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Pocketing $9.5M in VC Cash, Teranode Promises To Be Conservative as it Grows XDA Revenues


Teranode said last week that it has secured $9.5 million in Series B financing, proving that life science informatics startups can still attract the attention of the venture capital community.

The round, which brings the company's total funding to more than $12 million, was led by Cargill Ventures and Trident Capital, along with Ignition Partners and WRF Capital, who both participated in Teranode's Series A round last summer [BioInform 08-09-04].

Teranode plans to use the funding to ramp up sales and marketing activities for its XDA (experiment design automation) informatics platform in North America and to accelerate the commercialization of several new products that it has slated for launch in the first quarter of next year.

The XDA platform uses a modeling language called VLX (Visual Language of Experimentation) that enables users to build, automate, and analyze experiments and then share experimental results between labs. The company's upcoming products will incorporate semantic web technology in order to offer improved data-integration capabilities, Matt Shanahan, chief marketing officer, told BioInform.

Ending 2004 with a staff of 18, Teranode should have a headcount of around 45 by the end of 2005, Shanahan said. New hires will be split between sales and R&D staff.

"What's attractive about Teranode is that their solution is at the right time, and I think it's flexible enough that it can become that backbone for information capture and information exchange."

Teranode also expects to "roughly double" its revenue this year, Shanahan said, stressing that the firm is "financially extremely conservative" and that it intends to stay that way. "If we don't see our anticipated revenues, we'll match our spending to that, so we're not just wildly spending," he said.

Shanahan credited this economically prudent philosophy for winning over investors, who have been reluctant to invest in bioinformatics firms in recent years. "I think a lot of the bioinformatics vendors and LIMS vendors have not come from the software industry and don't know how to manage the growth the way that [Teranode CEO] Joe [Duncan] and I do," he said. Duncan joined the company from Oracle while Shanahan is a veteran of Documentum.

Paul Bieganski, managing director and CTO of Cargill Ventures, conceded that the commercial bioinformatics sector has witnessed a number of "false starts" that have burned investors in the past, but, he said, "I don't think that the need for what Teranode is bringing to the table has diminished."

Bieganski said that previous integration products in the bioinformatics market failed because they were premature. "I think it was a bit of a timing issue, and I think also many of the solutions out there just weren't flexible enough," he said. "What's attractive about Teranode is that their solution is at the right time, and I think it's flexible enough that it can become that backbone for information capture and information exchange."

Cargill's portfolio includes companies from both the information technology and the life sciences side of the table, but Teranode is the first "convergence" investment for the firm, Bieganski said, "But going forward, I wouldn't be surprised if it's one of more to come." After following bioinformatics "for many years" before investing in the field, "it's fascinating to see it finally slowly becoming a reality," he said.

Plans for Growth

Shanahan said that Teranode used its Series A funding to not only prove that it could develop a useful informatics product, but to prove that customers would be willing to buy it. The firm has so far signed on about a dozen customers, Shanahan said, including Pfizer and AstraZeneca.

With the Series B funding, Shanahan said, "the objective is to scale that, and say, 'Now that we've got a product, now that we've proven we can sell it, let's grow the revenue.'"

The firm plans to hire several direct sales reps as well as "technical representatives" that will provide pre-sales and post-sales support. Initially, Teranode will focus these sales efforts in the biotech hotspots around Boston and the Bay area, but the firm intends to eventually expand into Southern California, North Carolina's Research Triangle Park region, and the mid-Atlantic states, as well.

The company doesn't plan to focus on European sales until 2006. "One of the things that we feel very comfortable about is that we're on the very early part of this market growth," Shanahan said. "Nobody is suddenly going to be the dominant person tomorrow and put the rest of us out of business, so there's lots of opportunity and that's why we don't feel pressured to suddenly grow internationally." If all goes according to plan, Teranode should begin establishing a presence in the Asia-Pacific region in 2007, he said.

Teranode expects to generate new customers and new revenues from its installed base. The firm hopes to double the number of organizations with which it does business, Shanahan said, "but the larger revenue share will come from the installed base, because they're doing bigger transactions."

Shanahan said the new funding should also help attract "more pragmatic customers" who are looking to sign larger deals than the "visionary" early adopters the firm has worked with to date. Teranode recently closed a deal with an undisclosed pharmaceutical company worth $800,000, "and they wanted to see the financials," he said. "That's a big commitment on their part. … Somebody like that wants to have the confidence that Teranode is hitting its business milestones and [we're] not going to run out of money tomorrow."

Teranode is targeting the end of 2006 for hitting breakeven, with its current funding carrying it through the rest of that year. 2007 "is where we really want to make a change in the business model again, and that's where we want to control our own destiny," he said.

— Bernadette Toner ([email protected])

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