Where Fastclick Goes, Adteractive Follows

Internet lead generation business Adteractive is closely following the playbook of another online advertising company – 5-year-old FastClick.

FastClick, based in Santa Barbara, Calif., delivers targeted online advertising to a network of more than 7,500 sites, including the residential VoIP services company Vonage. Its sales last year of $60 million were impressive enough in today’s climate to allow it to raise a $75 million Series A financing round in November, as well as to file for an IPO six weeks later.

It’s not a bad act to follow. And San Francisco-based Adteractive seems to be doing just that.

Co-founders Josh Peterson and Diego Canosa declined to comment on Adteractive’s fund-raising activity, or the particulars of its business. But Managing Director Steven Fletcher of the investment bank Perseus Group, which is advising Adteractive (and managed Fastclick’s private placement), says that Adteractive is “very close to formalizing the investment deal, but the target is still dependent on the market.”

Adteractive is evidently counting on the market’s enormous appetite for online advertising. A number of venture firms that have met with the 3 1/2-year-old company say that – similar to FastClick – Adteractive is looking to raise a $75 million Series A. They say the company should easily succeed in doing so, too.

For one thing, the online ad market is beginning to surpass revenue levels during the height of the bubble. The industry recorded $2.4 billion for the third quarter of last year, a 36% increase over the third quarter of 2003, according to the Internet Advertising Bureau.

In addition, Adteractive – which is paid to deliver visitors to its clients’ sites using all forms of online advertising, including pop-ups, pop-unders, banner ads, and email spam – is “a lot bigger and more profitable than FastClick,” says one VC who preferred to remain anonymous.

Adteractive is also the beneficiary of what Fletcher calls “increasingly large private equity funds that are looking to put substantial amounts of money to work and take substantial positions in companies.” In short, firms such as FastClick whose backers are Highland Capital Partners, Oak Investment Partners, and Steamboat Ventures, the venture arm of The Walt Disney Co.

Of course, there’s also the venture industry’s acute interest (or bubble-style zeal) surrounding digital-based advertising opportunities. Insight Venture Partners in New York, for example, has made six investments in the space during the last 18 months, and is trolling for more. “Last year was a banner year in online advertising,” says Insight Managing Director Deven Parekh. “This year we see growth at very significant rates in almost every subsector.”

FastClick was so hotly contested, in fact, that an estimated $50 million went straight into the founders’ pockets – a move that Adteractive’s founders also plan to mirror, say venture firms familiar with the deal.

Fletcher of Perseus Group is not publicly disclosing what Adteractive’s founders may seek, saying of the $50 million, “that could change.” He adds that FastClick’s plan “was extremely well received.”

Email Constance.Loizos@thomson.com