CAMBRIDGE, Mass. – Christopher Ahlberg’s 3-year-old company Spotfire Inc. straddles two worlds.
At heart, Spotfire is a software company whose product helps users visually sift through mounds of data. But the company operates in the world of life sciences, the result of a marketing decision to target pharmaceutical companies.
Dr. Ahlberg is quick to note that Spotfire has secured as its clients 23 of the 25 largest pharmaceutical companies in the United States, including Merck & Co., Pfizer Inc., Johnson & Johnson, DuPont Pharmaceuticals Co. and Upjohn Co., but it is easier to mention those who do not appear on Spotfire’s list: Roche and Schering-Plough. Biotechnology enterprises such as Amgen Inc., Incyte Pharmaceuticals Inc. and Millenium Pharmaceuticals Inc. also are customers.
Presently, most Spotfire users work in research – as medicinal chemists or molecular biologists, for example – but Spotfire’s software could be used more widely by a pharmaceutical company, including by non-research departments such as marketing, to share and manage information.
Spotfire raised a $6 million second round of venture financing in April from return investors Atlas Venture, Sweden’s InnovationsKapital and newcomer Sprout Group. The money will be used to improve Spotfire’s products, develop a professional-services organization and expand into new markets: specialty chemicals and manufacturing facilities.
The company raised a $3 million round of financing in September 1997.
Familiar Deal for Atlas
Spotfire was something of a typical deal for backer Atlas, said Jean-Francois Formela, because the firm frequently backs early-stage companies with innovative technology but no chosen application. Atlas is Spotfire’s biggest shareholder, investing $2.4 million in the company’s first round and $1.2 million in this latest financing. Mr. Formela noted that the second round was valued at more than twice the post-money valuation of the first financing.
Atlas introduced the deal to Sprout, whose General Partner Philippe Chambon will take a board seat on the company, joining Atlas’ Philippe Claude. In the last two years, Sprout has made a series of IT life science investments to take advantage of medical device and pharma companies’ need for better data management, Dr. Chambon explained. Other companies operating in that niche that have received Sprout backing include Sapient Health Network, Skila and Phase Forward.
Spotfire, formed in April 1996 in Sweden, moved most of its operations to the U.S. about a year ago to target the American market. The company’s management team also thought it would be easier to recruit an experienced software sales force in the U.S. Twenty-five software developers remain in Sweden, and two sales representatives cover Europe.
Initially, Spotfire’s founders planned to take a horizontal sales strategy by offering its products to a wide range of markets. But marketing efforts soon shifted to a vertical approach once the young company received support from scientists who were connected with the pharmaceutical industry.
Dr. Ahlberg said the reasons for targeting pharmaceuticals were many: First, pharmaceutical companies already spend a lot of money on instruments and databases and are expected to appreciate Spotfire’s goal to help make better use of those purchases. In addition, Spotfire had found top industry scientists who were willing to work with the company. The pharmaceutical industry also is geographically concentrated, thereby simplifying sales efforts. For example, in the U.S. the pharmaceutical hub is based in New Jersey, with smaller concentrations around San Francisco and Boston. Finally, scientists often discuss their projects with colleagues, which has the potential to create a buzz about Spotfire.
Moving Toward IPO
The company started generating revenue and was profitable in the first quarter of this year, but Dr. Ahlberg does not expect sustained profitability until 2000. He looks forward to a public offering – not an acquisition – in about two to three years. “This is not an Internet play,” or a biotech company, he said, referring to Internet and biotech companies tendency to go public while still unprofitable. Dr. Ahlberg said Spotfire needed sustained profitability to have a successful IPO.
Sprout’s Dr. Chambon is open to either an acquisition or an IPO as an exit for Spotfire.
Dr. Ahlberg cites two competitors in the field: SGI’s MindSet and Oxford Molecular’s DIVA. But the CEO views neither as a threat: “We think we kill anything that is even close to competition.”
From a sales perspective, Spotfire’s key challenge is to get research and development shops to work the company’s software into the research budgets.