Atul Jain founded TEOCO Corp. in 1994 and has run the business without external capital for these past 15 years. He wasn’t looking for any when TA Associates came knocking on his door, wary of what impact a partnership with a venture capitalist would have on the business and business model of which he is so proud. A couple of months later he accepted a $60 million investment and opened a new chapter in the company’s history and in the book he plans to write.
Fairfax, Va.-based TEOCO is a provider of cost, routing and revenue management solutions, a market segment that is growing to varying degrees, according to analysts, and increasingly fragmented, according to Hythem El-Nazer, senior vice president at TA Associates. Both of these factors present opportunity for TEOCO to expand, he said.
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| TA Associates' Hythem El-Nazer |
“It is a sizable market but a very fragmented market and we think TEOCO can be a leader here,” El-Nazer said. “It has a strong history of making acquisitions and we expect it will continue to complement its organic growth by making more acquisitions.”
That’s what TA, in part, came in to help TEOCO do. In fact, TA has taken two seats on the board of directors. Both El-Nazer and Brian Conway, managing director at TA, are now board members and will help TEOCO evaluate potential acquisition targets.
“Venture Capitalists come into a company like TEOCO not because they need the money, but because they don’t. They provide liquidity and growth capital,” Jain said.
He added that TEOCO generates a good amount of cash every year itself and has used that cash to make a couple of acquisition in the last few years — Vibrant Solutions in October 2006 and Vero Systems in October 2008. “Now we will be a little more aggressive in the frequency or perhaps size of acquisition we do. This improves our ability to do a bigger deal,” he said.
And although he believes he has a good business model of his own, Jain said there is always room for improvement. “Companies with our kind of ownership tend to be more informal around budgeting, planning and forecasting. I feel we might be a little more disciplined as a result of their investment and I think that can be very helpful,” Jain said.