Lightedge's capital hunt instead hatches sale
By DAN PILLER Ã¢â‚¬Â¢ REGISTER BUSINESS WRITER Ã¢â‚¬Â¢ March 25, 2008
Jim Masterson and his Lightedge Solutions data service company learned firsthand in the last nine months how fine the line can be between venture capital and outright ownership.
What began in July as a quest for new capital for Lightedge's capital-intensive voice, data and information technology services business ended earlier this year with the sale of the 12-year-old startup company to Denver multibillionaire Philip Anschutz.
Lightedge's computer capacity is so large it is measured in terabyte, which is 1,000 gigabytes. The average home computer has about one gigabyte of memory power.
Expanding and upgrading that computer horsepower needs constant nourishment of cash, which is why Masterson and Chief Operating Officer Jeffrey Springborn packed up their PowerPoint and hit the road in July.
"We honestly weren't looking for a sale," said Masterson, 51, whom John Pappajohn brought to Des Moines from Seattle where he was a senior vice president for sale and marketing with the telecom firm Terabeam. "This is a capital-intensive business. We have a lot of hardware that we need to keep up to date."
The sale cashed out Masterson and founding investors Pappajohn, the Farm Bureau Foundation, Wellmark Blue Cross and Blue Shield of Iowa and Principal Financial Group. It also paid off Lightedge's debt and will stream in fresh cash that Masterson plans to use for expansion.
The strategy is to take the voice and data services beyond Lightedge's current offices in Des Moines, Kansas City, Minneapolis, Omaha, the Quad Cities and Phoenix, Ariz., to outlying markets.
Masterson won't say where Lightedge is going geographically. He noted that the company doesn't have to expand gradually along the broadband network but could hop over markets to work the East or West coasts.
The privately-held Lightedge made neither the terms of the sale nor its financial figures available.Employment at Lightedge is 122, including 89 in Des Moines. Masterson said he envisions employment reaching 300 within a few years, with growth divided between the Des Moines headquarters and sales offices.
"What we do is sit atop the broadband, and we do the voice data work for small- to medium-sized business between five and 300 employees," Masterson said. "We're particularly active in the medical and banking fields."
Lightedge's approximately 2,500 customers outsource their voice, data and information technology work to Lightedge by plugging themselves into 13,700 square feet of computing power Lightedge maintains at the Financial Center in downtown Des Moines and in Altoona. Lightedge's customers leave the worries of system upgrades, expansion and generation software and services to Lightedge and its 122 employees.
Lightedge's experience is not atypical, said Steve Ringlee of Ames, who runs the Centesimus Capital fund in Ames and who has worked with the state's Fund of Funds to help Iowa's technology startups find capital.
"Fortunately, the recent credit crunch isn't hurting the venture capital business as much because venture capitalists tend to take longer views, and are less likely to be swayed by short-term swings in the credit markets," Ringlee said.
He added that "it is exciting that a figure with the stature of Anschutz has bought an Iowa company."
Anschutz was one of three stops on Masterson's trail for capital. The others were Ignition Partners of Seattle, made up of ex-Microsoft and ex-McCaw Cellular people, and MC Ventures in Boston.
The reclusive Anschutz wouldn't talk about the Lightedge purchase, but the Coloradoan is no stranger to the tech world. In 1988, Anschutz used an investment he'd earned in cattle, oil and gas to buy the downtrodden Southern Pacific Railroad in a deal that puzzled many on Wall Street.
Anschutz revealed his true motives when he sold the railroad to Union Pacific Railroad in 1996 but kept rights to Southern Pacific's right-of-way in California and much of the Western United States, along which he laid fiber optic lines. The result was the telecom company Qwest, in which Anschutz was a major owner for years.
"Anschutz knows his way around the telecom business, and it turned out he had his eye on us for a while," Masterson said.
What caught Anschutz's eye was the way Masterson and Springborn merged voice and data into a single service.
"Voice and data are becoming one and the same," Masterson said.
A basic combination of voice and data is a system that transcribes telephone voice messages into e-mail, eliminating the ritual of punching through a night's worth of voice messages. "Now, they are one and the same," Masterson said.
Similarly, Lightedge can convert an employee's office phone into a traveling voice and data center.
Masterson said he believes Anschutz is less likely than many venture capitalists to sell stock to the public.
"Anschutz doesn't have a history of putting companies down the (initial public offering) road, and that's fine with me," Masterson said.
Lightedge is a growing part of Des Moines' nascent technology industry. Statewide, computer, telecom and information technology employs about 46,000 workers, Iowa Technology Association President Leann Jacobson said.
"We have seen that venture capital is still available for those firms that have something to offer," Jacobson said.
Masterson said Des Moines is fertile grand for further development.
"We will be hiring more people," Masterson said. "So far, we've had pretty good luck hiring people who have worked in Chicago, Washington, D.C., and California. In many cases they're native Iowans who want to come back."
Reporter Dan Piller can be reached at (515) 284-8161 or email@example.com