MerchantCircle Gets IAC Money, 250,000 ‘Members’

MerchantCircle is claiming a registered base of 250,000 small businesses. That’s a lot – a penetration of 4.8% of the 12 million U.S. businesses that advertise. It has also announced $10 million of new funding, adding the likes of IAC and Square 1 Bank to prior investors, who include Rustic Canyon Partners, Scale Venture Partners, and Steamboat Ventures (the venture capital arm of The Walt Disney Company). Among other things, the money will be used “for acquisitions.” 

The fact that Merchant Circle has kept all its original investors says something to me. And its ability to get financing from IAC, while forming partnerships with IAC sites such as CitySearch and HotWire, also says something to me. The people at WebVisible, who have added MerchantCircle to their small business sales arsenal, also seem bullish on the company. 

But if a money person called me and asked me about the company, I’d still give a very mixed report. I’d say the company has developed some state-of-the-art tools for small businesses. It gets small businesses into search engine marketing and search engine optimization, and bolsters the case with blog tools and coupons. And with 580,000 unique visitors, per Quantcast, it is making some money from Google, and can make some more. 

But the claim of 250,000 registered businesses, while impressive, should be sliced-and-diced for exactly what it is. The vast majority may have been duped into registering by an aggressive telemarketing campaign that strongly implied these businesses had a negative review, so they should go on line and check it out. To see their “review,” they first had to register.

The obvious question is how many of these violated businesses become loyal customers of Merchant Circle and are ready to be upsold into the SEM and promotion packages, etc. No one will tell me. I imagine it is a very low number. Maybe it isn’t. 

The company does report traction in a few areas, though. For instance, it says it is publishing 7,000 unique coupons a month. Assuming that each SMB has one coupon, that means it has an active user base of at least 7,000. That’s a start.