Looking to make IT repairs a problem of the past, Bain Capital Ventures led a Series A investment with a $4 million commitment into E5 Systems Inc., which makes software that promises to maximize the value of their applications and reduce maintenance costs. The total round closed with $10 million. G-51, the Austin-based venture capital firm that focuses on software and the Internet, and the E5’s founding team also participated in the round.
“About 80% of IT money is spent on the maintenance of existing systems and that number has been increasing. We were spending like drunken sailors on these applications a few years ago and now we need to manage them,” says Gordon Brooks, president and CEO of E5 Systems. “Companies need to focus on getting better efficiencies and value out of their trailing edge applications. We allow you to look at the portfolio and make sense out of where to spend the money.”
According to Gartner Inc., while less than 20% of companies have a thorough understanding of existing systems, as Brook said, 80% of an IT budget goes toward maintaining past applications. These post-implemented applications on average lack processes, procedures and the right type of resource focus.
Michael Krupka, a managing director at Bain Capital Ventures and a new E5 board member, says prior to making this investment, he went out in the field to see what companies needed. “We were working with CIOs to understand the problems they were trying to solve,” he says. “We started to hear a trend: These guys were complaining about the cost of maintaining software applications. It is a prevalent problem and the more we heard it, the more interested we became in this opportunity.”
Founded in October 2001, until now, E5 has been funded by its founders. Additionally, the company has a re-occurring revenue base from a few undisclosed customers. “We raised more than we set out to raise. In this environment you take the extra. It gives us multiple years of runway and the ability to develop our China capabilities, which we think is the next big outsourcing destination,” says Brooks, who adds that E5 is already in India and infrastructure in China is better than in India. “China is using the stuff we are using. There is a lot of knowledge there. They are graduating 50,000 IT students a year,” he says.
The Boston-based company will use the fresh capital to expand its off-shore centers and for general corporate purposes. “We’re frugal, we like to have money in our pockets,” says Brooks.
At this point, it is unclear if E5 will require another round of financing. Brooks says it depends on the market and who the investor is. “I think we’re open to all possiblities. We want to build a profitable business with revenue and happy clients and give our investors a great return,” says Brooks.
Krupka says that while Bain only put $4 million in this time around, the Boston-based firm is ready to re-up if needed. “The company should be profitable soon because it has its products. It shouldn’t take a lot more to become a big company, but E5 will likely need some more capital to accelerate its growth and we are prepared to come in again,” he says.
Contact Danielle Fugazy