Oak Investment Partners’ Unnecessarily Oversize Gamble

People familiar with the venture industry know of Oak Investment Partners’ reputation as a gunslinger that likes making outsize bets. Still, on Monday, when New York-based AdKeeper announced a $35 million round of funding led by Oak, jaws around venture firms everywhere dropped – or at least they should have. 

AdKeeper is just 10 months old. It hasn’t launched. It raised its first, $8 million round only five months ago. And it is based on a wholly unproven concept: that people will begin paying attention to Internet ads, then save them in a digital locker to savor them at their leisure.

“It’s a very ambitious, moonshot- type startup idea,” said online advertising analyst Andrew Frank of Gartner Group.

MediaMemo’s Peter Kafka wrote Monday that the whole thing reminds him of CueCat, a cat-shaped barcode reader developed in the ‘90s to unlock Web pages by scanning barcodes. (The idea was to obviate the need to type out URLs — but no one was interested in creating barcodes for the system.)

AdKeeper founder Scott Kurnit — who founded About.com in 1996 and sold it to publisher Primedia five years later for $700 million – even characterizes the company’s mission as “obviously audacious.”

But Kurnit isn’t betting a stunning amount of money on the possibility that AdKeeper will fundamentally change online behavior. That gamble is mostly Oak’s, and I’d be cringing if I were one of their LPs. I say that not because I think AdKeeper will fail miserably when its system is rolled out to the public in mid-February but because of Oak’s role in the size of that gamble.

Kurnit said the company had initially set out to raise a $15 million Series B. Roughly twice as much as the $8 million it raised last fall — including from Spark Capital, True Ventures, and DCM — the money would still be a lot for a prerevenue company to raise, but it  “would have carried us through launch to the next milestone,” he said.

What changed the target were “discussions with VCs like [at] Oak who said, ‘What if you take all the money you’ll ever need – what if you do your B and C rounds all at once?’” said Kurnit. Though not exactly what he had in mind, “We said, ‘Well, what if we took twice as much as we need? We can handle it in the cap table and dilution.’ And it became very appealing.”

It isn’t hard to see why. In the view of Kurnit, a gregarious and compelling pitchman who has already lined up 25 brand partners, including Best Buy and the Gap, “there’s a 90 percent chance that [AdKeeper] is huge and a 10 percent chance that I screw up. And if it’s huge, you don’t want to starve it; you want resources.”

No doubt there’s plenty of room for innovation in the online advertising world, along with tremendous upside potential. (Witness Groupon and Gilt Groupe.) Still, I can’t help but wonder if the extra funding Oak pushed at AdKeeper wouldn’t be better off elsewhere, at least until the company tests out its concept on the public.

Asked how he’ll be deploying the enormous sum of money AdKeeper just raised, Kurnit said that AdKeeper has plans to spend on sales, marketing, and software development.

He also said that for now, he’s putting most of it “under the mattress.”

(For new details about how AdKeeper will work and the opportunity it’s chasing, check out my Q&A with Kurnit.)