Small Businesses Are Finally Getting Online

We asked VCs this month about the most significant trends of 2009, and this was one of them — that after years of waiting, small business owners finally saw it as worthwhile to get themselves and their companies onto the Web.

“People used to think it was impossible to sell to small businesses, except through the Yellow Pages, who put armies of people on the street going door-to-door asking businesses to advertise,” said Sharon Wienbar of Scale Venture Partners. Then she ticked off several Scale portfolio companies that do online marketing for small businesses — HubSpot, MerchantCircle, Reply.com — adding that each had a strong year.

ReachLocal’s proposed $100 million IPO today (S-1 filed here) is more evidence that she’s right. The six-year-old company connects small businesses with potential customers by managing both their online and offline ad campaigns and has raised $68 million, according to Thomson Reuters — including a Series D of $55 million a little over two years ago.

This year it was profitable –$143 million in revenue for the first nine months of 2009 and net income of $11.66 million, compared to around $100 million in revenue a year ago with a $4.47 million loss.

ReachLocal has risks — the company says in its S-1 that it is fixing deficiencies in its internal controls for capitalizing software development costs and is also worried about possible government regulation of online advertising. Another risk it cites is VantagePoint — ReachLocal says the firm will own a substantial amount of stock after the IPO (it owns over half the shares now) and, with two board members, including chairman Alan Salzman, will have significant influence over its business.

Still, its success shows that when given the right opportunity, small business owners will get online.

So many did this year that they attracted more attention from hackers — proof on the Internet that you’ve arrived. In November, the FBI reported an increase in scams involving bank credentials stolen from small businesses, municipal governments and school districts and warned all of them to protect their computers.

1 Comment

  • Please note that ReachLocal lost $4.4 million on an operating basis for the first 9 months of 2009. The profit was recorded due to a one time acquisition related gain of $16 million.

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