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Riding a wave of growth in online advertising, Marin Software Inc. announced Monday, April 10, $7.25 million in Series B capital to expand development and sales of application software for search engine marketing. Benchmark Capital of Menlo Park, Calif., led the round, which included Series A backer Amicus Capital of San Francisco. With this capital, total funding for the two-year-old company tops $12.25 million. The deal is expected to take the San Francisco company to profitability this year. Marin founder and CEO Chris Lien said he started Marin after serving as chief operating officer of San Francisco-based incentive advertising company Adteractive Inc. In that position, he ran outsourced search engine advertising campaigns for clients, taking on media buying risk in exchange for performance payments and became aware of the need for better ways to customize paid search engine marketing. "I was surprised there weren't more management tools; we had some automation capabilities, but when I walked around the office I saw a lot of Microsoft Excel spreadsheets," Lien said. "It was a very manual process, and I saw an opportunity to create enterprise-class software." Lien, along with vice president of products Wister Walcott and vice president of engineering Joseph Chang, founded Marin in April 2006 and raised $2.5 million in Series A funding from Amicus that October. The company introduced its first hosted products in September 2007, and in October announced a second close in the first round from Amicus at an increased valuation. Marin's products manage workflow, optimization and analysis functions that allow large buyers of advertising to create campaigns that better target consumers on major search engines including Yahoo!, Microsoft's MSN, ASK, AOL and Google. The company maintains a library of millions of keywords and analytics to allow customers to customize campaigns to reach the most targeted audience, including identifying low-volume keywords to afford greater buying efficiency. The browser-based software enables users to purchase ads directly from search engine operators through its site, but all invoicing and payment is done directly between buyers and sellers. Marin charges customers by ad volume, with users paying a graduated scale beginning at 5% of total search spending up to $100,000 a month and diminishing to 2% on search spending that tops $2 million a month. Lien said after launching its products last September the company fairly quickly landed accounts from major search advertisers including online shoe and accessories peddler Zappos.com Inc. of Henderson, Nev., Redmond, Wash.-based Microsoft Corp.'s Avenue A/Razorfish online marketing unit and online real estate broker ZipRealty Inc. of Emeryville, Calif. "We were in the midst of winning Zappos and some of the others and realized this would be a good time to bring in some more money, and ZipRealty is one of Benchmark's portfolio companies, so we ended up with them fairly quickly," Lien said. Though he would not disclose a valuation for the deal, Lien said the company had a number of other offers, and that it came at a "healthy step-up" from the previous round. Benchmark general partner Bruce Donlevie said Marin's hosted pay-as-you-go model allowed the company to gain market traction quickly and said the company has the management team and domain expertise to take advantage of growth in the paid search industry. Lien said he has been surprised at the rate that search has grown during the lifespan of his company and cited estimates from J.P. Morgan Chase & Co. showing the sector growing 23% annually, from $11.8 billion in 2007 to $26.8 billion in 2011 in the U.S., and from $10.2 billion to $33.1 billion internationally over the same period. Marin used no outside financial adviser in raising the new capital. It received legal assistance from Samuel Angus of Fenwick & West LLP in Menlo Park. Craig Schmitz and Jonathan Runyan of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP in Menlo Park represented the investors. -- Clifford Carlsen
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