Escrow.com Will Get Funds From Softbank, Others
Escrow.com Inc. is expected to announce today a $30-million investment from high-profile Internet partners like Softbank Corp. to help it provide a haven for businesses that distrust electronic commerce but still want to buy big-ticket items online.
The Santa Ana e-commerce start-up, controlled by title insurance giant Fidelity National Financial Inc., is positioning itself as a place where business buyers and sellers on the Internet can entrust their funds until a sale is complete.
Fidelity is betting it can leverage its position as the nation’s biggest real estate escrow company to grab a piece of the fast-growing world of business-to-business e-commerce, which analysts predict will exceed $1 trillion in transactions next year.
The $30-million endorsement puts Escrow.com in a stronger position to compete against its two key rivals, Northern California’s Iescrow.com and Tradesafe.com in Rhode Island. Its rivals have focused on providing escrow services for consumers, rather than businesses.
Escrow.com plans to use the funds to build its services and penetrate new markets.
Besides Tokyo-based Softbank, other outside investors are Chase Manhattan Corp. in New York, Hong Kong technology company Pacific Century CyberWorks Ltd. and VerticalNet Inc., a Horsham, Pa., operator of business-to-business Web sites.
Escrow.com was founded last fall as a unit of Micro General Corp., which is 70%-owned by Fidelity. Micro General also is contributing venture funds to its subsidiary.
Escrow.com, which plans an initial public stock offering this fall, hopes to capitalize on the inherent distrust that comes from doing business with strangers on the Internet. Buyers worry about the quality of goods or services they buy online, while sellers fret about getting paid in full.
“In the past, businesses developed relationships with one another over time,” said John Snedegar, president of Escrow.com. “But with the new economy, you might buy from one company today and someone else tomorrow. Relationships aren’t developed, so trust never develops.”
For a fee ranging from 0.25% to 3.5% of the transaction value, Escrow.com will serve as a middleman for large e-commerce transactions, holding the money until the goods are delivered and then releasing the funds to the seller, much in the same way that real estate escrows are handled.
“Our business model is to sit in the middle,” Snedegar said.
Escrow.com plans to target business-to-business transactions, ranging from office equipment to vitamins, from software to automobiles. The company also plans to offer shipping, trust accounting and other services.
Wall Street already has taken notice. Stock in Micro General shot up from about $17 a share in January to a high of $43.50 in March.
But the recent technology slump and fears that the business-to-business niche is saturated have hit the company hard. Its stock closed Monday at $13.50 a share, down 88 cents in over-the-counter trading.
Nevertheless, some analysts are gushing about the long-term potential for Escrow.com, particularly if the company can dominate the business-to-business segment.
“They’re sitting on a gold mine,” said Michael Grondahl, analyst at U.S. Bancorp Piper Jaffray. “I think you’re going to see that stock run through the roof.”
