With venture funds scarcer than they've been in years, Denver-based Inflow managed to secure a round of funding for $35 million in June.
All it took was laying off 230 people and shedding four of its 1 7 data centers, making it likely that the company will be profitable by the end of the year.
Peter Van Genderen, a general partner at Denver based Stolberg Equity Partners, an early investor that was also part of the latest round, gives two reasons why Inflow, an operator of Internet data centers and Web hosting services, was an attractive investment.
"No.1, they cut their operating expenses by approximately 45 percent in the course of roughly 60 days," Van Genderen said.
"That was very important because it means that with minimal new growth they're throwing off profits. No. 2 was our continued faith in a very impressive management team. Art Zeile, the CEO, is a monster talent and he's assembled a group of best-inclass execs around him."
It helped that Inflow is not exactly a startup, but a four-year-old company that generated revenues of $48 million in 2001, nearly triple from the previous year. But to make itself appealing to investors, the company had to address a monthly burn rate of $2.8 million, which it did. The company is projecting revenues of $70 million in 2002.
Stolberg Equity Partners invests in business-services companies, and while that hasn't changed with the economic downturn, other aspects of Stolberg's selection process nave changed in the last two years.
"We will not invest in as early of a stage company as we would have in the past," Van Genderen said. "We will wait until they've demonstrated bigger revenues and a closer proximity to profitability. That's the way we've changed."
Solberg Equity Partners isn't alone in that trend.
According to the MoneyTree survey by PricewaterhouseCoopers, the National Venture Capital Association and Venture Economics, venture capital investment in Colorado in the second quarter dropped 40 percent from the previous quarter and 66 percent from the same period a year ago. According to the research group VentureOne, investment in technology companies nationwide fell to 49 percent of total investments in the second quarter, the first time it has measured less than half the total since VentureOne started tracking numbers in the early 1990s.