Authoria. How Much Money Does it Take?

As many of our readers already now, Authoria announced a new round of debt and equity financing totaling $22.5 million.

Since it's founding about ten years ago, Authoria has raised more than $100 million in what I believe has been five rounds. And this does not include the $58 million raised by, who Authoria acquired in 2004.

This is a lot of OPM (other peoples money) and frankly, one can strongly argue that Authoria could have been where it is today for a lot less investment money. Other very successful software and SaaS companies (some now publicly traded) in and outside of HR have done a lot more with a lot less investment money.

Authoria says the $22 million is "slated for continued platform development". Look, there is no doubt that Authoria has great products and is a leader in the field of HR software - but my goodness, did it really need to take $100+ million to get where Authoria is today?

What exactly has Authoria been doing with this money? Here is a little history:

In 2000, Authoria raised $75 million in its third round of financing. At the time, Authoria had just changed their name from Foundation Technologies and was still describing themselves as a leading provider of "eWorkforce communication applications". Authoria is a completely different company today than it was in 2000. In fact, my guess is that a lot of the $75 million was spent on things that have very little to do with the business of Authoria today. So while it is a little unfair to include this money when analyzing Authoria's use of investment funds, the company nevertheless did raise it and management was responsible for spending it. And while the company will likely not be hurt long term, I suspect some early investors have suffered through share dilution.

Just how many investors? After the recent round, my count is at least 14 (although I don't know if all are still around or involved): Horizon Technology Finance, Velocity Financial Group, Menlo Ventures, Norwest Venture Partners, Austin Ventures, Van Wagoner Capital Management, CIBC Capital Partners, AFLAC, Capital Z Financial Services Fund, Fidelity Ventures, HLM/UHC, Pequot Capital, Robertson Stephens and UnumProvident.

The next time Authoria took money (their 4th round) was in 2004 when they raised $10 million to fund the acquisitions of Advanced Information Management (AIM) and then the following year. Bill Brown, Authoria's CFO at the time, said this about the round: "We're not profitable, but we're approaching break-even and had several quarters of profitability in the last year. Our balance sheet is strong enough so that we didn't need to go raise more money, but with a strategy to be one of the consolidators, it was a natural time to work on recapping the organization".

While using VC money to fund acquisitions (especially if the primary goal is customer acquisition versus new technology) is risky and not always an ideal use of funds, it appears that these acquisitions have paid off for Authoria as they used the money to build the new Authoria that we see today. But it's too soon to know for sure and without the details usually seen in an S1, it's hard to analyze.

This brings us to Friday's announcement. Greg Clark, a managing director with Horizon Technology Finance had this to say: "We are very familiar with the space, and knew [Authoria] was growing nicely, and they are a consolidator in a consolidating industry. Talent management is an area with a couple of niches that were not being well valued on Wall Street, and it seemed to us the consolidation in that space was needed and that they have done a good job."


Translation: As the latest investor, we can make a lot of money with an IPO in 2009 or 2010.

And by the way, what "niches"? Authoria provides solutions that help companies recruit, develop, compensate, retain and engage employees. What's left :-)

But seriously, we wish Authoria luck - Tod Loofbourrow really has done a remarkable job guiding this company since he founded it over ten years ago and as I've said in the past, these types of deals are good for the entire HR marketplace.

PS: Authoria recently announced the hiring of Stephen Lifshatz as their new CFO. In the press release, it said [Mr. Lifshatz] brings "significant expertise in leading growth, acquisitions, and public offerings".

Stay tuned.

Posted by Mark Willaman

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