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Website operator for cities expanding

January 18, 2014

An Indianapolis company that manages websites and processes payments for dozens of cities and towns plans to raise $2 million to grow.

The firm, eGov Strategies LLC, wants to hire eight to 10 people, said CEO Charles “Skeets” James, with the rest of the funding going into product development.

The company is a reboot of a similar business, eGov Solutions, which former Mayor Steve Goldsmith helped launch in the late 1990s before it closed amid the dotcom crash. Goldsmith is not involved in the new company.

egov-factbox.gifKen Barlow, then an aide to Goldsmith, and business partner Alan Pyrz began the original eGov in 1999 after the mayor’s tenure ended. Goldsmith, who declined an interview through a spokeswoman, joined eGov a year later and helped raise $5 million in capital.

The first eGov merged with a Chicago firm and changed its name to Netgov. When the business failed in 2001, Lockheed Martin Corp. scooped up several employees and some of Netgov’s software.

But Barlow and Pyrz liked their concept enough that they started anew in 2002.

“They said it was just introduced improperly,” James said. “They were out selling this service and this software before it was fully developed.”

Business is better this time around. The new eGov—not to be confused with the publicly traded NIC Inc., which uses the ticker “EGOV” and manages the state of Indiana’s Web portal—has clinched contracts managing websites for 65 cities and counties in Indiana and almost 200 more government agencies outside the state. Clients are as far away as Nome, Alaska.

Processing online payments—taxes, utility fees or parking fines, among other types of charges—has been a major source of business.

The company annually earns $1.4 million in revenue, and sales grew 30 percent in 2013, James said.

“We’re growing like crazy and the opportunities are out there, with these cities and counties needing ways to reduce costs and better service their constituents,” he said.

First-time fundraisers

The company is prowling for new employees—such as sales representatives, marketers and software developers—to work on a new product the company has yet to unveil.

“Especially in this city, they can be hard to come by,” James said. “That would be a priority.”

A home office on McCrea Street downtown has enough space to add another seven or eight people to the 14 there today, he said. After that, it will be time for bigger quarters.

Managers are juggling the need for new staff while hunting for investors.

Owners filed with the U.S. Securities and Exchange Commission in late November, saying they plan to trade $2 million in company equity. Minimum investments are $25,000, according to the filing.

“We’ve talked to angels and [venture capitalists]. If you don’t ask for $2 million, they won’t talk to you, typically,” James said.

This is the first time eGov’s owners have sought to sell off some of their shares. But the firm took in $600,000 in debt financing last year, plus some money from friends and family when they relaunched the business, he said.

Building up billing

Managing websites for municipalities is a $400 million market, eGov estimates.

The much bigger opportunity is in processing payments online. The company sees its government customers producing a $9.2 billion market.

“What’s really increasing is the need for cities and counties to reduce costs and, in effect, keep people out of city hall,” James said.

Billing offices across all U.S. industries have spent a decade trying to shift their customers away from paper bills.

An average 15.4 percent of consumers receives electronic bills, and 16.5 percent of them pay online, according to an August report by The Ascent Group, a consulting firm in Athens, Ga.

Adoption has been slow to catch on, but the rate is more than double what it was in 2004, the report said. Booming sales of mobile devices and increasing access to the Internet, overall, will likely keep pushing up usage.

Most companies are looking to electronic billing as a way to cut their own costs.

“Bill presentment,” Ascent said in its report, “has expanded from paper bills delivered through the U.S. Postal Service to email, mobile phones, and the Internet with the option to receive bills on company websites, at banks, or special payment portals.”

Past work helps

Experience working within government has helped eGov.

Budgets are tight, approvals require multiple sign-offs, and the contracting process often takes longer than it does with private businesses. Some Web-service vendors stay away from government deals because of the additional steps to getting business, said Derrick Cash, director of informatics for Westfield, an eGov customer.

“We have to follow certain rules,” Cash said, listing all the steps of meeting with committees and councils as part of the vetting process for any contract. “We always have to be flexible in how long things take, and where we go.”

EGov is “very skilled” in navigating the government contracting process, he said.

Cash described the firm as a standout in a field of five or six primary competitors that focus on providing Web services to governments. He noted eGov’s cost—about $7,500 per year for Westfield, compared to almost $20,000 for a competitor—was a major selling point.

The company’s local government niche is a microbe within a massive market for website content management systems that is home to some of Silicon Valley’s biggest names—including Microsoft Corp., Adobe Systems Inc. and Oracle Corp.

Most of the giants, though, don’t offer what local governments need, or the service is too expensive, Cash said. The closest competitor to eGov is CivicPlus, based in Manhattan, Kan., he said. Larger e-government companies, such as NIC in Olathe, Kan., focus on state or federal agencies.

EGov’s services are open to state offices, James said. But with about 22,500 municipalities to tap as clients, the company has plenty of room for growth at the local level.

“Having an attractive website, it’s just an economic development issue,” he said. “When somebody’s looking to locate someplace, first thing they’re going to do is get on the city’s website.”•

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