Spongecell Gets $10M Series B, Continues Growth in Ad Tech

In the fast-evolving advertising arena, Spongecell is a prime example of how a hard pivot with different technology in place can transform a company’s fortunes.

On Tuesday the New York company, which adds interactive functions such as video and Twitter feeds to banner ads, announced it raised $10 million in a Series B round led by Safeguard Scientifics. Spongecell CEO Ben Kartzman says the new funding will go towards product development and other needs. More importantly, though, Kartzman also says Spongecell more than doubled its revenue last year compared with 2010, as he previously expected.

As Spongecell fills its coffers, grows its staff, and expands into new territory, it is hard to imagine that four years ago the company was running out of cash, letting employees go, and searching for a new direction.

Spongecell’s current technology transforms static banner ads into more interactive tools to engage consumers. In addition to Twitter and other social feeds, Spongecell can insert video, maps, coupons, and other features in the ads to grab attention. For example, when users mouse over banner ads for the Mini Cooper the ad plays a video clip that promotes the car. “Video is the fastest-growing segment of the online ad space,” Kartzman says.

Including the latest funding, Spongecell has raised about $14 million in total from backers that include Google executive chairman Eric Schmidt. In 2010, Spongecell generated $3.8 million in revenue and Kartzman says the company more than doubled that figure in 2011, though he declined to give specific numbers.

That is a much different tale compared with Spongecell’s early history. The company, founded in 2006, initially offered a widget platform for ad agencies to use for online promotions. When that did not bring in enough business and Spongecell’s cash ran dry in 2008, the company shifted in 2009 to its current approach and technology to make banner ads media-rich.

Now Kartzman says Spongecell is focused on enhancing display ads with new features and functionality including ways to quickly generate ads that are tailored to customers’ needs. Spongecell works with such brands as Dell, IBM, HP, and Comcast. Kartzman says though Spongecell’s technology already works with banner ads for the traditional Web, his company plans to expand this year with technology geared for the mobile market. As more of the public interacts with content through mobile devices, the advertising industry must adapt. “We’re consuming content on our tablets, mobile devices, and connected TVs,” he says. “Advertising will play a key role in each one of those interfaces.”

Using technology such as Spongecell’s to shorten the time it takes to create interactive ads has become a crucial part of bringing down costs in the industry, Kartzman says. He also says it helps ad agencies target audiences more closely and increase the relevancy of the ads. “It gives creative agencies a ton more flexibility and power,” Kartzman says.

Kartzman says Spongecell plans to expand its staff, which is currently about 50, this year across all its departments, but he did not have a target number for potential hires. “We’re actively looking for engineers, sales, and production,” he says. Many of the hires, Kartzman says, will be in the new territories the company is expanding into. In particular, Spongecell is establishing a presence in London and fleshing out its teams in Chicago and the West Coast. “In Chicago we have some feet on the street already, but we’re going to add to that,” he says. And recruitment is already underway to build up the London branch. “This [new] funding helps us accelerate and move faster,” Kartzman says.

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