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Running on Love

The CFO of a group of online dating sites talks about growing in an industry fueled by people's specific (sometimes very specific) romantic preferences.

Tell me more about the competition from the larger companies in the broader markets. You’re referring to competition for ad position in Google AdWords, right?
Exactly. Google works on an auction basis, and for a search term such as matchmaker.com, which is our trademark, someone will bid $5 cost per click. No one in our industry can make money at that cost. So we let our competitors take better search positions for our trademarks. We know that they lose money on [those] activities, and we cannot compete based on the ability to outspend them. This is very similar to a margin squeeze in manufacturing, where you have to buy raw materials from the same group of companies that you are competing with in selling your finished goods.

What are the challenges to getting financing at an Internet dating company?
I don’t have receivables, I don’t have inventory. I have probably five million or six million dollars in fair market value of domain names. But that’s an intangible, and it’s hard to go out and borrow money [against] it. If I were manufacturing something, I’d have capital equipment, receivables and finished goods, and I might have buildings and land. In this world, besides the domain names, all I have is a cash-flow stream, and I have to borrow against that. That doesn’t mean I can’t buy capital equipment. If I want to buy a rack of computers, I can get the financing as long as I put up the computers that I’m buying to secure the loan.

As CFO, do you get involved in acquisition decisions?
I look at the risks and the numbers. I make sure that what [a target] tells us they generate is what they’re generating if we’re going to buy it. Or if we’re buying a domain name, that makes some amount of sense. Usually, as the CFO, you are the conservative, rational voice in a sometimes irrational world — especially at a highly entrepreneurial Internet company.

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