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Investors jump on FastSpring as revenue soars

By   /   Friday, April 26th, 2013  /   Comments Off

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Santa Barbara-based e-commerce company FastSpring has potentially received as much as $12.4 million in venture capital and has plans to boost hiring in the region.

FastSpring, which was founded in 2005, saw its revenue reach $95 million last year. Despite having topped the Business Times’ list of fastest-growing companies and ranking high on national and regional lists, FastSpring has never before taken on an outside equity investment.

The company makes an e-commerce system that helps makers of digital goods such as desktop- and subscription-based software and downloadable games sell their wares around the world with minimal hassle. It has about 2,200 clients.

“The company is doing very, very well and has crossed a threshold where there’s a lot of opportunities to expand into different verticals,” said Tom Tzakis, a managing partner at Los Angeles-based Pylon Capital, which made the investment in FastSpring. “Now we’re getting traction with some of the larger companies and large public companies. Our fund not only provides some capital, but we bring a lot of experience from our limited partner group.”

The exact amount of the investment in FastSpring was not disclosed. Pylon filed securities documents saying that it took in $12.4 million for investment purposes and listing FastSpring founding CEO Dan Engel as a board member, but Tzakis said he was not allowed to disclose exactly how the proceeds of the capital raise will be used.

As part of the transaction, Tzakis will take over as CEO of the company, and Pylon Managing Partner Chris Lueck will also join FastSpring’s management. Engel will remain part of the company as senior vice president of marketing. The firm’s other co-founders — Ken White, Ryan Dewell, and Jason Foodman — will stay on in their current positions.

The marketing position is familiar terrain for Engel, who marketed GoToMyPC at ExpertCity before its acquisition by Citrix Online, now a major Goleta employer. In between, he held positions at photo service Picasa before Google acquired it, and then at Google’s AdSense division. He came up with the idea for FastSpring when he was developing yet another software product and couldn’t find a good off-the-shelf system to sell it. Designing a system that could both protect the security of a downloadable product and deal with the complexity of handling payments from different countries and sending tax payments to all the right places took about two years.

FastSpring paired that platform with extremely responsive customer service. It has human beings who answer customer problems seven days a week, regardless of time zone.

“It’s just light years ahead of the existing systems in the software industry, and we couple that with really reasonable pricing. That’s why we’ve been able to pick off clients from our competitors, and once they come to FastSpring, they don’t tend to leave,” Engel said.

The company also came about at a time when more and more goods and services are being sold online, whether they’re software, knowledge products or even infrastructure like server space.

“We fit right into the heart of that. We have a cloud-based service,” Engel said. “It’s a big part of the reason we’ve been able to grow at these hyper growth rates. We’re in a market that’s growing, it seems to approve of the way we address the needs of the market.”

FastSpring has gotten to where it is with a team of 24 people. That number is expected to grow. “We’re used to doing so much with so little capital, and these guys are bringing a lot of resources to bear,” Engel said. “We see the sky as the limit.”

In general, FastSpring acts as what’s known as the merchant of record in transactions, forging alliances with payment processors and handling remitting taxes. As to the new verticals the company will pursue, Engel said it might deepen its ties in the gaming industry as well as investigate micropayments. It is also looking to expand internationally, where it already has a strong presence.

“We’ve got some competition that’s had some success in Asia, so that’s an area we are looking into,” Engel said. “The majority of our revenue doesn’t even come from U.S. companies. We’ve got a very large chunk of revenue and profit coming from companies based in Europe, but we haven’t really expanded physically there.”

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