After spending two years on the sidelines watching its rivals dip into the private equity market and amass sizeable war chests through public offerings, Opticom Inc. recently decided it was time to get off the bench and level the fiscal playing field. As an opening salvo, the e-services management firm shed its spectator status by securing $10 million in a Series A deal from Prism Venture Partners.
That?s not to say the Andover, Mass.,-based Opticom wasn?t holding its own without VC assistance. After an initial cash infusion from its founders, the company has survived on its sales revenues alone since its 1997 inception. In fact, based on its three-year revenue growth, Opticom landed the fourth slot on the “New England Technology Fast 50” for 2000. Compiled by Deloitte & Touche and legal firm Hale and Dorr, the list is a ranking of the fastest-growing technology companies in the area.
Its flagship product, iView, has certainly contributed to Opticom?s leadership in the region. The Web-based software package works with existing technology platforms to monitor network performance. IView provides data that helps information technology professionals and executives at Internet service providers and large enterprises increase the efficiency of their technology, improve service levels and obtain more accurate information about the impact of the overall network performance on the bottom line.
“This technology is relatively new to most companies,” said Ed Flannery, founder and chief executive with Opticom. “What we?ve done is bridge the gap between technology people and the executive office, and given companies a tool they can use to align their technical and business objectives.”
While breaking new ground in the networking market, Opticom didn?t quite match up to its competitors when it came to operating capital. Indeed, until the first round VC infusion, Opticom was running at break-even with all of its revenues were dedicated to building the business.
“It?s not unusual for companies in this space to operate that way,” Flannery said. “But we decided to raise additional funds now because we could no longer compete with other players in this space based solely on our revenues.”
What ultimately drove the company to dip into the private equity pool, however, was a wave of IPOs from the competition. French company < $iInfovista SA>, which is similar in size to Opticom, went public earlier this year and carries a $690 million market cap. More spectacularly < $iMicromuse Inc.> of San Francisco has seen its market value grow to $5 billion since its IPO in 1998.
Bolstering the bottom line
Following discussions with several venture capital firms, Opticom chose Prism Partners as its sole backer.
“We elected to work with Prism because they were willing to handle the entire round themselves,” Flannery said. “Not only was it much simpler to work with one firm, but a number of the partners were once entrepreneurs themselves, so they had a good understanding of the needs of our business.”
The company also got the support of a seasoned data communications industry veteran in Prism GP Bill Seifert, who will sit on the issuer?s board of directors.
“Opticom already has a proven business model in place, and they?ve shown they can market their product in this space,” said Bill Fleming, another general partner at Prism. “A lot of companies are underfunded, which hinders their ability to grow their sales and marketing operations to keep up with marketing opportunities. This round of financing will, hopefully, help Opticom accomplish that.”
Opticom will use the proceeds to grow its sales and marketing channels and expand its international presence. Currently, the company does 30% of its business outside the U.S., and plans to open additional offices in Europe, the Pacific Rim, Latin America and Australia. The company now has 60 employees, and intends to increase its headcount to at least 120 within the next year.
If all goes as planned, Opticom could likely hit the private equity market for a second round of financing in the next four months in preparation for an IPO in late 2001. While the company hasn?t yet determined how much additional funding it hopes to raise, Fleming did comment that the next round could possibly go as high as $25 million.