Scaling startups hunt for new funds

They say you need to spend money to make money. But in the parlance of Springfield tech startups, the mantra is “raise money to make money.”

It’s familiar territory for Sprocket LLC founder Robb Woolsey as his GPS-tracking systems company Rural First expands its customer base and seeks new opportunities at the close of its third year.

“At this point, we’ve proven the strategy to work,” Woolsey said of Rural First, which combined with corrected geographic information systems mapping is designed to help first responders and law enforcement decrease travel time.

The company is at the precarious stage of scaling.

There’s a quiet deal pending with O’Reilly Auto Parts and the potential to take Rural First abroad mapping Sao Paulo, Brazil – the largest city in South America – for local police. Other momentum is building from new customers in the Webster County Sheriff’s Office and McDonald County’s Road & Bridge Maintenance Department.

Woolsey is considering whether another round of seed funding is in order or if he can set a loftier goal.

“If we do that, we’ll raise between $250,000 and $350,000, but we may go the venture capital route and with that do $1 million-plus,” he said. “We have to make certain we’re ready to scale, because expectations come with that. I think we’re at that edge of ‘ready to scale.’”

It’s a similar story down the hall at fellow eFactory startup CellARide LLC. Just announced as a recipient of $175,000 from Missouri Technology Corp., chairman and CEO Josh Holstein said the company only gets that money if it can be matched with private investments. No stranger to raising funds – CellARide has raised working capital of $640,000 since it started in 2010 – Holstein is looking local.

“A lot of times you get caught up in, ‘we need the money, we need to grow,’ and you look anywhere you can find it,” Holstein said. “We’ve got our name out there enough that people see the vision and they want to be a part of it.”

The cash cycle
The bootstrap method of raising operating capital in cycles as needed is typical among tech startups.

In CellARide’s case, finding another $175,000 will help the company work through a recent pivot and take advantage of deals in the works with Nissan, Enterprise Rent-A-Car and Saatchi & Saatchi, the global marketing firm behind Toyota.

Holstein said the company adjusted operations to a top-down approach. Rather than sell to dealerships at the local level, CellARide is going after bigger fish in the industry to do its marketing, similar to the work it has done since last year with St. Louis-based Maritz LLC.

“When you do that, you transition from a sales perspective to support, and the revenue isn’t consistent,” Holstein said, noting the trade-off for a potential seven-figure yield with global corporations is a longer waiting period. “Revenue comes when the deals hit, so you have to have the resources to execute.”

In a May 2015 interview with Springfield Business Journal, Woolsey projected Rural First to be cash-flow positive by the following spring. Halfway into 2016, he said the company is nearly there. Projected annual revenue has risen to roughly $135,000.

“We’re meeting our burn,” Woolsey said. “Of course, once we raise the next round, we’ll invest and won’t be cash-flow positive, because you hire out and spend more than you make.”

With new funding, Woolsey said Rural First would add employees for its sales, GIS and development teams, and invest in marketing.

From the seed
If making a splash in a niche industry is any indication, communications platform development company Eagle Speak could soon find itself in Holstein and Woolsey’s shoes, hunting for funds while moving the yardstick.

But even with winning pitches at Startup Weekend and Spin 66, and a nomination as Most Innovative Startup from the Association of Information Technology Professionals under the company’s belt, co-founder Myke Bates knows Eagle Speak is still in the nascent stages of business growth. He and co-owners are hopeful the next opportunity for the company will come in the inaugural class of The eFactory’s business accelerator program starting Aug. 1. Select firms receive $30,000 in seed money in exchange for 8 percent equity held by a subsidiary of Springfield Innovation Inc.

“The funding is one part of it, but more so we need the hands-on training – the things it would be difficult to satisfy working just nights and weekends,” Bates said.

If Eagle Speak makes the cut of the five companies for the first 12-week program, Bates and crew would focus on crafting a pricing structure and the company’s privacy statements and terms of service agreements.

Working with other companies has proven a successful tactic for growing business for Rural First. Now partnered with U.S. Cellular and Verizon Wireless – vehicle-mounted navigation units use cellular  networks to communicate with a central hub – Woolsey said mapping Iowa and Michigan has become a priority. The company also is integrating with St. Louis-based Elliott Data Systems Inc. to track assets such as heavy construction equipment, K-9 units and even human workers used in disaster relief and emergency response scenarios.

Another deal in CellARide’s pipeline, one closer to home, could expand the auto-centric text messaging platform to other vehicles.

“I am under a nondisclosure agreement, but there’s a large, well-known business in the Springfield area we’re working with to branch out,” Holstein said, noting the deal would apply the CellARide concept to watercraft through BoatInfoToGo.com.