2012After Hoovers, Founder Bets on Alacritude
By Katherine Goncharoff
Published in The Daily Deal
July 7, 2003
For online research service Alacritude LLC of Chicago, the easy part of the business has been raising venture capital.
On Thursday, July 3, the year-old company, which manages the fee -based, online research service eLibrary, announced the completion of its first financing round, netting $4.3 million in a combination of venture capital and angel investor backing.
Prism Opportunity Fund, a Small Business Administration-backed venture fund also based in Chicago, led the round. The fund invested just under $1 million in the startup.
Other investors in the round included 1to1 Venture Partners LLC of Stamford, Conn., and a dozen angel investors, all of whom were unnamed but described as having media industry expertise and familiarity with the business accomplishments of Patrick Spain, Alacritude's chairman and CEO.
Spain was one of the founders of Hoovers Inc., owner of the Hoovers.com corporate information service, which Dun & Bradstreet acquired for $112 million last year.
Law firm Gray Cary LLP advised Alacritude on the transaction, Roger Wilen, a partner with Altheimer & Gray LLP, advised lead investor Prism.
Alacritude also worked with Adele Morissette and North Haven Partners of New York, which acted as placement agent in identifying appropriate VC investors for Alacritude.
Said Spain: "When you take a company like Hoover's from a $200,000-a-year to a $31 million -a-year business, take it public and get some of your investors a 10-times return, it's not that hard to raise venture capital funding the second time around."
It also helps that Spain has staked his own money in the startup and has insisted on retaining control of the company's strategy. For this reason, he steered clear of large and established VC investors, which wanted to invest $5 million to $10 million in his firm in exchange for a large equity stake. Instead, he sought investors willing to invest less for smaller amounts of equity.
"I discovered this group of SBA [Small Business Administration] -backed VC types that typically make anywhere from half-a-million to $1.5 million investments in startups, and I ended up talking to a number of them and finally, two of them came together to finalize this deal," Spain said.
Such funds have applied for and acquired from the Small Business Administration what is known as a Small Business Investment Company, or SBIC, license, which makes the fund eligible to receive $2 for every $1 raised.
The Small Business Administration is a federal government agency that provides matching-grant financing for VC funds.
With the fundraising effort behind him, the hard part of the business begins, according to Spain, as he will try to determine what types of Web-based research services and technologies should be acquired to successfully grow his fledging business.
"We are not looking to buy content companies but we are interested in tools that allow individuals to be better at conducting research and then organize those results quickly and effectively in a Power Point presentation or some other format," Spain said.
He explained that unlike his prior information-based startup, Hoover's, Alacritude will target the individual information seeker. His research into the online research service and tool market have convinced him that 25% of all spending for online information is done by individuals, not corporations and thus Alacritude will target that market.
Major media outlets have picked up on that trend, said Spain, who added that the company will use the new funding to expand the firm's marketing and technology staff.
For now, Spain views online research services such as Lexis-Nexis and search engines such as Google and Yahoo! as his competitors, though he also projects that if he succeeds in growing his startup, it could become a takeover target for such firms as well.
Marshall Sonenshine, a managing partner with media-focused, New York-based investment bank Sonenshine Pastor & Co., points out that pure content plays such as Contentville , a company started by media mogul Steve Brill, were short-lived but thinks that Alacritude's goal may turn out to be a more viable effort.
"A service that combines navigation tools, Net-based research and desirable content in a user friendly and economic manner targeting the consumer market could be a valid business today," he said.
Alacritude backer Steve Vivian, a director with the Prism fund, was more enthusiastic. "We believe strongly that there will be money made in online research services — you can already see some of the consolidation among the search engines and the increase in Internet traffic at places like Google and Yahoo! — and we think that Alacritude will be one of the services that will succeed."