Before BioNetrix Systems Corp. wrapped up its $15 million Series B round in March 2000, it had multiple term sheets to choose from, and venture capitalists were bidding against one another to get in on the financing. When the Vienna, Va.-based company ventured into the private equity arena in search of $16 million worth of Series C money exactly one year later, it found that the fund-raising landscape had dramatically changed.
BioNetrix CEO John Ticer, who was brought on board as part of the company’s Series B round, had criss-crossed the country for six months, attending meeting after meeting with high-profile VCs, each time almost getting them to sign on the dotted line before the deal went awry.
“We got pretty far along with a good handful of these guys,” Ticer said. “What we saw during the time we did the raise was a continually increasing difficulty of raising capital. Part of that was reflected in the fact that some of the VCs we were talking to were having difficulty raising their own funds.”
Despite a few setbacks, however, BioNetrix ended up with a better-than-decent showing of VC support, and even signed on a few new backers. Previous investor Columbia Capital led the transaction, and was joined by newcomers Advanta Growth Capital and NextLevel Venture Partners. Steve Walker & Associates and The Dinner Club also re-upped, along with angel investors Bill Melton, who founded Internet security firm Veriphone and secure online payment provider CyberCash Inc., and Dave Whetmore, a partner at Updata Capital.
The company took a “slight haircut,” as Ticer put it, on its valuation. VCs gave BioNetrix a $43 million post-money worth this time around, whereas the company had been valued at $45 million following its Series B financing.
Maximum Security Business
Although Ticer and his colleagues were dismayed that it took them six months to raise the company’s third round – it finally closed at the end of August, and BioNetrix put out an official announcement just last week – he said he is glad they got it done before the terrorist attacks on America in mid-September.
While it is almost certain that many companies will have more of a difficult time raising additional capital now than they have had even in the past 12 months, BioNetrix would have had an advantage over most other businesses had it waited even longer to finish raising the money because it is in the security business. Specifically, the company’s signature offering is an authentification management solution for enterprise and Internet security.
Indeed, its product is particularly applicable, as many corporations have become increasingly concerned with the security of their data as they’ve opened up their internal networks to the Internet in an effort to share information and conduct transactions with their vendors, suppliers and business partners.
“The product should have more relevance and more demand, given the emphasis on security, not just because of the events [this month],” said Karl Khoury, a partner with Columbia Capital. “There’s been a general trend [in business] toward knowing who or what you’re authenticating.”
As such, many businesses have turned to authentification solutions such as BioNetrix’s. The problem with most of those out-of-the-box products, however, is that they solve one specific problem, but they often don’t offer management solutions for the entire authentification process. What is more, many corporations use different authentification methods for various departments or entities, which can often lead to confusion.
That’s where BioNetrix comes in. The company provides a central platform to integrate, manage and report on all the different authentification methods a particular business may have used to protect its corporate data.
“Let’s say there was a group of physicians on the third floor of a hospital. We can assign a group policy across all those people at once,” Ticer explained. “Once you enforce it across an enterprise group of employees, you can enforce it across the company and out to the business partners.”
It has worked particularly well with medium and large enterprises in the financial services, health-care and government verticals, hence, that is where BioNetrix does a majority of its business, Ticer said.
Going forward, the company plans to use the proceeds from its latest round to expand its reach to the pharmaceutical and insurance markets, as well as bolster its sales and marketing efforts.
Moreover, the company recently inked an agreement with Tokyo-based Netmarks, a joint venture of Sumitomo Electric Industries Ltd. and Nomura Securities Co. Ltd. Set up a few years ago specifically to address Internet security issues in Japan, Netmarks actually pursued BioNetrix for a partnership. At first, the American firm declined, saying it wasn’t ready to go to Japan, but then Netmarks made an offer for a multi-year deal Ticer couldn’t refuse, he said.
Under the agreement, Netmarks will resell BioNetrix’s products and handle all of its customer service in Japan.
“We’re looking at a multi-million-dollar opportunity over there in the next couple of years,” Ticer said.
The company seems to have a wealth of revenue opportunities stateside, as well. Despite, or perhaps because of, the overriding fear plaguing the nation in the wake of the attacks, BioNetrix has gotten several potential business inquiries in just the past two weeks.
Currently, the company has 80 customers, including St. Luke’s Episcopal Health System in Houston, and Saint Alphonsus Regional Medical Center in Boise, Idaho.
Still, BioNetrix may look to return to the private equity market for another cash infusion to further fuel its growth, probably within 12 to 18 months, Ticer said.
To date, the three-year-old company has raised nearly $35 million worth of angel money and venture capital.
Robyn Kurdek can be contacted at: Robyn.Kurdek@tfn.com