Startup Journal: maker of trucking software trying to raise capital

Editor’s Note: This is the first of what we hope are monthly features about local startups looking for funding. We are still searching for a catchy name.

Company: Masslogics, Mechanicsville

Product: Web-based workflow software which helps trucking companies manage fleets and expenses

The Pitch: There are more than 150,000 trucking operations in the U.S. “Conservatively, half are using underpowered software or none at all. There is a huge market for small fleets,” says Ben Evans, who developed software that helps trucking companies track their shipments, revenue, vehicles, and expenses. Evans discovered the need for the software when he was running his own trucking company and could not find a suitable product within his budget. Traditional server-based products can cost $15,000 – $50,000. These systems require users to invest that amount up front and install server equipment which adds to the cost and management responsibilities. A Masslogics account starts at $150/mo. The software and data are hosted on Masslogics servers offering more security and reliability than the user can provide with his own equipment. The SAAS model has margins that approach 80%.

Owner/CEO: Ben Evans, 38

Management and Industry background: Has self-funded four previous startups including a trucking company which grew to seven office/warehouse workers and 25 drivers.

Founded: 2005

2008 Projected Revenue:
$27,000, or around $2,250 a month.

2009 Projected revenue:

Money invested:

Anticipated Investment Need: $250,000 – $500,000 to hire marketing firm with experience in trucking industry and to bring software development in-house rather than subcontracting it.

Potential equity stake: 20% for $250,000 (negotiable)

Time frame: The business is looking to secure additional funding in the next six months.

Current efforts: Attending Venture Forum events

The Experts Weigh in:

Tom Roberts, Harbert Venture Partners:

Trucking is a cyclical industry, which could impact IT budgets, but it seems it could be an interesting market. There probably are a lot of homegrown systems where people built their own solution with Excel. And at high end, there are also larger vendors. This looks like smaller medium-size providers.

The advice I’d give to him is to set his sights higher. He seems to be under shooting the opportunity, especially with projections. It’s not real appealing from a professional investor’s perspective. He needs to grow a software business to $10 million to $20 million in revenues to have more significant leverage around exit opportunities.

Some other guidance might be a different use of capital. I would rather see him bring in a CEO who’s experienced at building software companies rather than just focusing on marketing spending. Building the customer base requires a lot more than just marketing.  Also, I would counsel the entrepreneur to keep software development outsourced rather than bringing it internal, where it becomes a fixed expense.

Harbert Venture Partners is a Richmond-based venture capital fund focused on early stage growth IT and healthcare companies. Harbert typically invests in four to five new investments per year.

Carl Johnson, NBI Advisors:

Investors in a business at this stage may be looking for a 40% to 60% return. He needs to accelerate sales. The good news is that he’s got first-hand industry experience as operator. He developed a product to solve problems he knows exists. He’s got customers. That’s all good. When you invest, you prefer the investment to go towards accelerating sales as opposed to R&D.

He may be reaching an underserved market by offering an affordable subscription-based solution versus an enterprise package that has an up-front cost that is too high. But the challenge with the software-as-a-service model, (MassLogics charges $150 per month per user) is it may take 5 to 10 times more financing than the enterprise model to sustain the business as revenues ramp.

Carl Johnson is the founder of NBI Advisors, a division of Waterford Investor Services, Inc., member FINRA

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