO and co-founder. “This financing is a strong validation of our vision, business direction, and management team. Kayak.com now has a far greater financial foundation from which to grow.”
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