Software attracts green

A local entrepreneur draws venture capital with software that charges only for the time that it is used

July 19, 2005|By William Patalon III | William Patalon III,SUN STAFF

Artifact Software Inc., the Baltimore technology firm started by the entrepreneur who co-founded and later sold Sequoia Software Inc., will announce today $5 million in first-round venture financing.

The two lead investors are Intersouth Partners of Durham, N.C., and the New Markets Growth Fund of College Park, confirmed Mark J. Wesker, Artifact's chairman, president and chief executive. Other investors included Draper Atlantic of Reston, Va.

"You've got a very experienced CEO, with an excellent track record in building successful software companies," said Intersouth general partner Mitch Mumma. "They've got a business model that absolutely makes a lot of sense. ... They have actual customers who can help them build their business."

Artifact, housed in the former Bagby Furniture Co. building on South Exeter Street, has developed a set of software tools that its clients can use to manage software-development projects that have been outsourced - increasingly to overseas vendors.

Artifact has also embraced a new marketing strategy: Instead of selling the software outright, or leasing it under a long-term deal, Artifact is offering an on-demand, pay-as-you-go plan - where customers are charged only for the time they use the software.

Artifact's software is stored on a remote computer server accessible via secure Internet connections, and not on the hard drive of a customer's computer.

Wesker said Artifact hopes to capitalize on a number of U.S. trends. These include the outsourcing of software development by U.S. companies, the widespread deployment of broadband access that makes it possible to collaborate globally on software development programs, and the emergence of software hot spots in countries such as China, Russia and India.

"There are huge opportunities here. There is a major paradigm shift afoot," said Wesker, who estimated the software outsourcing market at $200 billion a year.

Artifact's software tools make it possible for a U.S. executive to summon up a real-time status report on an outsourced development project - instantly ascertaining how far the project has gone, what problems remain, and whether it's over or under budget, and by how much, Wesker said.

Wesker, 43, a former attorney who is a Pikesville High School graduate, founded Artifact in 2002, though the company has yet to log substantive sales. It has placed "beta," or test, versions of its software with key potential customers, he said.

Artifact represents Wesker's second sojourn into the software sector.

In 1992, he and his software-engineer brother-in-law started Sequoia Software, a developer of Internet portal software, in the basement of a Columbia townhouse.

The company went public in May 2000, after the technology-heavy Nasdaq had already begun to slide. At $8 a share, Sequoia was the only Nasdaq IPO of the week. By midsummer, it had reached the $20s, giving the company a value of $600 million. But 10 months later, as the tech sector implosion accelerated, Sequoia reached a deal to sell itself to Citrix Systems Inc. for $184.6 million, or $5.64 a share - less than the IPO but enough for Wesker and other executives to reap millions.

Wesker remained under contract with Citrix until early 2002, and started Artifact several months later. The initial idea was for the company to collaborate with other companies to develop software, but the focus was subsequently shifted to providing "on-demand" software services.

Wesker is well-connected in the region's high-tech sector. He's the chairman of the board of the Greater Baltimore Technology Council. He's also a member of the Pappas Commission, created by Gov. Robert L. Ehrlich Jr. in 2003 to bolster Maryland's technology-business climate. This year he served as a judge for Ernst & Young's regional entrepreneur of the year awards.

Artifact's success in landing the $5 million in financing also is a sign of improvement in the venture capital climate. Experts say that, after a five-year lull, VC investors are once again investing in young startups.

"We're starting to see, in the last three or four months, that venture capitalists are going more for early-stage companies," said Kevin J. Burns, the president of the Mid-Atlantic Venture Capital Association who is also a managing principal with Lazard Technology Partners.

Wire services contributed to this article.

Artifact Software

Headquarters: Baltimore

Founded: 2002

Employees: 12 full time

CEO: Mark J. Wesker, former co-founder of Sequoia Software Inc. of Columbia

Business: "On-demand" software for companies outsourcing software-development projects

First-round venture capital: $5 million, from Intersouth Partners of Durham, N.C.; New Markets Growth Fund of College Park; Draper Atlantic of Reston, Va.; and Wesker himself

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