to change, resulting in dilution in ownership shares for him and employees-a fact of life for VC-funded projects. VCs tend to want 20% to 30% ownership of a company, says Kim. However, while an entrepreneur’s piece of the pie traditionally shrinks, his or her overall wealth grows.
James is currently in the process of raising a Series B round of financing, projected to bring in nearly $15 million. The funds will be used to upgrade the site, complete management hiring and get the word out through marketing and advertising. James says that under current conditions, these second-round funds should last until ProduceOnline.com goes public, which could happen within the next 12 to 18 months. “Going public can give a company cachet in the market,” says Kim. But he stresses that an IPO will be viewed as a financing event, not the end goal.
BUILDING CUSTOMER BRIDGES
For any start-up entity, having a major industry player sign on as a customer can legitimize the new company in the market. In fact, along with the broadness of the product line, this is a key factor in ensuring success says analyst Dahlman. “It depends on the kind of alliances you’re able to develop with growers, distribution systems, etc., and the degree to which you can integrate your services into [food distributors] such as U.S. Food Services, Super Value and the like.”
For ProduceOnline.com, a significant customer alliance came last October when PRO*ACT, a Monterey, California-based marketing and services collective of 38 member distributors, signed an exclusive agreement with ProduceOnline.com. The agreement allows PRO*ACT, one of the nation’s largest buyers of produce with more than $1 billion in annual sales, to conduct business with ProduceOnline.com.
James Catchot, president and CEO, says PRO*ACT chose to go with ProduceOnline.com over competitors such as Freshplex.com and ProduceWorld.com because he was very comfortable with the business model and the strength of management. Catchot also cites ProduceOnline.com’s ability to cultivate important customer relationships as a critical factor in the produce industry. “Some of the other sites are set up as auction sites, which was unattractive to PRO*ACT given the incompatibility with establishing and maintaining relationships with customers,” he says.
In addressing the company’s strategy in winning over customers, James says, “It’s really to help senior executives in the companies we target understand how the Net can impact their businesses. Many of these executives and managers are in their 40s and 50s and don’t understand how the Web relates to produce,” he says. “We have to demonstrate to them how the Internet has worked in other old-line industries and how those benefits are applicable to a produce company.”
STAYING ONE STEP AHEAD OF THE COMPETITION
Of course, ProduceOnline.com is not the only e-commerce game in town. “In the past six months, there have been major efforts with capital infusions to different sites,” says Dahlman. These include TerminalMarkets.com and Freshplex.com, as well as ProduceOnline.com’s main competitors, Agribuys.com and BuyProduce.com.
Laurie Windham, president and CEO of Cognitiative Inc., a San-Francisco-based e-strategy consulting firm, says, “The produce sector is ripe to