When Thomas Foley started Xpert Financial in 2009, he had a simple thesis: Going public was too costly for most companies, and the private fundraising process was overly opaque. So he created an electronic exchange for private companies to raise capital or let early shareholders and employees sell some of their stake.
Xpert hasn’t panned out. The San Mateo, California-based company needed too much capital to comply with regulatory rules and was unable to create a vibrant marketplace of buyers and sellers. The private exchange business also suffered after secondary investors in Facebook and Zynga got burned when the companies’ stocks plunged on the public markets.
Foley, at just 28 years old, isn’t giving up. The last thing he worked on at Xpert was a product to help companies keep track of their capital raising, from the time they begin reaching out to investors until they consummate a deal. Think of it as customer relationship management (CRM) software for fundraising. He recently rolled that out into a new company, called CapRally, and is backed by venture capitalist Tim Draper, the principal investor in Xpert.
“Xpert is regulated and has chicken and egg issues,” said Draper, whose son, Adam, was an Xpert co-founder. “Companies, their boards and investors all have to say yes to the new platform. CapRally is a much easier sell to most of these companies because they are already using spreadsheets or CRM software to track and manage their deal flow.”
The software is currently helping manage 127 deals for a group of companies and investment firms that are testing it, and has been available since mid-October for anyone to use for free at CapRally’s website. Foley said the basic product will be free and he’ll start charging for more advanced features in the first half of next year. For investors, the price will range from $25 to $300 a month per user, and for companies and investment banks, monthly licenses will range from $150 to $5,000 a month per deal.
Companies can use the service to find recommended investors, correspond with them, record meeting dates, and keep track of who has committed to a round and who’s declined. Foley compares CapRally to tax software in that it’s highly useful for specific transactions and the information is then stored for future deals. He’s playing into the larger trend towards cloud-based software, which enables users to access data via Web browsers and smartphones.
While the company is targeting startups, the product is also being used by investment banks and venture capitalists, Foley said. He’s actively using the product as well.
“We’re in the middle of our capital raising process and we have 60 investors that we’re dealing with at any stage in the process,” said Foley, who worked in investment banking before starting Xpert. “Some are in due diligence, some we have meetings with, some have just responded and we’re scheduling meetings. We need to know exactly where we are across all those different things and very quickly.”
If CapRally catches on in the startup market, Foley expects to go after real estate investors, while Draper says the product will be useful for non-profits and film financing groups. Within the non-profit sector, CapRally would compete with companies such as Blackbaud and DonorPerfect.
As for the future of Xpert, Foley and Draper are in the process of working it out. Of the 28 employees the company had at its peak, only three remain. The company still has its broker dealer license, allowing it to execute trades. Draper said he hopes to restart the project and get a group of top venture capitalists to become members, pushing to “ensure that all the best companies would go to Xpert to do private IPOs.” He said the business needs about $5 million to work, and he’s willing to invest if he can get others on board.
Foley is cautiously optimistic.
“There’s a real need there, but who knows if the market is ready,” he said. “Or if we’re the ones to execute it.”