Facing the test: Young company seeks growth capital at Crossroads Venture Fair

05/05/2003

Scott Corzine, president and chief executive officer of Stamford-based Design2Launch, was about 24 hours away from three of the most important minutes of his life last Monday. That's because the next day he would wake up in his Manhattan home before dawn and board a train for New Haven where he was expected to spend the day at the two-day Crossroads Venture Fair at the New Haven Omni Hotel last Tuesday and Wednesday. And at 4 p.m. he would make a three-minute presentation that would be part of an effort to obtain $1.5 million in capital for his company that produces enterprise software for the consumer packaged goods industry.

"It will be an important three minutes," he said. "I've got it ready to go. I'm not nervous. I'm excited. I love talking about the company."

The three-minutes segment was only the first part of his work. It would be followed by a 20-minute breakout session in a private room with investors. "We're one of a number of companies from the Northeast â ” startups and companies like ours â ” that will be there that are beginning to grow and seeking growth capital," he said. "We're all asked to give a three-minute, super-fast summary pitch that lets the investors know what's happening. That leads them to a 20-minute breakout session in a private room so the investors can pick and choose who they want to talk to."

He thought there would be between 60 and 70 presenting companies with possibly "hundreds of investors" in attendance, including private investors and those with venture capital, also known as institutional investors.

"The 20-minute follow up is much more detailed," he said. "These are important venues for young companies because this is where you compete with other companies to secure investment capital. The three minutes is designed to cut through the clutter and make your breakout session the one investors want to see most badly."

The 3-year-old company produces software that allows companies in the consumer packaged goods sector to "collapse product time to market," specifically the time from market research to approval to production, Corzine said.

The company has three clients he described as a well-known cosmetics brand, a major packaging company and a major over-the-counter cosmetics company. "During the first two years, we wrote the code for the software and did market research while building the first version of the software," he said. "(Our clients) all use the second version that was released in the first quarter of 2003. Our business and our software are being validated by the fact that we are talking to 65 packaged goods companies about our software. We've got a head of steam and some momentum that's gotten a lot of attention.

"The main problem is that, in these companies, to stay ahead you have to put hundreds and thousands of products in development. There had been no software that had been integrated across the whole product development cycle. We can cut weeks or months out of the process from concept to prototype."

Having no clients during the first two years was not easy because the company survived on investment capital. "We started with friends and family money," he said. "A young software company doesn't live large. You pay yourself very modestly and your people modestly. You do it on the conviction that what you've envisioned has a market. You have to be radically frugal, almost draconian in your cash management."

Corzine, along with the company's founders, didn't take salaries in the early days. "You do things inexpensively," he said. "You live it. You eat it. You sleep it. You dream it. And you're very careful about taking on obligations. For me, 18-hour days are still common."

The company currently has 18 people on staff, including six software engineers, six people working on product operations and implementation (those who install and manage the software at an account), a financial officer and the rest in sales. It began with four people.

"This is a very large, high-margin business when executed correctly," he said. "Three to four years from now, we'll be a $60 million to $70 million company. This year we'll do $2 million in revenue. Our work force in three to four years will be easily more than 100. Our clients will number between 150 and 175 three to four years from now."

Corzine has a long-term strategy planned. "Any company like ours that executes on plan will go public, or will be merged or purchased by another large company as it creates value," he said. "The trick for the investors is for them to see a model that gets them up that value chain very quickly and delivers a liquidity event in the near term. They want to know when their investment will return a large premium, with an IPO or some kind of merger or acquisition.

"I think the market favors the merger and acquisition model as opposed to the IPO. IPOs are tougher. The dot-com experience proved that. In the next three years a merger or acquisition would be a likelihood." The $1.5 million he wants would be used for further product development as well as "managing key clients that need to be managed carefully," and would take the company through the next six to eight months, after which sales will make it cash flow positive, which it is not yet. That would take place in the first quarter of 2004, he said.

"A year from now we'll have 12 to 15 major companies as clients, including those in the cosmetics, personal care, household items and food and beverage sectors â ” everybody on the shelf at a drug store, grocery store or toy store," he said. "Our total funding has been between $2.5 million and $3 million since we started. That has come from the company's founders, friends and family, institutions and 'angels'" â ” individuals with a high net worth who like investing in early stage companies.

He said obtaining venture capital was important to the business. But he won't know the results of his efforts for a while. "The folks who we need will be there and it's our job to get them excited about the business," he said. "I'm looking forward to it. Running the business is becoming a lot of fun."

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