Software Innovation Inc. 529averages,” expecting a few big returns to
make up for a handful of complete write-offs.
In a smaller fund, Park knew he had to be
more cautious since a single write-off could
drastically affect the returns of the fund. Yet,
Park felt that by using his strategic partners
to validate the technology and market poten-
tial for Software Innovation, he could hedge
his risk and accelerate the company’s growth
to meet a reasonable exit timeframe.
In any event, for each of the Covington
Funds that might participate in an invest-
ment in SI, Park knew he had to make a solid
case for a compounded return of 35 percent.
He also knew that an exit was essential in no
more than five years because Covington
needed to constantly demonstrate returns to
keep the flow of new capital coming in. Park
also knew from the experience of the past dif-
ficult years in the venture business, it was
helpful to have a like-minded partner putting
money into any investment alongside
Covington.
The Approach
Park first learned of SI through its chief exec-
utive officer (CEO) and major investor,
Randall Howard, with whom Park had sat on
the board of another software company. That
was almost a year ago. Howard had indicat-
ed a fairly wide range in both the valuation
he was looking for as well as the amount the
company proposed to raise. Howard told
Park that the company was willing to take a
maximum dilution in this round of 35 to 45
percent and that the company wanted to raise
$7 million to $10 million. These numbers
implied a pre-money valuation ranging from
$8.5 million to $19 million. This wide range
was troubling: what did the company really
want? Even at the low end, Park was con-
cerned by the proposed valuation. At the
high end, he thought the numbers were more
reminiscent of the technology boom than the
current state of the market. Yet Park also
knew that for a good company with a strong
management team it was worthwhile to stay
in touch and to see whether, over time, their
views on value and investment size might
converge. And for the next nine months
that’s what Park did.10. Software Innovation Inc.
Software Innovation provided project collab-
oration software to the $3 trillion^1 capital
projects market. The software, branded
“Coreworx,” was targeted at large-scale and
complex, billion-dollar construction projects.
These mega-projects included the develop-
ment of new power plants, oil platforms and
chemical plants. SI sold to owner-operators
and engineering, procurement, and construc-
tion companies (EPCs). Owner-operators
such as ExxonMobil and Dow Chemical
were organizations that owned and operated
a facility or capital project. EPCs were organ-
izations such as market leaders Fluor and
Bechtel that could be contracted by an
owner-operator to manage the creation or
upgrade of a capital project facility. Coreworx
enabled collaboration among the involved
parties at every stage of the capital project,
from initial concept and specification,
through front-end engineering and design,
procurement, construction, commission-
ing/handover, and extending into the ongo-
ing maintenance and operations cycle.
SI had evidence that it was addressing a
critical market need. The National Institute
of Standards and Technology (NIST) in the
United States had released a study titled
“Cost Analysis of Inadequate Interoperability
in the U.S. Capital Facilities Industry.” The
report estimated that inadequate interoper-
ability was costing the industry $15.8 billion
per year. Highlighted inefficiencies included
manual re-entry of data, duplication of busi-
ness functions, and a reliance on paper-based
information systems. All of these problems
were addressed in the Coreworx product.
The company, based in Toronto, Ontario,
had gone through three changes in owner-
ship to reach its current state. The company
began on February 3, 1997 as Software
Innovation Inc., a wholly owned subsidiary
of Software Innovation ASA (SI ASA), a
Norwegian software company whose shares