Answers.com buys e-commerce solutions firm Webcollage for $37m; an underwhelming outcome

Editor’s note: This story was originally written in Hebrew by Yaniv Feldman and Avishay Bassa, and was originally published by Geektime, the largest tech blog In Israel. 

According to information obtained by Geektime, Answers.com last week signed a deal to purchase Israeli startup Webcollage, a cloud-based software firm that allows manufacturing companies to update marketing materials directly from the websites of retail shops, for about $37 million.

The transaction price reflects a loss for Webcollage; investors collectively pumped nearly $50 million into the company over the past few years.

Answers.com, also originally an Israeli company, was acquired in February of 2011 for $127 million by private equity fund ACVF, which closed their Israeli development center less than a year after the purchase and dismissed all the workers there.

Now, a year after the closure of the center and the purchase of Webcollage, Answers.com is expected to open a new development center in Israel.

Webcollage’s infrastructure will become an independent arm of Answers.com, focusing on the development of SaaS services.

Webcollage currently employs 50 people at its development center in Israel. These employees are expected to join Answers.com as part of the new Israeli development center.

It is unclear what will become of the additional 50 employees at their US headquarters. It is also unclear whether Answers.com plans to continue Webcollages’s current product.

Webcollage was founded by Eli Singer, Eilon Reshef and Gil Tayar in 1999, just before the big dotcom bubble burst, and raised a modest seed investment from Cedar Fund Israel.

The original idea of the company was to create the ability for commercial customers to implement different elements (the terminology used back then was iFrame) of their websites, in other places on the Web.

Since its inception, the company managed to replace three CEOs and raise $48.6 million from a variety of funds, including Sierra Ventures, IT Glide, GSI, Greylock Israel and Cedar Fund – all of whom continued to support the company through its recent exit.

Over the years, the company changed its product and solution offering a number of times. The last manifestation was an SaaS platform that allows manufacturing companies to distribute and update marketing materials directly on retail store and distributor sites.

For example: Samsung can update all the posters, images and marketing messages directly on the websites of stores and distributors selling their devices. The updates automatically format themselves to suit the target site.

According to Webcollage, the ability of manufacturers to update Web pages and information provided at the point-of-sale improves the chance of completing a purchase by over 30 percent.

The latest reports of Webcollage show the company providing services to over 1,000 customers worldwide, including Microsoft, Pfizer, HP, Procter & Gamble, Samsung and Cisco.

Also, late last year, Webcollage launched a platform that allows even tiny manufacturers to enjoy its solutions, enabling small companies to spread the word about their products to retail stores online.

When examining the story of Webcollage in depth, it’s hard not to compare it to the story of fellow Israeli startup Xeround, which closed its doors earlier this month.

Both companies have raised small amounts over the years, but the difference between the two is the end of the story.

While Xeround failed to reach significant profitability, Webcollage reached an exit, only at a loss to its investors.

Based on the last two funding rounds (about $2 million each), out of seven rounds raised by the company in total, we can see that despite securing ‘big name’ customers and bringing in revenues – that according to various publications in 2007, reached $20 million – Webcollage was unable to turn a significant profit (if at all) and was forced to use its cash influx to refocus operations and keep itself afloat.

Since the company was unable to get where investors and founders had hoped, when the offer from Answers.com came in, investors and management decided accepting it would be the best move for all parties involved.

In an interview with Geektime, Amnon Shoham – a partner at Cedar Fund, the VC firm who’s been with Webcollage since its establishment – explained that the decision to sell at a loss was not simple.

“Although we have not gained in this deal, we mitigated our losses more than we expected we would. When we first invested it was in a world where Enterprise Services was hot.

“And in recent years the company was trying to make its move into SaaS, but the company’s solution itself, is exactly the same solution to the same problem Eilon saw 13 years ago.

“Throughout the life of the company, our fund decided to support it because we saw a talented team of entrepreneurs who invested their souls in the company and have remained committed to the company over the years. Though the executives changed along the way, Eilon has always been the vision and the driving force behind it.”

Shoham added:

“Our investment, as it is with all our early stage investments, was in the team.

“Our investments are built around 10 year time frames because we invest in early stage companies and these stages take longer to mature, and investors understand this. I think one of the difficult tests of the investor is to determine whether they can stand alongside the developers, even in difficult times.

“When you see that the developers are committed to the company, that they invest their souls, it’s the right thing to support them and see what happens, and that’s what we did in this case too.”