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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Return Path Acquires Netcreations

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Earlier this week Return Path announced that it has acquired Netcreations. As a result of this merger, Return Path now has over 1,500 U.S. marketers as clients, 500 top web sites and ISPs as data partners, 650 channel partners, and a registered user base of 41 million active consumers.

Both Matt Blumberg (Return Path CEO) and Fred Wilson (Return Path board member, managing director of Union Square Ventures) have written blogs on the deal. Rather than repeat what they’ve said (beyond – of course – congratulating both the Return Path and Netcreations teams), I’d like to talk about two key events that have occured in the Return Path’s history as a way to illustrate how acquisitions can play a key part in the creation of a startup.

Return Path Acquires Veripost – Creating a Leader in an Emerging Segment

I can’t really speak to the initial creation of Return Path as I was only aware of it shortly after I funded a company called Veripost (it was originally called IECOA – “Internet Email Change of Address” – thankfully we changed the name). The analog analog for Veripost (and Return Path) was that of the NCOA (National Change of Address) program provided by the USPS (if you have ever moved and filled out the change of address form in your post office, you are likely in the NCOA database).

Both companies came into existance in the 1999 – 2000 time frame. Veripost was a raw start up at the time that was founded by Eric Kirby (now at Doubleclick), George Bilbrey (see the comments on George below in the Assurance story), and Kevin O’Connell. Veripost spent the first twelve months of its life building its email change of address (ECOA) product. Return Path did the same and both companies launched at about the same time. We knew we were competitors, but initially didn’t realize how direct the competition would be. Even though both companies were very young, they instantly began slugging it out. There were a few other folks trying to put together ECOA systems, but they weren’t very visible.

In the summer of 2001, both Veripost and Return Path hit the road for a second round of funding. Interestlngly, they ran into each other at several venture firms who were looking at making an investment. I knew Fred was an investor and either I reached out to him or he reached out to me (I can’t remember which). If you recall the late 2001 funding environment, it was pretty bleak as the Internet bubble had burst and VCs were rapidly retrenching to work on their existing companies. In the context of this, Fred and I quickly broached the idea of merging the companies and then backing the combined enterprise. Given our past relationship (which was extremely positive and high on trust), we were open about strenghts and weaknesses on both sides. Fred has reminded me several times that at the end of our first conversation, I said something to the effect of “We can fund these companies separately and they’ll continue to beat the shit out of each other. At some point, one of us will have picked the right one and the other company will be dead. Or, we can merge them together and – worst case – we’ll have one shitty company to worry about…” (probably reflecting the emotional low that most VCs – and technology entrepreneurs in general – were feeling after the Internet bubble burst).

Simultaneously, Eric and Matt had started talking to see if combining the companies made sense. They had a typical “hush hush” meeting at a trade show (one of the DMA shows, if I remember correctly) and both came away excited about the idea of merging the companies. Since both the CEOs and investor groups were aligned on the idea, we started working on it in earnest.

In short order, we came to terms on a deal to merge the companies and put together a single financing. Both Fred and I have done a lot of mergers so we insisted that the two management teams work out the combined vision and team before we pulled the trigger on the deal. As part of this, Eric and Matt did a superb job of rationalizing the senior team and the operations of the company – leaving the CEO, finance, and sales in NY (where Return Path was located) and engineering, operations, and customer support in Colorado (where Veripost was located). Pre-merger, Veripost had about 15 employees; Return Path had about 25. Post-merger, the combined company had around 20. We were nervous about the split geography, but in hindsight it has worked out remarkably well. The integration was very smooth – hopefully Matt will blog about it at some point.

Greg Sands from Sutter Hill had been looking at both companies. He very much liked the idea of merging them together so he led a financing that Mobius, JP Morgan, Flatiron, and Doubleclick participated in.

Return Path Acquires Assurance Systems – Extending an Established Company into an Adjacent Market

Return Path’s ECOA business took off nicely. However, after about a year (end of 2002), the ECOA market was growing slower then we had anticipated. Since we had an excellent customer base and reputation / relationship with these customers, we started thinking through other potential services that we could add to the platform we had created. Spam had become a key issue for the email marketing industry and our clients (legitimate opt-in direct marketers like Williams-Sonoma) were struggling to insure that their email got through to their customers. Coincidentally, one of the Veripost founders – George Bilbrey – had started a new company called Assurance Systems. George had bootstrapped his company – working out of our offices in Colorado – and was growing the business very quickly.

We starting talking about Return Path acquiring Assurance Systems. George was still an observer on the Return Path board – as a result he was very aware of where we were as a business as well as the strategy discussions we were having. George, Matt, and Karl Florida (Return Path’s VP of Operations) went deep on the idea and we quickly agreed that the fit was superb as the functional strategy made a lot of sense and we felt confident that we could cross sell Assurance’s products to existing Return Path customers (we were already doing this). Geography was easy – George and Assurance were in the same office as the Return Path Colorado office. The cultural fit was also easy – George would be rejoining a team that he had helped create at Veripost.

Once we decided to do the deal, we were able to complete it in about 30 days. A year later, the delivery assurance segment of Return Path’s business has grown to be the same size as the ECOA business and shows no sign of slowing.

Act 3: Return Path Acquires Netcreations

Return Path’s acquisition of Netcreations is our most significant deal to date. Return Path now provides the email marketing market’s largest and most trusted permission-based customer acquisition solution. We also provide the leading market research solution to direct markers. We believe that as a result, Return Path now offers marketers an unparalleled suite of best-in-class e-mail marketing solutions to improve the performance of their customer acquisition and retention e-mail programs.

Matt Blumberg, Michael Mayor, and the combined Return Path / Netcreations team – congrats and let’s go get ‘em!

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