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Indianapolis tech companies seeded by big '90s success

September 24, 2011

In December, it will have been 14 years since IBM struck a deal to buy Indianapolis-based Software Artistry Inc.—the state’s first publicly traded software company—for $200 million.

Many of today’s tech entrepreneurs conjuring up iPhone apps were in elementary school back then, when primitive humans usually used wireless phones to communicate by voice.

But this forgotten deal from the Jurassic period of the city’s information technology industry isn’t relegated to the fossil record. The wealth it created and entrepreneurial talent it cut loose is still alive and well—if not recycled a time or two.

Several Software Artistry executives invested a portion of their IBM proceeds in at least 15 new or existing tech companies in the area. Some of the execs also stuck around and seeded management ranks of local tech companies that have blossomed since the landmark deal was announced in 1997.

“The process repeats itself. Sort of like a nuclear reaction, it splits and splits and splits,” Software Artistry co-founder Don Brown said of the life cycle of local tech companies.

Brown left Software Artistry in 1994, just before it went public, to found Indianapolis-based Interactive Intelligence Group Inc. Now publicly traded, Interactive Intelligence had 2010 sales of $166.3 million.

The most prolific member of the Software Artistry alumni may be the company’s former CEO, Scott Webber.

His blond hair has grayed, such that many a 20-something tech entrepreneur would instinctively be dismissive of such a dinosaur. While today’s youthful entrepreneurs can show off an iPhone like gunslinger “Wild Bill” Hickok could twirl a .45, Webber has quietly invested in a variety of local IT companies of diverse genres. In some cases, he works in an advisory or management capacity for these aspirants.

Webber put some of his Software Artistry proceeds—at the time, IBJ calculated his personal 6.5-percent share to be worth $12.2 million—into Indianapolis-based Volatus Advisors LLC, an investment group of which he is chairman.

Volatus, in turn, has invested in and advised dozens of local technology firms including Aprimo Inc., Autobase, BidPal Network, Indigo BioSystems Inc., Patronpath LLC, PolicyStat and WebLink International Inc.

Some of that Volatus investment has also been seeded by another of the firm’s principals, Thomas Vanneman—Software Artistry’s former chief financial officer.

These are guys who could find work at Fortune 500 companies in larger cities. Before being recruited to Indianapolis to lead Software Artistry through its growth phase, Webber was CEO of Chicago-based Pansophic Systems Inc., leading the 1,600-employee firm through an IPO and eventual sales of $230 million.

software artistryBut what excites Webber these days are the upstarts, such as Indianapolis-based BidPal, of which he is CEO. It was co-founded a couple of years ago by entrepreneur Harris Turner as what’s believed to be the first wireless remote bidding system for silent auctions. Attendees enter bids on an iPod Touch loaded with BidPal’s propriety software. The ease of use is touted as a way to increase bids and ultimately increase auction proceeds.

It’s no Software Artistry or Pansophic Systems, at least not yet. But the small company and product for helping charities has a feel-good factor, Webber said.

“I don’t like the culture of large companies.”

Counterintuitive

Therein is an upside to selling a company the likes of a Software Artistry. Many in the acquired company get fed up with the new corporate culture and return to the community to rekindle entrepreneurial roots, Brown said.

The big corporate bureaucracy “eventually drives the creative people out,” he said. “They are used to being in a freewheeling, creative culture. ... It’s such a jarring transition that it knocks them out.”

On the way to reaching critical mass, these tech firms bring in capital from outside, as well as new talent to enhance the local employee base, Brown said. “It attracts ambitious people … who are looking at other ideas.”

Thus, added Mark Hill, co-principal of investment firm Collina Ventures LLC, one company “spawns another spawns another. It’s kind of a rhythm almost.”

Collina was seeded partly by the 2005 sale of the banking software company owned by Hill and his wife, Karen, to credit giant Experian. Since the sale of Baker Hill, Collina has put money into local tech upstarts including cloud hosting service BlueLock LLC and media firm Cantaloupe.TV LLC.

“We need more [Software Artistrys]. It needs to be a cycle,” Hill said.

But by some conventional wisdom, it seems entirely counterintuitive to want to see innovative local firms gobbled up by the competition.

After all, a few decades ago Ohio’s larger banks ravaged Indiana’s banking landscape like General Sherman marching through Georgia. Indiana banks that had been veritable institutions for a century or more were bought, gutted and homogenized.

Likewise, Indiana has become a mere outpost for larger manufacturers, which, when buying a local operation, often vacuum out local engineering and executive ranks. Sometimes manufacturing operations themselves are moved out of state.

So last year, when one of the city’s biggest software firms—Aprimo—was bought by Ohio-based Teradata Corp., Hill was busy writing op-eds to local media to assure the public the sky wasn’t falling again, this time in the IT industry.

The $525 million Teradata paid for the marketing software company would find its way to Aprimo investors and to employees holding stock options, who would create new tech firms in the years to come, Hill noted.

Brown agrees. His stock in Software Artistry following the IBM buy was worth more than $20 million. He put some of it into Aprimo and some into Mezzia Inc., an Indianapolis firm that develops software for facilities capital planning, later acquired by Boston-based VFA Inc. Mezzia still has offices here.

Mezzia was co-founded in the late 1990s by Michael Robbins—former senior vice president of worldwide operations at Software Artistry.

Aprimo itself has a Software Artistry legacy, being co-founded by former Software Artistry Marketing Director Bill Godfrey. Even before the Aprimo sale, Godfrey had been an angel investor, through the local tech investment fund HALO Capital Group. HALO has put money into Indiana tech companies including Nico Corp., WebLink International and PolicyStat.

“It gets back to some of the early successes we had in the tech sector,” said Jim Jay, president of TechPoint.

Jay said the local IT industry “certainly has not withered away on the vine. It has continued to grow,” such that even he now has a hard time tracking newcomers.

Begetting begins

But that list of central Indiana IT companies was short in 1988, when Brown and entrepreneur Joe Adams sold their first software company, American Financial Resources, to Texas-based Electronic Data Systems for $850,000. AFS made financing software for car dealers.

Brown started the company in 1985, while still in medical school and when the Apple IIe had just come out.

“I had fully planned I’d be a medical researcher,” he said. “But the software thing just kind of took off.”

Given that he and Adams had just created a company and sold it to no less than a technology giant, they were bit cocky when they launched Software Artistry with nary a market identified.

“People were just going to flock to us,” Brown recalled thinking, “and life was going to be wonderful.”

Not at first. They didn’t even know what type of software would be lucrative. Initially, they produced a library of data structures that programmers could use to make their lives easier. They soon realized the money to be made wasn’t in programming tools but in tools for enterprises—especially for the corporate help desk.

They knocked on the door of local venture capital firm CID Equity Partners. One of the principals, Bob Compton, bought into their strategy. But others in CID essentially said, “These guys are clueless,” Brown recalled.

Compton, fortunately, stuck by Brown and Adams, ultimately creating one of CID’s best investments. Soon, Software Artistry signed up big companies such as UPS and Bank of America.

“It was clear we needed experienced management,” Brown said. So in 1991, Software Artistry and its investors recruited Webber from Pansophic.

Brown left Software Artistry in 1994 to start Interactive Intelligence to focus on a subset of help-desk software that integrates to phone and computer systems.

Interactive Intelligence took off. It hired away some of Software Artistry’s people. Software Artistry filed a lawsuit.

“It led to tension with Scott [Webber],” Brown recalled. He thought I was raiding the place.”

Eventually, Brown’s Interactive Intelligence went public.

“It’s interesting to think back,” Godfrey, the former Software Artistry exec who co-founded Aprimo, said earlier this year. “I’m always amazed at how this family tree of high tech companies continues to branch out.”

Who’s next?

Last year’s sale of Aprimo has yet to beget a string of new tech upstarts. Godfrey said even before the deal was signed, however, some of his employees left to start or manage new tech firms here such as PolicyStat and Jesubi LLC.

But Aprimo sale proceeds are floating around out there. Based on his stock holdings at the time, Godfrey aimed to collect at least $30 million from the sale of Aprimo to Teradata.

Twenty-three Aprimo employees and investors each received at least $1 million in proceeds, Godfrey said early this year.

Hill sees the cycle coming around again.

ExactTarget this month renewed plans for an initial public stock offering. And Angie’s List, which increasingly is becoming a tech-like company, recently launched its IPO. Hill wonders whether these could soon generate wealth for insiders that could be plied into new ventures.

“We have two of them on the brink of [more] wealth creation,” Hill said.

And look at smaller and midsize companies in the area such as Scale Computing or Hills’ BlueLock.

BlueLock, for example, is led by Christopher Clapp, who helped create Angel Learning Inc., which was sold in 2009 to Washington, D.C.-based Blackboard Inc. for $95 million.

“These guys,” Hill said, “are all coming up.”•

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