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Innovation Economy

Websites’ rivalry provides lesson about sharing strategy

(istockphoto.com)
By Scott Kirsner
Globe Columnist / November 22, 2009

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On July 20, 2006, Sheila Marcelo and Nick Beim flew from Boston to Chicago to visit a company called Sittercity. The business, which charged parents to access an online database of sitters and nannies, had been launched in Boston five years earlier.

“We took the meeting to talk about an investment,’’ says Genevieve Thiers, the Boston College alumnae who founded Sittercity. She’d met Beim, a partner at Waltham-based Matrix Partners, that year at a trade show. “Nick talked about how Matrix worked with companies and founders,’’ Thiers recalls.

Marcelo was serving as an entrepreneur-in-residence at Matrix, hoping to join or help start a business that Matrix would back. “I wanted to do family, health, or education - those areas were my passion,’’ Marcelo says.

Three months after the trip, Marcelo started a website, Care.com, to compete directly with Sittercity. Matrix Partners and several prominent investors poured capital into her new company - totaling more than $16 million so far. It wasn’t until late last year that Sittercity raised its first round of venture capital.

The two companies are now vying to become the go-to marketplace when families need someone to provide in-home care - essentially, the Monster.com of hiring a Saturday night sitter. And while both Marcelo and Thiers say they’d rather put ancient history behind them, their 2006 meetings shed light on the sometimes-thorny relationship between entrepreneurs and investors who are looking to put their money to work in a particular business sector.

While an undergrad student at Boston College, Thiers did a bit of baby-sit ting to earn extra money. One day on campus, watching a pregnant woman posting fliers to hire a nanny, Thiers decided to see what websites existed to connect parents with caregivers. She didn’t find much. She borrowed $120 from her dad to register the domain Sittercity.com.

After she graduated, Thiers landed a job with IBM’s Lotus division in Cambridge, and she ran Sittercity as a side project. The seed funding for the business came from her salary, mainly.

“To get baby sitters onto the site, we printed out fliers at Staples and put them up at every dorm in 33 colleges around Boston and the suburbs,’’ she recalls. By September 2001, when the site launched, she had 600 sitters in her database. The following year, when she was laid off from IBM, she decided to focus on Sittercity. She also followed her soon-to-be-husband to Chicago.

Those years, she says, were “the evangelism period for the site. I just ran around the country and did hundreds of interviews with local papers and TV stations, explaining how the site worked.’’ She has appeared on “The View,’’ “The Today Show,’’ and “Ellen’’ as an expert on hiring and managing caregivers.

Marcelo had been general manager of TheLadders.com in Manhattan, a website that lists jobs with salaries of more than $100,000. Matrix is one of the backers of TheLadders, and Beim, the Matrix venture capitalist, invited Marcelo to join the firm as an entrepreneur-in-residence in May 2006.

She says she started researching services such as pet-sitting and eldercare and discovered that women make most of the decisions about whom to hire. She started developing an “umbrella portal concept’’ to bring many of those home-based services together on a single website.

Once a company had established a relationship with a customer, she figured, it might be able to sell additional services - such as tutoring or finding a housekeeper.

“The market was extremely fragmented,’’ Marcelo says, with no one site offering a wide range of services. (Thiers says Sittercity had begun to branch into tutoring, housekeepers, and other areas a few years before.)

Marcelo acknowledges meeting with several companies that were running care-oriented sites, including Sittercity and Sitters.com, a Virginia company founded by a former AOL executive.

“We were pretty upfront with anyone we talked to,’’ Marcelo says, adding that Matrix was considering investing in or buying an existing company that Marcelo could help run. “We said that this was an idea I was working on and that it was an umbrella organization that would go beyond just baby-sitting.’’

But Thiers says that while she was aware that Matrix was talking to other sites and might put money into one of them, the idea of Marcelo starting a company “never came up’’ in three meetings with Marcelo and Beim.

Mike Cravens, founder of Sitters.com, says he also had multiple meetings with Beim and Marcelo - which included discussions of Marcelo becoming the chief executive of his company following an investment from Matrix. But as to mentioning the possibility of Marcelo starting her own business, Cravens says, “That’s an absolute lie.’’ In an e-mail Marcelo sent Cravens on Oct. 7, 2006, she pleaded with him to do a deal with Matrix and wrote that “out of respect for what you have done and despite my passion for the broader ‘care’ business, I would not entertain starting it on my own.’’ (Marcelo recalls sending the e-mail but says she can’t confirm the date.)

Marcelo launched her own company that month, after she and Matrix decided against buying Sitters.com or investing in Sittercity. When Thiers heard about the launch of Care.com, now based in Waltham, she says, “I was totally surprised.’’

A Matrix spokesperson writes via e-mail, “We can appreciate that the companies in question do not like competition, but we do not believe that their claims of unfair treatment are at all merited because both Sheila and we said from the earliest discussions with these companies that we were considering competitive options and not to share any information with us that they were not comfortable sharing.’’ (Beim would not comment, saying he did not want “to engage in that kind of mud-slinging.’’)

Business plans, of course, can’t be protected by patents, and whatever information the founders of Sitters.com and Sittercity shared was of their own volition. Marcelo writes in an e-mail, “The idea that ‘trade secrets’ gleaned from anyone else’s business helped Care.com or hurt anyone else’s business is, frankly, false.’’

Thiers raised $7.5 million for Sittercity in December 2008, in part from Providence-based Point Judith Capital. Both she and Marcelo now claim to be the leading site for finding caregivers online, and Thiers says, “There’s no valid industry in this world without competitors.’’ She says one new job is posted every five minutes on her site and as many as 2,000 caregivers sign up with Sittercity each day. Care.com claims more traffic to its site and counts 40 employees at its office and another 40 moms who work full time from home.

Both companies charge $30 a month to use their sites and emphasize that they provide background checks to help parents weed out bad apples. Both try to get media coverage (Care.com has also been on “The Today Show’’). Both are now angling to sign up corporate customers, who pay to give their employees access to the sites.

About that difference of opinions, Marcelo says, “I realize that all entrepreneurs believe that no one else had the idea before them, but a large part of whether you succeed is execution.’’

Is there a lesson here for other entrepreneurs? It may be that no question is impolite during a meeting with investors. “It’s fair game to ask who they’ve seen, who they’re talking to, what they’re incubating,’’ says Eric Hjerpe, a partner at Waltham-based Kepha Partners, who wasn’t involved with any of the three companies. “Asking lots of questions is what differentiates a novice from a pro.’’

Scott Kirsner can be reached at kirsner@pobox.com.