As you can imagine, I get to know quite a number of start up and early stage EIPP (and related) vendors, both here and across the pond. At the same time, I have also attracted a number of potential investors and acquirers seeking startup and early stage EIPP vendors.
While you may think that only start up and early stage companies require funding, I am aware of mature companies who have been in discussions with investment community in order to seek funding for growth. In these cases, funding is generally needed for geographical expansion. It is much easier for mature companies to raise funding than startups or early stage companies. While this is the general acceptance, courting potential investors for 8 to 12 months without closing the deal quickly, do put a significant strain on the business.
Given that EIPP is a growth market, almost every company continues to make losses year after year. Yes, I accept the cash flows are beginning to improve for companies such as OB10. Without further funding, their aggressive growth cannot be sustainable simply through cash flow generated. So how do they satisfy their funding needs? It then becomes a question of debt to equity ratio. Bank debt usually supports for short to medium term working capital needs and not geared for high growth requirements. As one expects, these companies are significantly shy to mention their funding needs, as they believe that the need for additional capital will be badly reflected in the market place.
At the same time, the world continues to become a smaller place, due to daily improving communications, both in terms of speed of communications and level of collaborative tools being launched. This environment makes competitors to meet each other and collaborate easily than ever before. Good examples are Facebook and LinkedIn. Whilst the LinkedIn functionality is somewhat limited and their Groups do not offer any functional support, innovative companies are using these on-line environments to seek potential partners and investors in addition to new customers.
In one occasion, while I was safeguarding a confidential discussion I had with one of the mature (simple rule of thumb: been around for more than 5 yrs) vendors, the market knew more or less of their funding needs. How is this possible? Do companies or advisers working on behalf of these companies leak limited information intentionally to test the market reaction? Surely, an adviser will not leak such information without the consent of their client, if they are breach confidentiality, they would not have clients for long. Damaged credibility is very hard to repair.
I would love to see EIPP market segment flourish with more vendors coming in to the market place. While we have seen some acquisitions, the market is not yet ready for mass consolidation. Believe me, while we speak about supply chain finance and dynamic discounting, across the pond, we are still addressing the same old pain – how to automate paper based manual processes?
Disclaimer: While I used the name of OB10, none of the content is written with OB10 in mind, except the sentence in which OB10 was mentioned. Slightly varied version of this article could be found here.