RouteSmith acquired by Runzheimer International

Last year, I invested in a company that I discovered through the CTEK angel network called RouteSmith. The company makes software for route optimization – think furniture and appliance delivery routes. I covered the company here in April, 2007.

From the CTEK presentations, there were three of us (investors) who thought this was an interesting opportunity and really liked Matt and Jeff, the founders. At the time, they were in early revenue and just needed to scale the business. Jeff (the CTO) was working full time, but Matt (the CEO) was stuck in a day job. The company needed a relatively small amount of financing in order to allow Matt to focus on the business full time, and to grow their marketing efforts. We decided to pull the trigger – this was a natural fit for me because I had some background in vehicle logistics through my first startup, ZOLL Data Systems.

What we came up was a creative financing. Rather than doing a straight equity deal, our small syndicate loaned the company money. The company was then to pay the loan down, with interest, based upon a small percentage of quarterly sales. This is the same creative structure that I had used to finance $100K of working capital for the first company I founded, so I was familiar with this model already. What’s nice about this model is that the company doesn’t need to pay back the money on any predefined timetable. As investors, we were literally vested in their success with their sales pipeline. This creates a nice dynamic. In return for the loan, the investors received warrants to purchase a small chunk of the company as upside.

This was just what the doctor ordered for Routesmith. With Matt on board full time, the pipeline started to grow immediately, and the company reached monthly profitability within about a year. Because it was software as a service, this was an annuity and became a dependable base to further grow the company. As we suspected, no further financing was necessary, and the founders were able to maintain the vast majority of the company stock. Matt and Jeff never lost sight of their bootstrapping nature, and they stayed hungry and lean as a company.

Then Runzheimer International came along and Jeff and Matt really liked the people and the company. They felt they had a similar vision. Routesmith was acquired last week by Runzheimer and it was a very positive outcome for everyone involved. I believe that Jeff and Matt could have successfully built a much larger company over time. This is what they decided they wanted to do, and as investors, none of us wanted to stand in their way of taking the early exit.

I caught up with one of the founders, Matt DeWolf, this weekend and he told me “One of the great things about the Runzheimer acquisition is the investment they plan to make in the Colorado community. Runzheimer is very impressed with the technology community here in Colorado and we plan to invest in this office as a new product development location.

Congratulations to Matt and Jeff. They’re a class act, and Runzheimer made a great investment both in them and in Routesmith as a company.

file under: Blog, Startups