Deal Radar 2009: Vindicia

Today’s Deal Radar showcases a very impressive SaaS company that solves an important problem in an already large and growing niche: intangible goods. Vindicia’s on-demand billing and fraud management solution, Vindicia CashBox, aims to transform billing into a strategic advantage for online merchants. The company provides a hosted solution that integrates with other core elements of a company’s e-commerce infrastructure, from payment processors to accounting systems to shopping carts, which aims to provide a seamless experience for customers.

CEO and founder Gene Hoffman is an entrepreneur at heart. Hoffman, along with co-founders Brett Thomas and Mark Elrod, founded eMusic as a direct competitor to Napster in 1998. The founders like to say, “We were selling water while Napster was giving beer away free”. Hoffman was the youngest CEO of a NASDAQ-traded company, which he led to an acquisition by Universal/Vivendi in 2001. At eMusic he handled distribution of digital, intangible goods and services. During this process, he realized that in order to be successful, merchants of intangible goods and services would need a solution tailor-made for managing the demands of the digital distribution model. Further, he learned that the subscription model approach was the most dependable and profitable for selling intangible goods and services, from music to video games to security software. 

Redwood City, CA-based Vindicia has raised $13 million so far: a $1 million Series A from Symantec, Hoffman’s own funds and contributions from friends and family in December 2003; a $4 million Series B from DCM and Symantec in January 2005; and an $8 million Series C from Leader Ventures, DCM and a confidential VC in February 2008. The company is not actively looking for new capital but may take advantage of an opportunity if additional capital is available to accelerate growth.

When Vindicia was founded at the end of 2003, e-commerce billing was focused primarily on the tangible goods sector. Not much thought had been put into how much billing could impact the customer acquisition and retention strategies for intangible goods and services. Competition primarily included home-grown systems similar to eMusic’s. The other trend that had become important over subsequent years was the impact of the PCI DSS standard, under which merchants have to deal with consumer credit card and other financial information.

Vindicia CashBox has a few features which differentiate it from other solutions in its category. CashBox supports a merchant’s ability to handle dropped/failed credit card transactions and through automated retry logic, it rectifies the transaction, allowing the payment to go through and thus maximizing that customer’s value as they continue to pay on a recurring basis. CashBox also aids merchants in recovering lost revenue through automated fighting of chargebacks, ensuring that if a merchant is owed money for a successful transaction the dollars flow back to the merchant’s account. It also allows for global billing with support for multiple payment methods, currencies, languages and payment processors and can handle a variety of business models, including subscriptions, micro-transactions, one-time payments, and usage-based billing models.

Vindicia’s business model is based on charging merchants a percentage, usually 2-3%, of revenue successfully billed on their behalf. According to the company, their TAM is about $1 billion for 2012 based on conservative growth rates on part of the merchant communities. Its main target segments are online game publishers, software manufacturers (especially PaaS and SaaS), online content companies like Morningstar.com and ESPN.com, virtual worlds and dating sites. 

Vindicia anticipates becoming cash flow positive in 2009. The company expects 2009 revenue to be approximately $6-$8 million, a 100% increase over 2008. This quarter, the company handled about 209,000 transactions daily on behalf of merchants, a 58% increase over the same period in 2008.

To further their growth, Vindicia plans to focus on the key markets which are ready for a solution to help drive growth of intangible goods and services. Another growth opportunity lies in the smaller merchant community. The current focus is primarily merchants who have online revenues of about $5 million and up, but there is a huge opportunity to also service up-and-coming merchants.

Recommended Reading:

Deal Radar 2008: Bill Me Later – Blessed by Amazon
Forbes Column 2009: Gaming the Recession
Deal Radar 2008: Slide

This segment is a part in the series : Deal Radar 2009