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Dating service finds Match with international backers - Up Front - MatchNet PLC - Brief Article

Dating service finds Match with international backers - Up Front - MatchNet PLC - Brief ArticleBack in 1997, the heyday of dot-corns, Joe Shapira was one of those lonely Internet entrepreneurs whose ideas could not lure the scads of available venture capital.

Some VCs thought his idea for an online dating service too small, while others thought he planned on starting an escort service. "They were looking for ideas that were much bigger and more compelling," Shapira said, then quickly adding, "A lot of those companies are no longer with us."

Today, backed by $12 million in European venture capital followed by a $20 million stock offering -- on the Frankfurt Stock Exchange -- MatchNet Plc managed to turn a small profit of $367,218 in its third quarter ended Sept. 30. As with any Internet startup, it's not been easy: up until that point, the company had $18 million in cumulative losses since getting started in 1999.

Starting with Jdate, MatchNet's lead service targeting Jewish singles, the company has launched gayl1.com and AmericanSingles.com in the United States, plus several other Web sites in Europe. "It has been a successful concept," Shapira said.


He said it didn't take him long to quit looking for money domestically. "I went to a few meetings and saw that I was being stonewalled," Shapira said. "Various investors from Europe approached me. I figured it would be easier to raise money in Europe so I just went there."

Shapira, an Israeli native who has lived in Los Angeles for more than two decades, said the idea for Jdate came from his own dating woes (he's married now). At about the same time he was looking for love, the entrepreneur, now in his mid-40s, was starting to get interested in the Internet. So he sold his videotape manufacturing business and, with $150,000, started Jdate (with partner Alon Carmel).

MatchNet's first round of financing, in January 1999, came from Value Management Research. The Frankfurt-based venture capital firm provided the company with an initial $1.5 million, then organized an additional $10.5 million in two subsequent rounds, in August 1999 and March 2000. In June 2000, MatchNet raised $20 million through its initial public offering.

Shapira, the chairman and chief executive, runs MatchNet with Carmel, the president, from offices in Beverly Hills, where most of the company's 50 employees are located. The company has sales offices in Frankfurt and London, with two and three employees, respectively.

Though it has taken time to catch on, Internet dating has become increasingly popular in the United States. As more couples look for love in cyberspace, the concept has been added to the small list Internet ventures capable of producing profits.

According to MatchNet's September 2001 quarterly report, the company derives most of its revenue -- more than 85 percent -- from membership subscription fees. The balance comes from advertising and parties, which MatchNet currently hosts in 15 different markets, including Los Angeles.

Gordon Hodge, an equity analyst with Thomas Weisel Partners in San Francisco, said he sees "plenty of room for growth left in this business." Hodge follows Ticketmaster, which runs the online dating service Match.com that, like MatchNet, recognizes most of its revenues from subscriptions.

To become a member of a MatchNet service, subscribers answer up to 200 questions on everything from occupation to drinking habits. Jdate's choices for "body type -- female" range from 'petite to "zaftig" with intermediate choices such as "shapely toned' "Rubenesque" and "cuddly."

Membership to Jdate costs $28.70 per month (Gayll is also $28.70 whereas American Singles costs $19.95). Members can post pictures and messages, as well as contact other members. From there it's up to them to proceed. Jdate does not post phone numbers or email addresses; contact messages are sent through the Jdate service.

Acceptance grows

Shapira attributes MatchNet's success to the fading stigma of Internet dating, in particular among specific communities. "Certain niches in the population have a lot of affinity, a lot of glue," he said.

While couples are logging on -- Jdate claims more than 250,000 members -- most couples, even those with success stories, are reluctant to talk about it. Several couples contacted couldn't say enough great things about the service, although strictly off the record. One woman expressed willingness, but said her fiancee didn't want his co-workers knowing he'd met a girl on the Internet.

Not every VC is envious of the success to date.

Brad Jones, managing director at Redpoint Ventures in Los Angeles, said many European VCs, starved for deals, tend to be trigger-happy when investment opportunities come along.

"There are occasions where European investors will invest in things domestic investors won't," he said. "It's not a business I'd want to be in," he said. "There's no unique technology, no intellectual property. In businesses where there is no barrier to entry, how are you going to create good margins? Somebody is always willing to come along and do it for a few cents less.