Venture Capital: Investors look for companies like Purcell

LAST SEPTEMBER, PURCELL Systems Chief Executive Pete Chase sat on a floating cabin in the middle of Prince William Sound discussing the merits of venture capital with his three top executives.

By JOHN COOK
SEATTLE POST-INTELLIGENCER REPORTER

http://seattlepi.nwsource.com/venture/173281_vc14.html

It was a lively debate during the executive retreat, punctuated by the fact that the maker of telecommunications cabinetry survived the recent economic meltdown with minimal outside investment.

"We tied ropes to each other and threw a filet knife in the middle until we got it all figured out," joked Chase, who co-founded the Liberty Lake company in January 2000. "We saw this great opportunity to continue to double our revenue, but in doing so you certainly don’t want to pigeonhole yourself into one particular market segment where it can come crashing down as easily as it came building up."

Purcell Systems, which makes high-end cabinets that house electronics, batteries, cabling and other equipment at cellular towers, decided to pursue the financing as part of its growth strategy. Today, the privately held company — which is profitable and posted revenues of $21 million last year — plans to announce $16.6 million in financing from Weston Presidio.

The financing round hits on a number of trends in the venture capital business.

Not only are investors spending more time analyzing established companies such as Purcell, but they are competing to get into those deals. Purcell, for example, received offers from five firms before choosing Weston Presido.

"There has been a real shift in attitude towards investments as of late," said Troy Hartzell, an investment banker with Cascadia Capital who helped broker the deal. "Pete and company had built one hell of a business with very little outside capital. These guys had built this business on the sweat of their brow and were hugely successful in terms of growth."

Purcell’s 100 percent annual growth rate appealed to investors who were looking to place bets on fast-growing companies in the battered telecommunications sector, Hartzell said.

The company’s unusual business also provided an appetizing prospect for investors who wanted to find deals off the beaten path, Hartzell said.

Chase, the 44-year-old chief executive of Purcell, admits that the outdoor metal enclosure business is "not all that sexy." But the cabinets, which are designed and built in the Spokane area, do solve a real problem for wireless carriers.

As more data and phone calls pass through individual cellular towers, equipment is placed under additional strain. Purcell’s cabinets are designed to make sure the equipment functions at the highest level, providing air conditioning, remote monitoring and backup power.

Ranging in price from $500 to $40,000, the cabinets also allow wireless carriers to quickly upgrade a cell site, Chase said.

"All of the mundane, yet very important elements of a site construction are pulled together in the solution that we provide so the carrier can focus on the real core competency, which is the radio itself," Chase said.

There are an estimated 163,000 cell towers in the United States. While new sites are growing at a relatively slow pace, Chase said many wireless carriers are upgrading existing facilities to deal with increased data demands.

"Right now you have tens of thousands of junior high girls running around with cell phones that can take pictures," Chase said. "That puts a tremendous amount of pressure on the wireless carrier to keep that equipment at the cell site upgraded to provide the next level of functionality."

Purcell counts four of the six largest wireless carriers in the country as customers. With the recent venture capital infusion, the company plans to expand into new markets for cable and traditional phone companies. It is also looking at opportunities overseas. If all goes as planned, the company will top $45 million in sales this year, Chase said. Competitors include Marconi, Tyco International and Avaya.

For Chase, who co-founded the company with George Thompson and William Miller, the venture capital financing signals a new era for the company.

"It is amazing," Chase said, noting that Weston Presidio backed JetBlue Airways. "We are in a whole new kettle."

But Chase, who used personal credit cards to finance the business, remembers the early days, when Purcell was simply trying to survive the telecommunications meltdown.

The company struggled to raise $1 million in angel financing in 2002, a much needed boost during the worst of the economic storm. While many telecom companies were closing their doors or cutting staff, Purcell started hiring experienced engineers.

"What began happening was that there was this big void out there of stuff that no one really knew how to handle," Chase said. "We were able to come in and solve a lot of headaches."

That growth continued after last summer’s East Coast blackout, when many cellular sites lost power. Fearing that another blackout could disrupt service, cellular carriers began adding additional battery cabinets. That recent development sparked even more business for Purcell.

The company employs 75 people, with plans to add 15 more this year. Its contract manufacturer employs anywhere from 50 to 150 workers depending on schedules.

Chase’s persistence and business acumen has impressed Tom Simpson, a Spokane venture capitalist.

"The company has the unique distinction of having grown rapidly during a time when most other telecom equipment companies were shrinking," said Simpson, who is not an investor. "Pete’s ability to accomplish this growth is a tremendous endorsement of Purcell’s product strategy, sales and marketing savvy and overall leadership in its market."

Maintaining that leadership while holding onto the fast-paced culture that helped Purcell grow is now one of the company’s primary goals.

Asked to reveal Purcell’s biggest challenge this year, Chase doesn’t name the multibillion dollar competitors or the custom manufacturing process. Instead, his biggest worry is complacency.

"You don’t want to become the next big, dumb company that does things slowly," he said.

"We need to continue to support the original reason why we were successful, which is speed and flexibility."
P-I reporter John Cook can be reached at 206-448-8075 or [email protected]. For more information on Seattle-area startups or venture capital firms, visit http://www.seattlepi.com/venture.