Although it?s been said that the heyday of the youthful entrepreneur officially died with the bursting of the Internet bubble, at least a few twenty-somethings are maintaining a firm grip on the slippery tech playing field.
At all of 21 years old, BlueTie Inc. CEO David Koretz is now at the helm of his fourth business. Formed in 1999 over a bet for a sushi lunch ? and named after a strange double-tipped tie Koretz wore to a board meeting ? BlueTie is an application service provider that delivers a completely integrated suite of Web-based software applications to small and medium-sized businesses. Its 14 patent-pending offerings enable business users to access and share files, e-mail, contact information and calendars from anywhere in the world, so long as they have an Internet connection.
In short, BlueTie is going head-to-head with seasoned rivals and attempting to nab a coveted majority market share in the ASP space. According to a recent Gartner Group study, that market is expected to be worth about $16.7 billion by 2004.
In an effort to help it rocket to the top even faster, BlueTie is expected to ease into the private equity pool?s tepid waters this week with its Series B offering. The Rochester, N.Y.-based company hopes to capture between $20 million and $30 million worth of fresh venture capital within the next 60 to 90 days, Koretz said.
Although BlueTie?s current pre-money worth is in the $200 million to $300 million range ? a respectable valuation by today?s market standards ? Koretz said he doesn?t anticipate encountering any difficulties in closing the round. In fact, he said he fields about 15 phone calls a day from interested investors and fully expects the round to be oversubscribed.
“[The institutional] calls slowed down a little as the VC market began to die,” Koretz acknowledges, “but I still get calls from individual investors.”
He cited a recent call from a man asking if BlueTie was planning an initial public offering and looking to buy up $5,000 to $15,000 worth of shares in the company. Unfortunately, Koretz had to turn him down because the company is shying away from the public markets until conditions drastically improve.
“Going public has little value to us right now? BlueTie would consider an IPO if the timing was right, and I felt that the company was in the right stage,” he said. “Obviously, going premature is dangerous, and not necessarily beneficial in the long-term.”
Nonetheless, BlueTie?s second round of financing is expected to bridge it to profitability within the next year. Still, if necessary, it may choose to fetch a third pail of capital from the private equity well further down the road to step up its growth, Koretz said.
A Seasoned Board Sweetens The Pot
According to the company, BlueTie?s strength is its experienced board of directors. Tom Golisano, the man behind Rochester-based Paychex Inc., a company that provides outsourced payroll and human resources services, is the chairman of BlueTie?s board. He is joined by Walter Turek, Paychex?s vice president of sales, and Paychex?s vice president of marketing, Eugene Polisseni. All have invested heavily in BlueTie.
Founded in 1971, Paychex has a $14.57 billion market capitalization, and the going rate for its stock was $38.46 as of market close Thursday.
“Essentially, Paychex?s [business model] parallels BlueTie?s in that they?re an ASP of payroll,” Koretz explained. “Companies don?t want to be HR users, they want to be HR managers, and Paychex enables them to do that. [By the same token], BlueTie enables companies to be technology managers, not just technology users.”
What is more, unlike other start-ups, the slowing economy provides a window of opportunity for BlueTie because it means more companies are outsourcing their Web services in an effort to cut costs. In general, its core market is companies with 250 employees or less that can?t afford huge capital expenditures to upkeep their information technology infrastructure.
For example, Koretz said, a 20-person company can typically shell out as much as $25,000 a month to maintain, upgrade and employ information technology professionals. With BlueTie, it costs them just $500 a month, an average of about $25 per employee.
No Hang-Ups Here
BlueTie has approximately 250,000 users, and expects to reach 1 million by the end of the year. Moreover, its burn rate averages about $200,000 a month.
Its thriftiness carries over into production costs as well. BlueTie built the initial iterations of its products with less than half of the first $10 million VC infusion it received in late 1999.
And it?s coming out with new offerings at a fairly fast clip. It recently announced the addition of a wireless component to its suite of applications and is also planning to release a speech recognition product that will be compatible with a Web-enabled cell phone, giving users the flexibility to check and answer e-mail, for example, while driving in their cars.
“BlueTie gives people the freedom to work from anywhere, anytime,” Koretz said. “I?m not saying that people want to work anytime, but we give them the ability to [do so] if they need to, or to work when they want to.”
Contact Robyn Kurdek: Robyn.Kurdek@tfn.com
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