New Internet Venture for IMall Co-Founder

This time last year, San Fernando Valley native Richard Rosenblatt suddenly became very rich.

It seemed everything Internet was gold then, and he had just agreed to sell IMall, the Santa Monica Web shopping company he co-founded when he was 25, to Excite@Home in an all stock-deal for $425 million. He owned roughly 10% of the company.

Since then, Internet stocks have fallen out of favor, and Excite@Home has seen its shares plummet about 60%, dragging down the UCLA graduate’s own worth--on paper, anyway.

Rosenblatt, 31, isn’t worried. The former attorney thinks it’s the perfect time to be starting Prime Ventures, a Santa Monica investment firm with $17 million from individual investors. Including some investments he made on his own last year, Prime, which was formed last year, has placed bets on 12 companies, all Internet-related and more than half of them in Southern California.

“The Internet is not going away,” Rosenblatt said. “There are now less of these lousy deals and some entrepreneurs’ egos have been deflated and some of these crazy valuations are gone. We can find the right deals.”

Although many venture capitalists are in a holding pattern, storing investment money to help their portfolio companies through the tough times, Rosenblatt is in investment mode and planning to raise about $200 million for his first major fund. He calls himself and his venture capital team--former J.P. Morgan investment banker Edward A. Cespedes and former Capitol Records executive and new-media specialist Liz Heller--”street VCs.”

“We’re scrappy; we can get things done. We figure things out,” Rosenblatt said. “I was never a VC. I am a person who understands entrepreneurs, who can help them get their companies up and running. Unless you grew up in the [Internet] space, you can’t maneuver quickly enough to be successful.”

This month, Prime Ventures had one of its first successes with the sale of portfolio company WebMillion, an online Internet sweepstakes firm based in Boise, Idaho, to L90, a Los Angeles-based online advertising company. The company was sold for $20 million, roughly an eightfold return for investors, Rosenblatt said.

Rosenblatt, the son of two academics, graduated from USC law school and worked for a major downtown Los Angeles law firm for four months before leaving, saying he had to be involved in the Internet.

IMall had its ups and downs, including a 1999 scandal when the company and two former executives agreed to pay $4 million to settle Federal Trade Commission charges that they misled people about how much money could be earned selling advertising for the company’s Internet shopping mall. Former IMall President Mark Comer and former Chairman Craig R. Pickering, also co-founders of the company with Rosenblatt, were barred for life from selling any Internet-related business opportunities as part of the agreement, the FTC said.

Rosenblatt was not charged and remained at the company, helping to negotiate its sale to Excite@Home.

“I’ve been through almost everything--you have no idea,” he said. “And I think our entrepreneurs like that. You’ve got a problem, I can handle it.”

Andy Kraftsow, who helped co-found DolphinSearch, a document retrieval company in Camarillo, said Prime Ventures will own about 11% of the start-up after a second-round investment later this month.

“Rich is our only VC,” Kraftsow said. “One reason was proximity. I met with people in Silicon Valley and New York, but I wanted to work closely with someone and not have to fly all the time.”

The ability to perform as a proven entrepreneur and trust were other reasons, he said.

“Sometimes in N.Y. and S.F. with VCs, it’s education and style, not much else. Rich made money. He knows how to make money, and he did it not by loaning, but by building a business.”

Other companies in Prime’s portfolio include GreatDomains, a Studio City-based online broker of Internet domain names, which owns more than 1 million listings, and CelebSites, a Santa Monica venture started by “Dumb and Dumber” producer Brad Krevoy, which creates official Web sites for movie stars.

While some of the companies Prime is supporting will share new office space the firm is leasing in Santa Monica, Rosenblatt said he is not running an incubator and doesn’t want to copy that model, hiring a large staff and coming up with ideas for new companies internally.

“Our companies don’t want to be controlled, they want to be helped,” he said.

Prime investors such as Randall Kaplan, founder of Los Angeles-based JUMP Investors, said Rosenblatt has done an “excellent job of guiding early stage companies and creating value through his relationships and his network.” Kaplan said GreatDomains could be a big winner.

George A. Vandeman, former head of mergers and acquisitions for the Los Angeles law firm Latham & Watkins, has invested about $500,000 with Rosenblatt, whom he called “mature” for his age, noting that he surrounds himself with seasoned advisors. He also likes Rosenblatt’s Internet expertise.

“I am computer illiterate,” Vandeman said. “I have no way of participating in the Internet space on the VC side unless I do it with an expert. Rich has an excellent background.”

Vandeman isn’t worried about recent stock market declines.

“There might not be an [initial public offering] candidate every five minutes, but there is now a greater array of investment opportunities,” he said, noting that the spring downturn has brought stock valuations to more manageable levels.

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Times wire services were used in compiling this report. Remember that initial public offerings are highly speculative and not suitable for all investors. Debora Vrana, who covers investment banking and the securities industry for The Times, can be reached at debora.vrana@latimes.com or Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012.

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Prime Partners

These are some of the companies in which newly formed Prime Ventures has invested. While it does not divulge amounts, the fund’s average investment is $750,000.

* GreatDomains: A Studio City online broker of Internet domain names, with more than 1 million listings.

* The Brain: A Santa Monica company whose technology “enables users to organize, navigate and communicate complex materials on the Internet.”

* Dedication Channel: A Glendale company that allows consumers to integrate radio, animation and music on the Web.

* DolphinSearch: A Camarillo company started by a research psychologist who sees links between dolphin behavior and Web surfers. The company is creating technology to develop new search techniques on the Web that would be alternatives to directories like Yahoo and traditional search engines.

* CelebSites: A Santa Monica company that is a leading developer of official celebrity Web sites, including those for John Travolta, Denzel Washington and Helen Hunt.

* Infantelligence: A Taos, N.M., company that aims to be a resource for prenatal and early childhood development.