AtomicTangerine Bites Into Series C Venture Deal

On November 30 of last year, AtomicTangerine Inc. CFO Mark Campion and then-CEO Jonathan Fornaci hopped into a car and headed toward Sand Hill Road, where they planned to pitch their company?s Series C venture capital offering to yet another potential investor. Up until that point, the pair had essentially struck out, as AtomicTangerine?s e-business consulting and e-incubator model had only managed to garner a $3 million bridge financing from existing backer TA Associates .

“At one point, [Jonathan] turned to me and asked what we should do,” Campion recalls. “I told him we needed to get away from our venture capital consulting business and refocus on information security, which we had always had a core competency in.”

Just weeks later, and after having completed legacy mandates, the company officially altered its business model and executed a 40% staff reduction. It also agreed to a term sheet from internal investors Sienna Ventures and TA Associates, even though the pre-money valuation of $125 million was a full $75 million lower than what Campion and Fornaci had been hoping for.

The deal was finalized in March, although no public announcement was ever made.

“As part of our restructuring, we basically lessened our marketing and public relations efforts,” Campion explained.

The Series C transaction closed out at $12.6 million, but could not attract any new supporters. Instead, the deal was exclusively backed by previous investors Sienna, TA Associates, Nippon Investment & Finance Co., Oki Data Americas Inc. and SRI International, the contract research firm whose SRI Consulting subsidiary had originally spun-out AtomicTangerine on December 25, 1999.

“They were trying to accomplish a lot of things at the same time,” said Jeffrey Chambers, managing director with TA Associates, which added $1 million to the deal on top of the initial $3 million bridge investment. “They were changing the focus of the business, completing the acquisition of [online security information provider] SecurityPortal and beginning the process of spinning off their international business into a separate company.”

He added that TA Associates? continued support of AtomicTangerine is based on the company?s ability to draw large clients, and its substantial revenue flow. Indeed, Campion said that the firm had a $6 million run rate when spun-out from SRI Consulting, but that it was doing approximately $33 million to $37 million by year-end 2000. Recently, the company signed a deal with Visa International, whereby Visa merchants needing to meet security regulations will be directed to online courses designed by AtomicTangerine. The courses will cost merchants between $29.95 and $115.

The Menlo Park, Calif.-based company last April raised a $15 million venture round, and later secured a $10 million equipment financing loan from Western Technology Investment. AtomicTangerine has since drawn down $6.5 million of the loan. Campion said that the company has no immediate plans for an additional private equity round, although one might be launched later in the year to help ramp-up product development efforts.

Contact Dan Primack: daniel.primack@tfn.com