Fame, Misfortune, Then Fortune for Strategist Behind Online Firm

Nick Matzorkis already knows the Internet can be a risky business.

His last encounter with the network ran amok when all but one of his Web page designers, who favored close-cropped hair and black Nike shoes, took their own lives as part of the ritual suicide of the Heaven’s Gate cult two years ago.

After the surviving employee led him to the bodies of the 39 cult members in a Rancho Santa Fe mansion, Matzorkis wound up with twin fates common to Los Angeles’ public figures: a short-lived film production deal and jail time.

His instant fame soured when Ohio authorities recognized him on television as a felon who hadn’t completed his court-ordered community service, and briefly put him behind bars.

Now, the 36-year-old Beverly Hills businessman is back in the limelight, having helped raise $54 million Thursday in an initial public stock offering for a heavily advertised online venture called U.S. Search.com. The company sold 6 million shares at $9 each. The stock is scheduled to begin trading today on Nasdaq under the symbol SRCH.

Despite his past misfortune, Matzorkis’ bid comes at an opportune time, when it seems everybody with a “dot-com” firm is plunging into the helter-skelter world of IPOs.

Forty-three embryonic online stocks dazzled Wall Street last year, posting an average return of 147% between the start of trading and the end of 1998, according to CommScan, a New York investment research firm.

But the floodgates truly opened this year, with 104 new Internet businesses entering the stock market so far, raising close to $8 billion even though many of them won’t be profitable for the foreseeable future, if ever.

Now 5 years old--and still in the red--Matzorkis’ U.S. Search.com sells access to public records that can be used to locate almost any individual in America.

Database firms traditionally made their money by selling compilations of court records, driver’s license data, credit card transactions and other sources to data users such as law firms and news outlets.

U.S. Search.com, and competitors such as KnowX.com, offer corporate clients one-stop access to those same databases, but also believe there is a waiting market among ordinary consumers.

“They have a heck of a marketing force,” said Brian W. Ruttenbur, an analyst with SunTrust Equitable Securities. “The big question is, can they execute? I don’t know how you define the retail demand for finding lost loved ones.”

The business-to-business market for personal information is booming. DBT Online Inc., the parent of one of U.S. Search.com’s main data suppliers, has reported an annual profit for the two years since it went public, and last year had approximately 14,000 customers for its database unit. But it markets primarily to law enforcement agencies and insurance companies.

Matzorkis’ firm has built its brand name by selling to individual users. And that places the company squarely at odds with some privacy advocates.

“Services like U.S. Search raise the question of whether or not we’ve allowed access to public records to go too far,” said Beth Givens, director of the Privacy Rights Clearinghouse in San Diego, which receives hundreds of complaints each from victims of stalking and identity theft.

Most Internet search engines already offer people-finder services, which turn up phone numbers and addresses culled from the white pages.

For fees from $5 to $139.95, Matzorkis’ company offers access to personal information on liens, civil judgments, property records, bankruptcies, even an adoption registry.

With 118 employees, U.S. Search.com reported approximately 4.6 million unique visitors to its Web site and more than 220,000 telephone inquiries in the first quarter, and plans to draw more customers by pouring cash into its already aggressive marketing blitz.

Television ads, which run on such programs as “Judge Judy” and “The Dating Game,” tout U.S. Search.com’s ability to locate long-lost relatives. But its Web site also hawks discounts for employee screeners and bail bondsmen.

More than 90% of the firm’s annual revenue last year came from relatively basic searches for names and addresses, priced at up to $69.95, the company said, but there are no guarantees the searches will be successful. It reported a $6.8-million annual loss on $9.2 million in revenue last year, and a $6.6-million loss on revenue of $3.3 million for the first three months of 1999.

Money raised from the stock offering will be used to fund the company’s ad campaign--which accounted for nearly 60% of operating expenses last year--as well as technology expansion and the repayment of a $2.4-million debt to its majority shareholder, Kushner-Locke Co.

Matzorkis’ relationship with Kushner-Locke dates to at least early 1997, when he rose to sudden fame as the employer of about 15 Heaven’s Gate cult members at his earlier firm, InterAct Entertainment Group. A week after Matzorkis and a cult survivor found the bodies, InterAct and Kushner-Locke signed a deal to produce a film about the cult for ABC.

But his prospects dimmed when Ohio authorities saw him on TV and found he hadn’t completed his 200 hours of required community service while on probation for a 1990 auto theft conviction, records show. He was arrested by Beverly Hills police, then completed his service work.

At U.S. Search.com, Matzorkis now is the senior strategist, not a board member. He had served as president and a director until September.

Kushner-Locke, which financed the recent Jerry Springer movie “Ringmaster,” took control of the company in late 1997 and will own 55.2% of it after the offering, according to Securities and Exchange Commission registration documents. Peter Locke and Donald Kushner serve as co-chairmen.

C. Nicholas Keating Jr., a former vice president at Network Equipment Technologies Inc. and an independent business advisor in the software industry, has been U.S. Search.com’s chief executive since February. Other top executives, including the chief financial officer, have been on board for less than four months.

Although Internet commerce is exploding, the company faces numerous risks--including expensive fixed costs for online and broadcast advertising, potential liability for privacy breaches, and increasing competition.

Because the company has been in the quiet period required by the SEC before and after its stock offering, Matzorkis said he could not comment. The stock offering was handled by brokerages Bear, Stearns & Co., BancBoston Robertson Stephens and Wit Capital Corp.