Money-losing Net Element International runs on perpetual promise. So far, the eight-year-old software developer and website publisher has achieved more celebrity status than financial success. But with fresh capital following a recent merger, the Miami-based company may eventually find a clear path to profitability.
Film actor James Caan is on the board of directors of Net Element. Retired racecar driver and Indianapolis 500 winner Emerson Fittipaldi chairs a subsidiary. Shareholders include Russian musical promoter and performer Igor Krutoy, star of a Russian television program similar in format to American Idol and other TV shows based on amateur singing contests. "He’s the Simon Cowell of Russia," said Dmitry Kozko, president of Net Element, a native of St. Petersburg, Russia who grew up in South Florida.
Whether fortune will follow fame remains to be seen. Since its startup, Net Element has spent millions of dollars to develop a competitive edge in three-dimensional imaging, electronic commerce and other technologies. Now it’s concentrating on software that turns mobile phones into virtual wallets while trying to profit from online marketing sites for everything from legal help and bartering service to movies, music and racecar photographs.
The experimental company has been "putting money into those ventures hoping that one of them will take off," Kozko said in an interview at Net Element’s 6,500-square-foot headquarters just west of Brickell Avenue. "In ’04, we were focused on developing in the 3-D area. In the last few years, it has been primarily Internet-based technologies." Now the company is developing a mobile payment processing platform for cellphone users in Russia, where it recently established key footholds.
One big competitive advantage is low-cost offshore technical talent. From Miami, the company directs dozens of engineers and support staff at leased facilities in Russia and Ukraine. Net Element pays them about four times less than it would pay a comparable staff in California, according to the company’s estimates.
Customers have been scarce, though, and the revenue-hungry company still operates below breakeven. In the first six months of the year, it had net revenue of about $112,000 and a net loss of $4.5 million. But Net Element has a knack for attracting investment dollars as fast as it burns through them. This year, for example, a wealthy businessman in Kazakhstan named Kenges Rakishev bought $32 million of Net Element stock and became chairman of the board.
The company’s majority shareholder and fundraiser-in-chief is serial entrepreneur Mike Zoi, who previously served as board chairman and chief executive officer. He organized Net Element under a different name in February 2004. Since then, the company has accumulated $55 million of net losses. Zoi and other shareholders have contributed almost that much in additional capital to keep the company running. Now, he has spread the risk by engineering the merger of Net Element into another company.
Net Element merged Oct. 2 into a San Juan, Puerto Rico-based shell company called Cazador Acquisition Corporation. The merger gave Cazador’s investors ownership of 19 percent of the combined company. Cazador was set up as a so-called "blank check" company with no operations that raised $46 million in its 2010 initial public offering of stock, then escrowed the proceeds in a trust account. Cazador had to buy a business operation by Oct. 14, 2012, or liquidate the trust and return the money to investors.