Louisville-based Chrysalis Ventures has a history of funding and nurturing early stage software-as-a-service companies, or SaaS, on the way to big exits.
In 2014, companies that build sophisticated SaaS products are increasingly valuable, and today, Chrysalis executives announced the acquisition of Cincinnati-based iSqFt, one of its portfolio companies.
The tech world has its own quirky, sometimes opaque, lexicon. Chrysalis specializes in investing in, then helping build, companies that “use information technology databases to build out products for specific verticals,” said Chrysalis partner Wright Steenrod.
Translated, that means iSqFt revolutionized a stodgy, conventional business – in this case, the construction industry – by replacing big, bulky and hard to access printed plans, project blueprints and bidding documents with cloud-based digital data, instantly accessible to subscribers for a fee.
Steenrood declined to reveal the value of the transaction, adding those details are confidential. What we know is, venture capital, like tech, has all kinds of deal nuances. Typically, early stage investors lend capital to startups, which can’t get conventional loans, then convert that debt to equity, realizing a substantial return upon the sale.
Venture capital firms also act as mezzanine lenders, collecting substantial fees as management consultants as they position a company in the market for a sale. Or some combination of all those.
Asked to characterize Chrysalis’ return on its investment, Steenrod said only, “We’re very happy with the exit.”
Genstar acquired Chrysalis-backed iSqFt along with a second company, BidClerk, in order to merge them into a larger commercial construction software company in the project bidding space. If you know the construction world, you know that McGraw-Hill, based in New York City, once owned the project bidding business through its subscription Dodge reports.
The merger was funded by an investment from San Francisco-based Genstar Capital, a middle-market private equity firm with a history of investing in vertically specialized SaaS and information services companies.
According to information from Chrysalis, iSqFt founder Dave Conway came to Chrysalis about 10 years ago with his idea. That concept was basically to digitize construction blueprints that were moving from contractor to contractor “via FedEx,” Steenrod said. Conway’s innovation was “taking a lot of paper out” of the construction industry. “Then, over time, he built a number of ancillary products on that platform,” he said.
Those products include a database of public construction products, proprietary contractor networking platforms, market targeting tools and tools to streamline the bidding process.
Conway now will be CEO of combined companies, merged into a SaaS company, Steenrod said.
This is the second big 2014 exit for Chrysalis, whose chairman is David Jones, Jr., a long-time venture capitalist and the former chairman of Humana, the Louisville-based health insurer/health care provider. (Jones also is an investor in Insider Louisville.)
Last January, TiVo, the San Jose-based digital recording giant, acquired Chrysalis portfolio company Digitalsmiths for $140 million, Steenrood said. Digitalsmiths created a technology that lets consumers more easily select the video content they want to watch via a number of platforms including TVs, mobile devices and computers.
With a strong economy, companies are looking to acquire IT innovators who create value in specific industries, Steenrod said. Chrysalis focuses on both tech companies and health care companies.
Chrysalis’ investment in iSqFt follows a successful formula of investing in “entrepreneurs who have the insights” that transform business categories, Steenrod added, with similar successful exits with Appriss, Tech Republic and Genscape.
Chrysalis was an original investor in Louisville-based Appriss, an innovator in technology that helped law enforcement efforts and victims keep track of criminals as they entered and exited the U.S. corrections system. Appriss got a strategic investment from Boston-based Bain Capital Ventures and JMI Equity in July 2007.
Chrysalis was the original lead investor in Genscape, also based in Louisville, a supplier of real-time power plant output and transmission intelligence. The company was acquired by an investor group led by GFI Energy Ventures, LLC in August 2003 and subsequently acquired by DMG Information, the information publishing division of DMGT, the U.K.-based Daily Mail and General Trust, in June 2006.
The VC firm also invested in TechRepublic, a web portal for information technology professionals. Founded in Louisville, TechRepublic was purchased by the Gartner Group in March 2000, then by CNET in 2001.
About Chrysalis Ventures:
Chrysalis Ventures manages one of Mid-America’s largest funds for early-stage and growth investments with approximately $400 million under management. Since 1993, the firm has invested in more than 65 companies, primarily in the Healthcare and Technology sectors. With headquarters in Louisville, Chrysalis has offices in Cleveland, Pittsburgh and Ann Arbor, Mich.
Chrysalis partners with talented entrepreneurs by providing the business intelligence, market knowledge, deep resources and financial discipline that are critical to success.