NETdelivery lures $22.8M for U.S. expansion
A Colorado company that's helping Canada and Sweden perfect the world's first virtual postal services has secured $22.8 million in new funding to help sell its technology in the U.S.
NETdelivery Corp. of Boulder, Colo., has finally closed the Series C round after almost a year of negotiations. The company, which has raised about $40 million since 1995, closed the first part of the round in November but kept it open until recently in response to investor interest.
Richard Stranger, president and chief executive officer of NETdelivery, said his company raised about 50% more than its original goal for the round. The company, with a pre-money valuation of $30 million, is now valued at $55 million, pushed upwards by the oversubscribed portion.
"The round was not up dramatically, but considering the market conditions, I believe our shareholders were pleased with the price," he said. Shares of the company increased in value by about 15% over its Series B round, a $12 million funding completed in early 1998.
NETdelivery was originally founded to provide consolidated, Web-based information to Internet users in the days before Web portals. Its technology tracked Web sites flagged by its users and automatically downloaded updates when they became available.
As Yahoo! Inc. and other portals became the Web's information providers of choice, NETdelivery was left with a product that, Stranger admitted, "was technically interesting but with no real market." The company then turned its attention to Internet-based bill presentation and payment.
NETdelivery's big break came in 1999 when it teamed with Canada Post, Bank of Montreal and others to create epost, the world's first online post office. The company is also working with CheckFree Corp. and others to build a second electronic postal system in Sweden.
The electronic post offices give consumers and companies the opportunity to receive bills, statements and other correspondences over the Web. Using epost, Canadians can log onto a secure site to view bills from more than 50 companies and schedule payments. A fee is charged to the sender but not the receiver.
Stranger said in addition to providing his company with revenue, the experience gained from developing online post offices should help it sell to the private sector. Potential users range from large billers who might have the volume to run a private presentment and payment network to regional players interested in building local post offices. NETdelivery also intends to offer its wares to large companies who could send forms electronically to business partners.
The new capital will go primarily toward expanding sales and marketing. Stranger said the company has cut in half the amount spent on engineering to 40% as the company has reshifted from development to sales.
Existing shareholder Apex Investment Partners led the round, with support from prior investors United Parcel Service Inc., Keystone Venture Capital, Output Technology Solutions and First Analysis. New investors to the round included Northwestern Mutual Life Insurance Co. and CDP Sofinov, an affiliate of Caisse de d$BqQ‡U(B et placement du Qu$BqC(Bec.
Chicago-based Advanced Equities Inc. was placement agent on the deal, and attorneys from the San Francisco office of Latham & Watkins represented NETdelivery in negotiations.
Stranger said his company already has several potential customers. One, an unidentified U.S. competitive local exchange carrier, will begin a beta test of the technology next month. That carrier will initially offer only its own bills through the service but hopes to eventually establish a regional virtual post office carrying bills and other forms for local utilities and other businesses in the region it covers.
While there is no other company doing exactly the same thing as NETdelivery, most of the components of its service are offered by rivals as well. CheckFree, the company's partner on the Sweden project, is a potential electronic billing competitor. And several companies $B!&(Bincluding Edmonton, Alberta-based Shana Corp. and Jetform Inc. of Ottawa $B!&(Bspecialize in sending forms electronically between businesses.
Stranger said that NETdelivery's business plan calls for it to be cash positive in about a year. This funding should be more than enough to reach that point, he said, as well as giving the company the resources to acquire additional technology.
For now, at least, NETdelivery's expansion plans do not include extending epost south through a partnership with the U.S Postal Service. Stranger said nothing has resulted from his company's discussions with the U.S. Postal Service.
The service has been working with CheckFree to offer a private-label version of that company's software, he said.
Stranger said that there are "half a dozen different avenues" his company has pursued with investor UPS, but they have only been discussions. He said he believes that if the U.S. Postal Service doesn't take the lead on an epost-type system, UPS or rival Federal Express Corp. eventually will.
"There is a market opportunity out there that the U.S. Post Office could seize and do very well in," he said. "If they don't, I am sure there are others who will take advantage."
