Finding the Right Funding Partners

Matthew Guruge wanted more than money. The co-founder and CEO of Awato LLC, a career-counseling firm, was looking for investors for his New Ipswich-based business. Ultimately, he chose a syndicate of five angel investors who could provide key introductions and expert advice in addition to $300,000 in funding.

“We were really interested in getting people who could help us,” Guruge says of his now seven-person startup. “For us, [raising capital] was easy and fast. We were hoping to find mentors who could help the company grow and help us grow as entrepreneurs.”

Startups like Awato have more choices than ever for raising investment capital, but that doesn’t mean it’s easy to find the right funding match or partners.

More colleges provide enterprise architecture training

Enterprise architecture is slowly establishing itself in colleges and universities as information technology matures and becomes a more integral part of business, industry experts say.

The number of US colleges offering enterprise architecture programs continues to grow with schools such as Penn State University and Carnegie Mellon University. The popularity of EA programs is being driven by a need for greater alignment between the goals of the technology side and those of the larger business or organization, said Rosalie Ocker, director of Penn State’s Center for Enterprise Architecture.

Course enrollees are typically technologists “looking to understand the business better and to work with the business side of their organization,” she said. “Tech people and business people have to work together, and EA should span their areas. That’s what we try to do.”

Values suffer as VCs focus funds inside

It’s taking venture capitalists longer to cash out of startups, causing firms to invest more in their own portfolio companies than in new deals, data shows.
The increased use of so-called inside rounds, in which no new investors join in a private equity funding, not only means less capital for entrepreneurs seeking first-time funding, but also means tech startups are having a harder time determining a current valuation because a company’s valuation is often recalibrated as new investors join an investment round.
Experts say a vicious circle is being created as a result: An accurate valuation is critical in making a merger or acquisition deal happen, but with no new investors, most potential acquirers are taking a harder line on what a potential acquisition is truly worth — and that is slowing M&A deals, industry experts say.

Y Combinator’s firms mostly heed ‘go West’ advice

Entrepreneur Jeff Vyduna launched his Cambridge company, PollEverywhere Inc., in April. But he realizes that the odds are against him finding a local investor and remaining in New England.
The three-person company developed an application designed for organizations to gather feedback through text messaging. But Vyduna, who dropped out of the MIT Sloan School of Management to found PollEverywhere with a $20,000 investment from micro venture capital firm Y Combinator, said he’s not expecting local investors to back his business.
That means a move to Silicon Valley, where angel investors are aplenty and the interest is stronger in pre-revenue, consumer-focused startups, which is Y Combinator’s sweet spot. Indeed, only one local VC firm has invested in any of Y Combinator’s 102 companies.

Stealthy virtualization startup makes laptops more secure, manageable

Virtualization technology has made its way to servers, applications and desktop computers.

Next week, a Westford-based tech company plans to fire up operations for a product that would flip-flop the conventional virtualization model with software that replicates the components of a laptop within the laptop itself.
Old Road Computing Corp. plans to publicly launch as Virtual Computer Inc., but the company isn’t revealing many specifics about its virtualization product, nor when it will be released.
The software would be designed to isolate a laptop’s four major components — hardware, operating system, applications and user data — and create versions on the laptop of those components that operate remotely, without a network connection, said CEO Dan McCall, who previously founded Guardent Inc., a Waltham-based security services firm.

RueLala reaches out to well-heeled web shoppers

With a business model that is about upscale, off-price and online, a Boston-based retailing company that started by selling off-price merchandise has expanded to high-end, invitation-only boutique sales, an approach to e-commerce that first caught on in Europe.
Retail Convergence Inc., backed with a $25 million funding round that closed in April, launched, a website that operates two- or three-day private sales for boutique stores. The high-end e-commerce business is the second website that Retail Convergence has launched as part of a plan that eventually calls for several such sites, CEO Ben Fischman said.
The RueLaLa business model is similar to one employed by France-based, a 7-year-old company in which Boston-based Summit Partners has a 20 percent ownership stake. But it’s also a business model that is attracting many web-based imitators, mostly in Europe where off-brand stores such as Marshalls or Filene’s Basement are uncommon.

Worcester State outsources e-mail to Google

Inspired by the business world, Worcester State College is outsourcing its e-mail system to Google Inc. to cut costs and reduce a drain on support services.

The shift from having e-mail hosted on-site to having it managed by Google marks the first time a four-year college in New England has switched its e-mail system to Google’s Apps for Edu service.

The switch is the latest example of IT departments — which began in small and midsize businesses but have now moved to large enterprises and other traditional late-adopters, such as the college campus — becoming more comfortable with allowing third parties to manage systems formerly held strictly in-house.

Worcester State’s decision is expected to save the college up to $120,000, or 5 percent of its IT budget, the first year, and about $70,000 in subsequent years.

Replacing the college’s 6-year-old Microsoft Exchange system with Google has increased e-mail storage from 15MB to 6GB per user, and increased data storage from 250MB to 6GB, college CIO Donald Vescio said.

The switch was made last month, just after the spring semester ended.

New England’s IPO drought is longest in five years

New England venture-backed companies have yet to complete an initial public offering this year — the first time since 2003 that no such IPO has closed by midyear.

At least five VC-backed companies had registered to complete IPOs this year, but with 75 percent of the companies that went public last year seeing their shares trading below the issue price, companies in registration have been holding off.

Last year, nine local VC-backed companies had completed IPOs by midyear, and 20 went public in all of 2007. Nationally, the second quarter was the first three-month period in 30 years of tracking by the National Venture Capital Association that no VC-backed company went public.

Last year, 25 IPOs had been completed in the second quarter.

While the local gaming space rises, Cecropia falls

After spending more than five years of work, Lexington-based game creator Omar Khudari plans to officially shut down game software developer Cecropia Inc. in September.

Khudari said he is shuttering Cecropia, a self-funded company that launched an animated game called The Act in 2006. The company, which tested a coin-operated version of the game last year, planned to subsequently create a home version depending on negotiations with publishers.

But interest in the game, which was created with the help of 40 former animators from the Walt Disney Animation Studios in Orlando, Fla., didn’t materialize after Khudari pitched the game to at least 18 publishers. So nine months ago, he decided to begin shutting down operations.

The closing coincides with an unusually active period for the game industry — especially locally — which added to the heartache, said Khudari, a former co-founder of Papyrus Design Group Inc.

“It is extremely hard and very disappointing,” Khudari said. “I was encouraged by the industry getting broader and mainstream.”

Other New England game companies have been active over the past couple of years.

Companies pay millions, whether IPO deal closes or not

Yes, time is money. But waiting to complete initial public offerings is costing local tech companies plenty of both — time and money.

Portsmouth, N.H.-based NitroSecurity Inc. two weeks ago withdrew its application to raise $55 million in an IPO, and the CEO says 10 months in the IPO pipeline cost the security software and hardware company about $1.3 million.

NitroSecurity has had plenty of company. A search of securities filings revealed that local technology firms — both those that registered for an IPO that went unfulfilled and those that have gone public in the past 18 months — incurred costs that ran as high as $4.2 million. The bulk of those expenses represented legal and accounting fees.

For companies that don’t ultimately go public, it’s a hefty price to pay for little return — and that doesn’t include the drain on a management team’s time and resources, say observers.