RuleStream Has $6.3M Comeback

Early 2002 saw Cleveland’s RuleStream coming back empty-handed from meetings with venture capitalists. The fund-raising environment was terrible and valuations during negotiations were going nowhere. The enterprise software developer managed to keep operating and took its product to market on its own that year.

“It was definitely one of the hardest things we ever did, but it also made us a better company,” says Dave Vredenburgh, RuleStream’s president and CEO.

One of the reasons it turned out so well is because when the company went back to VC firms earlier this year, they got a much better valuation. RuleStream is now sitting on a $6.3 million Series A round, with $4.5 million coming from lead and new sole institutional investor Masthead Venture Partners. The other investors are individuals who invested angel money in the company in 1999 and 2000.

The company will use the funding to expand its nationwide offices and hire more sales and support staff. Masthead partners Brian Owen and Stephen Smith have joined RuleStream’s board, taking two of its five seats.

They join investor Gian Picone, who serves as chairman. Masthead learned of the company through PRTM, a management consulting company and one of its limited partners. PRTM had come across RuleStream while working on a project for a client and recommended that Masthead look into investing in the company.

Owen predicts the company will seek a Series B round during the second half of next year.

“It would be a very solid B round where they’ve not just proven that the product works but have shown that they can hire sales teams and have them scale,” Owen says.

The company has sales offices in Boston, Detroit and Houston and will likely open one in Los Angeles before year-end.

While maintaining that the company has all the cash and revenue stream it needs right now, it isn’t ruling out a Series B round in the future, especially if the management decides to aggressively seek business in Europe.

“This is all the money we need to flesh out the North American operations and make ourselves cash flow positive,” Vredenburgh says, adding that if the company gave up its expansion plans, it could be cash flow positive now.

RuleStream is in the process of moving its headquarters from Cleveland to Boston, and Vredenburgh says that there should be 10 executives in a permanent office there within 60 days. He says that the company decided to make the move to be closer to business partners, current investors and potential future investors if the company decides to do a Series B round. He says that Boston is rich in executive management talent the company will be seeking as it expands.

Vredenburgh says his company’s goal is to increase the number of its regional sales and support offices from three to 11 by the end of 2004 and increase its revenues threefold. RuleStream currently has 30 employees and will likely have between 70 and 90 employees by October of 2004.

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