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Infoglide secures $4.2M
Austin Business Journal Staff
From the September 20, 2002 print edition
Stacey Higginbotham
Infoglide Software Corp. has raised $4.2 million in fifth-round funding from previous investors while adopting a new approach to protecting its shareholders.
The Austin software company collected the money from Hartford, Conn.-based Conning Capital Partners LP, Greenwich, Conn.-based MMC Capital Inc. and Durham, N.C.-based Intersouth Partners LP.
Money also came from Austin-based Sanchez Capital Partners LP, which has shut down but has allocated reserve funds for followup investments.
Infoglide uses a similarity search engine technology that allows its software to compare similarities across databases. For example, a search for Mr. Smith who lives on Evergreen Terrace also might return a Mr. Smyth who also lives on Evergreen Terrace. The software is used for fraud and alias detection in the insurance and financial services industries.
In a twist on typical financing, Mike Shultz, president and CEO of Infoglide, says he afforded the common stockholders the same protections as the preferred stockholders against further dilution of their stakes during this round of funding.
Typically, preferred shareholders, such as venture capitalists, enjoy protections guaranteeing them the ability to participate in another round and giving them the ability to maintain their current position in relation to the outstanding shares.
Common shareholders, such as managers and employees who might have exercised their options, usually don't have the power to maintain the same ownership percentage as the amount of shares increases. Infoglide has 31 employees.
"The financing is specifically fashioned to permit all shareholders who are accredited investors to invest in this round," Shultz says. "It's the right thing to do [because] when financing in this environment, there can be dilutive effects and we wanted to give all shareholders the same opportunities."
Gene Lowenthal, an investor and member of Infoglide's board, says the financing is unusual but "on the generous side" for common shareholders - at no disadvantage to preferred stockholders.
"The class distinctions between common and preferred shareholders are being ignored [in this funding] . ," he says.
Shultz says this funding round should take Infoglide to profitability, with the money to be earmarked for product development, sales and marketing. Infoglide now sells one series of products but plans to launch a second series by the end of the third quarter.
Shultz says a software company's success directly relates to the size of the problem the software solves. For Infoglide to grow, its software needed to solve another problem, so it is preparing a new product.
"Big problems get big dollars, and little problems get little dollars," Shultz says.
About 18 months ago, Infoglide's software sold for an average of $100,000, Shultz says. Now, the software is fetching a little more than $1 million as Infoglide has developed an enterprise version of the software, designed to be used by large corporations.
Infoglide's ability to move forward with its technology is what prompted Gerard Vecchio, partner with Conning Capital and chairman of Infoglide's board, to invest again.
Conning first invested in the company because Infoglide's technology can be applied to the insurance industry, he says. But Conning has continued to invest because the software now can be used in the banking industry and a variety of other industries where identifying similarities among databases is vital, Vecchio says.
Conning Capital is the VC arm of Conning Corp., an insurance company.
"When we looked across all of our portfolio companies, there were several that we are not going to fund [again]," Vecchio says. "With Infoglide, we decided it was one of the companies we decided to continue funding and the new money going in would make us a good return."
The return might be even greater if Infoglide has received a multimillion-dollar contract from the recently created federal Transportation Security Administration. In June, several publications reported Infoglide was competing against San Diego-based HNC Software Inc. for a program called Computer Assisted Passenger Prescreening System, or CAPPS.
Shultz says he can't comment on the status of the deal. Spokesmen for HNC and the Transportation Security Administration couldn't be reached for comment.
Email STACEY HIGGINBOTHAM at (shigginbotham@bizjournals.com).
2002 American City Business Journals Inc.
