WHEELING & DEALING
Anatomy Of A Deal
By Jean-Marc Levy

First published in HRO Today (June 2004)
 

Successful fundraising is still an arduous process but money can be found for good companies.
 

While still off from 2000-2001 highs, VC investment appears to be on the mend. 

Recently, I asked the management team of Prosero, a provider of procurement outsourcing services who raised  $4 million of funding from Austin Ventures and River Cities Capital Funds earlier this year, to share their experience for this column.

Prosero helps companies increase “spend under management” without adding headcount or investing in technology.  They perform strategic sourcing, contract deployment and compliance management for all areas of spend and for nearly every category of spend of an organization for customers including KB Home, Agere Systems, H.B. Fuller Company, Premcor, TriQuint Semiconductor and Lucent.

Wheeling & Dealing: 

Why did you decide to raise capital?

Prosero: 

Prosero raised capital for two primary reasons.  First, with the clear market acceptance of our Procurement Outsourcing Center of Excellence model, we needed funds to more aggressively accelerate our service delivery capabilities at a number of critically important clients.  Second, since procurement outsourcing represents an emerging industry, we did not know how long it would take for the market to move beyond an early adopter stage.  We needed capital to make certain we could continue to evolve the company while the market for procurement outsourcing matured.

W&D:    

When did you start the process?

P:           

Spring 2003.

W&D:    

Did you use a financial or other advisor?  What value did they bring to the process?

P:           

No. Our CEO and President, Larry Hall, has extensive experience in venture capital and funding initiatives.  Over the past 11 years, Larry has led or participated in eight venture funding initiatives for three Atlanta-based companies.  But, advisors can and do provide value in two critical areas:  speed to close and access to venture firms.

W&D:    

How intensive was the fundraising process?  How much of your personal time did you spend on fundraising?

P:           

All funding initiatives represent substantial investment of time by the CEO and financial officer.  The Prosero round consumed our CEO for the better part of five months, representing approximately 75% of his time, on average.  It also represented a substantial distraction among the senior management team as well.

W&D:    

What surprised you most about the fundraising process?

P:           

Every funding effort usually provides some unique perspective on the process.  In our case, we found that compatibility among the syndicate partners represented a critical part of any funding effort that involves more than one investor.  Further, since this funding round also represented a recapitalization of the company, we had to make certain we settled on a fair valuation for all parties.

W&D:    

In the end, which of your company's products/services/attributes do you think made your company an attractive investment opportunity?

P:           

Prosero has a sound and unique product offering in an emerging market.  We have a business model that has a high degree of leverage and increasing profitability as the business scales and demonstrable successes with a number of major clients that represent a proof statement for our ability to deliver on our promise.  Finally, we have a solid, experienced management team that has a passion for this market and a desire to win.  All of these points appeal to an investor.

W&D:    

Do you have any advice for entrepreneurs in your industry who are thinking of raising capital over the next few months?

P:           

Yes.  First, make certain you have a sound business model.  Second, make certain you have an experienced, passionate team.  Third, set realistic expectations for your performance, and then exceed those expectations.  And, finally, have fun, work very hard, and do whatever it takes to realize your dream of building a long term, viable company.