Hacker Connect January 16 in New York
An event for and by the real estate tech community

Editor’s note: In this two-part series (read Part 2: "Why did Move spurn ActiveRain"), Inman News looks at Move Inc.’s aborted plan to buy ActiveRain Corp., the blogging and social networking platform for real estate professionals. ActiveRain filed suit against Move after the deal fell through in May 2007, and a settlement has been reached in the case. Although the terms of the settlement are confidential, the legal battle between the companies provides a rare glimpse into the complexities of Web 2.0 startups and acquisitions.

When Move Inc. executives met with ActiveRain Corp.’s founders two years ago at an industry conference in New York City, they walked away thinking the real estate blogging and social networking site might be worth as much as $50 million in two years.

But in the weeks that followed, negotiations between the companies fell apart, and ActiveRain ended up suing its former suitor. The lawsuit claimed that for four months, ActiveRain was barred from shopping for other partners — even as Realtor.com operator Move Inc. was working to build its own competing site.

ActiveRain executives would later say they agreed to a "no shop" clause and revealed confidential information about their business practices because they had assurances from Move that the deal was set to close and that only minor details remained unresolved.

By the time the deal fell through in May 2007, the window of opportunity for ActiveRain’s founders to cash in on their site’s success had closed, attorneys for the company claimed. In an August 2007 lawsuit ActiveRain sought $33 million in damages, alleging breach of contract, unjust enrichment, unfair competition, fraud and deceit.

Last month, attorneys for Move and ActiveRain said a settlement had been reached in which each side would bear its own costs and attorneys’ fees. They asked U.S. District Judge Dean Pregerson to dismiss the case "with prejudice" — meaning ActiveRain would be barred from filing another suit making the same claim.

The terms of the settlement are confidential, and both companies declined further comment. But a review of hundreds of pages of court filings in the case reveals how representatives at both companies went from seemingly love-struck suitors to bitter litigants.

While ActiveRain was eventually able to raise $2.75 million by selling a 29 percent stake in the company to HouseValues Inc., it’s perhaps no longer regarded as the hot property it once was. HouseValues — which has since become Market Leader — passed on a chance in December to acquire the remainder of ActiveRain for $17.5 million, attorneys for ActiveRain say.

The housing downturn, credit crunch and global financial crisis have generally made it more difficult for startups to attract investors, and even publicly traded blue chip companies have seen drastic decreases in their valuations.

ActiveRain announced Feb. 16 that it would begin charging new members $29 a month to make full use of the company’s blogging platform. …CONTINUED