RealTime IT News

Cash-Strapped MindArrow Inks Financing Deal

In another sign of returning venture capital interest in the online ad space, rich media e-mail firm MindArrow Systems will receive up to several million dollars in badly needed financing, and also expects to benefit from the presence of an influential new board member.

The Huntington Beach, Calif.-based firm, which ended last quarter with only about $13,000 in the bank, will receive $1.8 million immediately from investors led by Los Angeles-based East-West Capital Associates. An additional $1.2 million will be handed over following shareholder approval.

Through the agreement, MindArrow also receives a commitment by East-West to provide an additional $1 million if asked by MindArrow's board of directors, which will now include the venture firm's chairman, longtime media executive Merv Adelson.

In return for the financing, MindArrow will cede about 10 million shares of its common stock at a price of about $0.40 per share. Meanwhile, the firm said that holders of all outstanding convertible preferred shares of the firm's stock have agreed to convert their shares into common stock, eliminating a liquidation preference overhang of about $27.7 million.

The firm also said that in return for advisory and consulting agreements with East-West, it would issue up to 9 million warrants to purchase the company's common stock at prices ranging from $0.50 to $1.25 -- worth a total of $7.5 million in cash.

MindArrow said the financing agreement would help the firm continue operations and its push for profitability, while providing additional funds for growth. Chief Executive Robert Webber said the company -- which posted losses of $2.9 million on $764,000 in revenue last quarter -- is "very close" to turning an operating profit.

Additionally, Webber said the firm expects to benefit from the presence of Adelson, who has held the chairman post at Lorimar Telepictures, which he co-founded, and who most recently served as vice-chairman of Time Warner. Time Warner's predecessor, Warner Communications, acquired Lorimar in 1989. (Adelson was also involved in the origins of Interpublic-owned ad agency Bozell Worldwide, which began as Lorimar's advertising subsidiary.)

"East-West brings much more than capital," Webber added. "Merv Adelson and his team will provide strategic counsel, advisory services, and a wide range of relationships from their extensive experience, especially in the media and financial services industries, that should help position MindArrow for the next phase of the company's growth."

That could be crucial for the firm, as a number of rich media ad players in both e-mail and online media are seeking "ins" with traditional media and advertising players, in a bid for a bigger piece of advertisers' marketing budgets. That push hinges on one of the chief beliefs surrounding rich media advertising, which is that it's suitable for brand advertising, similarly to television, more so than are static e-mail or online ads.

Recent weeks have seen increased venture activity in the online marketing space. Last month, ad network and marketing services firm B2BWorks landed $3.25 million from previous investors. Earlier this month, enterprise marketing management ASP Aprimo received $12.5 million in its fourth round of financing.

Early last year, MindArrow competitor Dynamics Direct closed a $12.5 million funding round, from investors including a venture group backed by ad agency holding giant Omnicom Group .