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$14.5 million worth more than the money to Omniture- Why take it when you don’t need it?

So why accept $14.5 million in venture capital funding if your company has had 12 consecutive quarters of growth and six straight quarters of profitability?

Better yet, why accept $14.5 million in VC dollars if on top of continued growth and profitability you’ve got sufficient money in the bank to keep the company going forward?

By David L. Politis

http://deseretnews.com/dn/view/0,1249,595063427,00.html

Why? Because you can — more importantly because the $14.5 million was smart money.

That’s the quick answer as to why Orem-based Omniture closed on a $14.5 million B round of VC funding last week, led by Hummer Winblad Venture Partners (with support from individual investors who had previously invested in Omniture).

If you don’t know the Hummer Winblad name, San Francisco-based HWVP has more than $1 billion under management, and it was the first VC to decide to focus its investment efforts specifically on software companies.

To date, Hummer Winblad has had more than 60 "liquidity events" with its portfolio of companies, either through public offerings or mergers/acquisitions.

And although HWVP has been very quiet on the investing front for close to two years as the DotCom implosion sorted itself out, it now appears that Hummer Winblad is "back in the game" once again.

The HWVP investment in Omniture appears to be the fourth (and largest) single Hummer Winblad equity investment since January 1 (and perhaps since late 2002).

With the investment, Mark Gorenberg, an HWVP partner, will be added to the Omniture board of directors.

With Gorenberg and the Hummer Winblad cachet, Omniture now gets access to the HWVP Rolodex of contacts, along with the expertise of nearly 15 years of investing acumen. That’s why one agrees to accept $14.5 million in funding even if you really don’t need the money.

What’s interesting is that VCs have been pursuing Omniture for more than a year now, looking to invest in the Web analytics firm.

It appears, however, that things came to a head after the company brought John Mellor on board as the company’s new vice president of marketing.

Not necessarily a "stop the presses" type of hire, although I’ve known Mellor for a long time and he knows his stuff when it comes to tech marketing.

No, what was apparently important from a funding standpoint is that Mellor already knew Gorenberg, having worked previously at Viewpoint DataLabs, a company Hummer Winblad had invested in before Computer Associates purchased Viewpoint.

So although I had to push Mellor to get him to admit it, it appears the HWVP connection with Omniture was not made until after the Mellor hire.

Interesting, huh? Hard to believe that adding one person to a company can lead to a $14.5 million investment in less than six months.

But it can. In fact, if you talk to VCs, they’ll tell you (almost to a person) that the most important aspect of every company they consider is the team — the executives running the show.

Naturally the technology is important, as is the marketplace and the competitive landscape and a whole bunch of other topics too numerous to name here. But No. 1 is always the team.

On the tech side, Omniture is viewed by most industry observers as having the top solution in its field — Web analytics.

Utilized mostly by larger firms, companies able to spend $100,000 or more for the service, Omniture’s SiteCatalyst allows companies to get a real handle on how people use their Web sites.

For example, for an e-commerce company, SiteCatalyst tells the company where a visitor was on the Net just prior to entering their Web site. It then tracks that person throughout their entire visit, enabling companies to know what portions of their Web sites are working the best and which ones work poorly.

As Mellor explained it to me last week, "we help them drive their ROI (return on investment)."

In addition to serving three of the top five companies as ranked by Fortune magazine, Omniture currently counts among its corporate devotees companies such as eBay, Time Warner, Gannett, Microsoft, Oracle, Intel, Overstock.com, GM, Hewlett-Packard and VeriSign, just to name a few.

According to an article published earlier this year by Internet Retailer, Salt Lake City-based Overstock.com (Nasdaq: OSTK) decided to reduce the number of Web pages required for a customer to make a purchase through its online "checkout" process after analyzing reports provided it by SiteCatalyst.

The result? Checkout conversion rates (the number of people actually making a purchase after entering the checkout phase) soared above 70 percent on some days.

Why the difference? It turns out Overstock had previously inserted a page in the checkout process to verify each purchase, asking customers "Are you sure?" when they wanted to make a purchase.

By removing that one page, not only did conversion rates jump, but customer complaints dropped too — all because of SiteCatalyst.

Omniture sales topped $8 million in 2003 and are projected to hit $20 million in 2004.

So did Omniture need the money? Mellor says no.

But he did say he expects the company won’t need to raise money prior to an "exit" for shareholders through an event such as a merger, acquisition or an initial public offering.

But when or if such an event might occur, he wouldn’t speculate.

That’s OK; I already did in my column two weeks ago.

In looking back I might have been a bit optimistic in suggesting an IPO window for Omniture within six to 12 months, but I still believe an exit is certainly possible for its shareholders within that time frame.

David Politis leads Politis Communications, a strategic communications agency that helps maximize corporate value for high-tech and life science companies.

E-mail: [email protected].

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