VCs score on Tacoda purchase

AOL delivered a hit for venture investors with its purchase last week of Tacoda Inc., a New York-based provider of behaviorally targeted online advertising solutions. While terms were not disclosed, the deal is reported to be valued at nearly $300 million. Board members Habib Kairouz, of Rho Ventures, and Fred Wilson, of Union Square Ventures, would not discuss the transaction’s price, but both confirmed that the exit was “a very good one.”

Rho, Union Square, Masthead Venture Partners and Hanseatic Corp. invested about $32 million in Tacoda, according to Thomson Financial (publisher of PE Week). Wilson says that his initial involvement dates back to 2001, when he and venture partner Brad Burnham led an angel round prior to co-founding Union Square, which is also based in New York. Burnham, on his blog, recently reminisced about his first meeting with Tacoda CEO Dave Morgan while riding in an elevator in Dallas in 1995, when the latter was raising money for his previous advertising startup, Real Media. “To this day it is still the only time I have ever been on the receiving end of an actual elevator pitch,” Burnham wrote.

Today, Tacoda operates one of the largest behavior-targeting advertising networks in which marketers track a person’s online activity to serve up personalized ads. The method has long been heralded as the next great leap in the evolution of online advertising. Tacoda runs ads on sites for the New York Times, CBS Digital Media, Orbitz and Dow Jones. Advertisers that have used its services include Macy’s, Snapple and FAO Schwarz.

Rho, which participated in Tacoda’s $12 million late stage round in 2006 and a $7 million round in January, was attracted by the growth potential partners saw in behavior-based advertising. “The company’s timing couldn’t have been better, as the next wave of advertising dollars moving to the Internet is now seeking inventory beyond search and contextually relevant pages,” says Kairouz, in an email.

Tacoda is one of several recent advertising acquisitions for AOL. In May, AOL acquired two other venture-backed companies: Third Screen Media, a mobile advertising startup, and Lightningcast, which provides a service for inserting ads in streaming media. AOL also recently bought a controlling stake in Adtech AG, an online ad-serving company. In 2004, the Internet company spent $435 million to acquire venture-backed online direct marketer Advertising.com.

AOL, in a written statement, said it bought Tacoda principally to extend broader behavioral marketing capabilities to its own large network of advertisers and publishers. The Dulles, Va.-based company also cited a report by research firm eMarketer predicting that the behavioral targeting market will increase to $3.8 billion by 2011, from $350 million in 2006.