[credit provider=”screenshot via YouTube” url=”http://www.youtube.com/watch?v=j1ELg8pInoo”]
In 1995, the Match.com management team was preparing for its first significant TV interview. The online-dating site had gone live that same year, and Gary Kremen, the founder and CEO, was slotted to speak.The day before the interview, Match Communications Director Trish McDermott gave Kremen specific instructions: don’t wear black or white, don’t wear a shirt with busy patterns, and don’t say anything controversial.
The next day, Kremen came into the office in a tie-dyed shirt, wanted to do the interview from a brightly coloured bean bag chair, and shocked everyone in the room when he said to the camera, “Match.com will bring more love to the planet than anything since Jesus Christ.”
As McDermott watched this scene unfold, her first thought was, “We’re destroyed.” But she soon realised Kremen’s performance was “brilliant,” as it reflected his character, his grand vision, and the company’s eccentricity.
In 1994, when only about five per cent of Americans had Internet access, Kremen took a $2,500 advance on his credit card to buy the domain name Match.com. Today, Match is the undisputed leader of online dating.
According to Internet data provider comScore, Match attracts more people than any other dating site in the U.S., with over 5 million unique visitors per month. And early this year, it announced the acquisition of OkCupid, one of the fastest-growing free dating sites.
Incredibly, however, Kremen has no ties to the Match brand today. He started the site at the age of 30 and left merely two years later. Kremen walked away with just $50,000 when he departed Match, a site that is on track to earn over $450 million in revenue in 2011.
A Chicago native, Kremen attended Northwestern University and graduated from Stanford business school in 1989. His former colleagues describe him as a high-energy visionary. “He thinks big… he’s very smart,” says Fran Maier, the former General Manager of Match.
“Tenacious is the first word that comes to mind,” says Thede Loder, a Match engineer from 1995 – 1996. And Ron Posner, one of the first angel investors in Match, said that Kremen in 1995 was “very innovative, very sure of himself… and was one of a handful of early entrepreneurs on the Internet.”
Kremen is about as quirky as he is smart. He is a big Grateful Dead fan— he attended 50 of their concerts.
He’s notorious in Silicon Valley as “sort of a wild man,” according to Thede Loder. His availability for phone conversations rarely exceeds six or seven minutes. Between his two years at Stanford, he had a summer internship at Goldman Sachs and was so disruptive that, just three weeks into the program, a Goldman partner offered to buy out the rest of Kremen’s internship if Kremen promised to quit on the spot and return to San Francisco.
Kremen took his first stab at entrepreneurship after graduating from Stanford, launching two software companies. But his own search for a woman led him to a larger business opportunity in 1993. Kremen was paying $2.99 per minute on 900-number dating services that, along with newspaper personals, video dating services, and matchmaking, dominated the dating industry at the time.
He found the 900-number services inefficient, and one day it hit him: if he could create an online database of personal advertisements, it would allow people to search for significant others more quickly, more anonymously, and at a lower cost. By May 1994, Kremen owned Match.com and other highly valuable domain names including Jobs.com, Housing.com, Autos.com, and Sex.com.
Kremen founded Electric Classifies, Inc. (ECI) in 1993 to realise his vision of an online personals database. In his pitch to get investor funding, he positioned Match as the first online classifieds site he would launch, soon to be followed by other, more traditional online classifieds such as jobs, housing, and cars. He wanted to launch Match first because it was a sexier category; he thought it would attract more “eyeballs.”
Late in 1994, Kremen secured about $1.5 million in funding from angel investors and a few venture-capital firms, with Canaan Partners leading the charge. Match went live in April 1995; it was among the first few online-dating sites to launch on the web.
Match grew rapidly in the year of its inception; at one point traffic was ballooning by 3–4 per cent per day. Kremen was successfully realising the marketing vision he had since day one: get women to join, and men would follow. He was spending every waking hour working on the site, but a rift began to form in the board room.
The first point of contention was the business model. The V.C.’s wanted ECI to be a software platform that provided back-end technology to big newspapers, allowing them to put their existing classifieds online. But Kremen lost faith in this strategy when he saw how slowly newspapers’ operations moved.
The board also disliked the personals category. According to Fran Maier, “There was a lot of snobbery among the board and the management team. It was like, ‘Oh, this is yucky. This is personals, this is 900 numbers.'” She says they didn’t understand that “we were not only creating a new business category… but a new rite of passage that would ultimately be used by millions.”
And the V.C.’s had serious doubts about Kremen’s management skills. The founder once publicly fired an administrative assistant who refused to work seven days per week. To build the Match staff, Kremen was hiring mostly 23 to 28-year-olds who didn’t have as much experience as the board would have liked.
After butting heads once too often, the V.C.’s removed Kremen from the CEO post in mid-1995, although he remained on the ECI board.
The board’s next step was to find a new CEO, but their search was ill- fated from the start. Richard Neustadt, the first candidate, was “a great, salt-of- the-earth guy,” according to Kremen. Kremen liked Neustadt even though the newcomer was taking his former job. But tragedy soon struck.
On the weekend before Neustadt’s first day at ECI, he died in a rafting accident on the Yuba River in northern California. The next two CEOs the V.C.’s brought in proved incapable and had to be replaced.
Then the board made a billion-dollar mistake. Deepak Kamra, the lead V.C. at Canaan Partners responsible for the Match investment, regrets the move as one of the biggest missed opportunities of his career. Frustrated with the difficulty of finding the right CEO, and eager to pursue the newspaper-partnership business model for ECI, the V.C.’s spun off Match in 1997, selling it for $7 million to Cendant, a Connecticut consumer-services company.
Kremen was devastated. He had strongly opposed the sale, but the board outvoted him on the decision. “It was my baby. It took me some time to let go,” he said in a 1998 interview.
Compared to the less than $2 million that had funded the company up until then, the $7 million sale price might not have seemed excessively low. But just a year and a half later, in June 1999, Cendant sold Match to Ticketmaster Citysearch Services for $50 million.
“Talk about mis-pricing,” Kremen says today. The VCs had let go of a gold mine.
Kremen received only $50,000 cash from the Match sale. He retained stock in ECI, but that eventually became worthless, as the company went out of business in 2004 after continuing to pursue the flawed business model of providing back-end technology to newspapers.
The loss of Match crushed Kremen emotionally, but it taught him a lesson that has shaped the rest of his career. He realised he’s not a natural manager; he’s an idea man with a knack for spotting trends before they fully form. He remains obsessed with technology start-ups, but he knows his best chance of success lies in letting others lead the companies he invests in or founds.
Clean Power Finance (CPF) is a prime example. He founded it in 2006 to serve homeowners interested in installing solar panels. He devised a creative way to help them pay the heavy upfront costs of installation, which often totals $30,000. Kremen hired CPF’s employees but brought in someone else as the CEO, and in early September 2011, the company closed a round of $25 million in V.C. funding. Then at the end of September, Google invested another $75 million in CPF.
And Kremen is ramping up another company he founded called Sociogramics, which he won’t say much about, other than that it will use social media data to help people get loans and develop financial literacy.
According to his former Match colleagues, Kremen has matured significantly since the mid-1990s. That’s not to say he has shed his quirkiness—to this day, his voicemail greeting says, “Hi, you’ve reached Gary Kremen. Please leave positive news after the beep, and negative news before the beep.”
Nor has he lost his hunger for financial success. Despite a net worth of over $20 million, Kremen still has what he calls the “capitalist migraine,” an obscure reference he draws from a 1991 rap song by Ice-T. And he’s not stopping anytime soon.