American Capital Start-Up Stake Unwinds

A few months after the cash infusion, Geosign laid off between 50 and 100 workers, according to the Guelph Mercury newspaper. Various press reports and Internet blogs suggested the layoffs were tied to Google's(GOOG Quote) crackdown on advertising arbitrage.

This arbitrage process involves buying cheap "ad words" from Google that are tied to common search terms in order to drive visitors to a content-light Web site that includes a lot of additional ads. The Web site owner is betting the visitor directed to his site from the Google ad will click on the additional ads that he sold to other parties for a higher price.

Geosign never said it was involved with Google arbitrage. But a good chunk of Geosign's business model revolved around pay-per-click ads that it sold mostly to attorneys, particularly medical malpractice law firms.

If the original business model relied heavily on Google arbitrage, then one has to wonder about the financial hit to Geosign by the crackdown.

Split Questions

Regardless of whether Geosign turns out to be a success, the split-up poses various questions for American Capital investors. Namely, what exactly did American Capital end up receiving for its $130 million investment in Geosign? And how much money and assets were left in the company when it was divided?

American Capital CEO Malon Wilkus told TheStreet.com that as a result of the split-up, his firm recovered a "substantial" amount of its original investment in the form of cash proceeds. He declined to give the amount.