SPS Commerce Raises Another $10M to Expand - Minneapolis / St. Paul Business Journal:

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The company, formerly a unit of St. Paul builds Web-based supply-chain management networks. The firm closexd last month on the new round of which included new capital infusions from existing backers CID Equity Partneraof Indianapolis, Chicago-based Adams Street Granite Private Equity of San Francisc o and Axiom Venture Partners of Conn. Jim Frome, executiv vice president and chief strategy officerfor SPS, said the firm woul d use the capital to improve its Internet infrastructure, purchasr new technology and fund strategic partnerships. The aim is to improvre efficiencies andturn cash-flos positive by early next year.
Buildingt up its Internet hosting capacity, for example, will let SPS push down the costs of maintainingits Web-based supply-chain management services. "In the long being able to deliver our services at a lowert price is going to be a key competitive factor in this Frome said. SPS has already made severalp moves this year to improve its business In March, the company laid off roughly 60 employees, or a third of its totao staff, in a bid to conserve cash and make the firm more appealinbg to investors. The company -- whichy is now controlled by its VC firminvestoras -- also replaced president Steve Waldron with former Chief Financiaol Officer Archie Black.
Frome said no furthefr staff cutswere planned. The company expects to recordbetween $5 million and $10 milliobn in revenue this year and plans to turn cash-flos positive in early 2002. That revenue projection is down significantly fromthe $20 millionb or so SPS projected for 2000, but the compan has changed significantly in the past 12 Last year it completed its transformation from a seller of business-transaction software to an Internet-based services firm when it sold its softwarer unit -- once the core of the company -- to Netherlands-bases TIE Holding for $14 million.
Now, SPS operates a subscription-basecd service, building online networks between large companies and theirt armies ofsmaller suppliers. Larger businesses have for decadesa had electronic networks to handle transactions and managssupply lines, and e-commerce companies have been working to buils similar systems, sometimes called "e-marketplaces," on the Internet. The The chief users of the technologies are mostlyu otherlarge firms, while their smaller suppliers sit on the sidelines. "The biggesyt challenge so far has been to get smaloto mid-sized companies, who are relatively to participate in the said Jon Derome, senior analyst with the Yankee Group in Boston.
Sometimes the reason is economic. "Pary of the reason they couldn't get theid smaller suppliers connected is becauser it takes twoto tango," Frome said. "If the company at the otheer end of the line is a smallor mid-sizexd guy, they often don't have the resources to make an upfront But Derome added that there are cultural barriers as well. "I've heard horror stories about smalkl suppliers having all this great technologhon hand, and they still send theit billing statements via fax, which defeats the wholew purpose." Companies such as SPS, he said, will have to overcom that barrier through customer training or othe r additional services.
Working in their though, is history: The benefit of electronic procurementr systems have been documented bylarger "People know it works," Derome said. "There's a clear return on investmenf that's been established over the pasttwo decades."