New Jersey Entrepreneur

Many people think of venture capitalists as funding a brilliant idea, not realizing the VC investor or angel looks for some proof of concept. In fact, most venture capitalists would prefer to work with a seasoned business that has already proved that it can turn a profit. Businesses choose to search for additional sources of funding at many times during the life of the business, not only as a start-up, but also later in the process, when they have established one revenue stream, but hope to expand in other areas.

For Bluenog, a software & solutions company based in Piscataway, the decision to search for outside funding was made about one year into the life of the firm.

“We had built a profitable business and a strong baseline to play in the Application Infrastructure arena but we realized that we needed outside capital to grow faster”. says CEO Suresh Kuppusamy.

Kuppusamy and his two partners, Scott Barnett, COO, and Sastry Taruvai, CIO, founded the company in April of 2006. The three met while working for BEA Systems, Inc., an enterprise software company.

“We started the company because we noticed that many of our customers at BEA needed to combine both commercial and open source software in their IT solutions, but there was no company out there that was really addressing that need,” says Barnett.

“Open source is in the mainstream now and its impact on the IT industry cannot be ignored. Bluenog understands that and its product and services are built around this central theme of co-existence between open source and commercial software” added Taruvai.

There has been an explosion in the interest for open source software in business in recent years, but it is still only a small percentage of the overall IT budget for most businesses, he adds. Usually, a business uses a hybrid approach to its software needs, blending both open source and commercial software to provide the most flexible and cost effective solutions.

“We wanted to create a product that would provide best-fit IT solutions to solve the common business challenges of organizations and maximize the benefits of both open source and commercial software. We also wanted to be able to offer companies a single source of support for both types of software” explained Kuppusamy.

Our product and services are versatile enough to work for almost any industry, adds Taruvai. We have over 80 clients in industries ranging from pharmaceutical, to banking, to retail and government.

The company offers its customers three areas of service: they act as consultants for IT solutions, they resell commercial software from a few select companies, including BEA, and they have also developed their own software product based on open source. The Bluenog Platform is “an industry leading Application Infrastructure Software (AIS) Platform,” explains Kuppusamy. It combines a content management system with a portal framework and business intelligence tools.

“The consulting and software resale divisions of the company allowed us to be profitable from day one and gave us the financial base and the time that we needed to develop our own software product,” Taruvai adds. Their consulting and sales divisions allowed them to grow from three to ten employees in their first year and to become profitable. However, by the end of that first year the three partners decided that an additional outside source of funding would enable them to develop their own software product and expand their business at a faster pace.

“Luckily, at about the same time that we decided to look for outside funding sources we also learned about the Venture Association of New Jersey’s Elevator Pitch Olympics,” says Barnett. Bluenog was the winner of the competition, which was held in May, 2007. An elevator pitch is a short presentation made by an entrepreneur who is attempting to raise money for a venture. The judges award points for each presentation, based on a scale of one to ten, in the categories of quality of presentation and business fundability.

Winning the elevator pitch competition “got the ball rolling,” says Barnett. Several venture capitalists were members of judges’ panel, giving the trio a good place to start in their search for funding.

They met with several different groups, from California to Boston before coming to an agreement with NewSpring Capital, a venture capital firm based in Radnor, PA. They finalized the $4 million deal in January, 2008. Two of NewSpring’s directors, Mike DiPiano and Michael Poisel, now sit on Bluenog’s board of directors.

Receiving the money will allow Bluenog to “expand the product and services offering along with broadening our brand,” says CEO Kuppusamy. They have already increased their staff to 20 people, and expect to employ about 30 to 35 by the end of the year.

“Not only does it allow us to develop our product faster, it also allows us to spend more money on marketing. We must continually be out there building awareness of our product,” says Barnett.

While faster development and increased marketing are the tangible products of receiving venture capital support, there are other, less tangible rewards also. Security and increased credibility in the business community are actually some of the biggest benefits.

The Bluenog trio has learned much from their search for venture capital, and they are now in a position to give advice for others who are just starting the process. “The fact that we had already established our company and were a profitable business gave us credibility and validity with potential investors,” says Taruvai. “Particularly in the software development area, where the cost of entry is often relatively low, it is important, especially in this economic climate, to show that you do have the ability to generate revenue and make a profit.”

If you found this article interesting, check Tips for Presenting Your Funding Request to Angels and Venture Capital Firms