Circles Series D - Janet Kraus and Kathy Sherbrooke

Overall Summary

Circles is a company founded by Janet Kraus and Kathy Sherbrooke, primarily focused on luxury concierge services to corporations and employees. The company has gone through three rounds of funding, using the latest round to grow their workforce (especially sales) and build a flexible CRM system through a third party, Breakaway Solutions.  The founders are seeking a fourth round of $10 M; however, because of the dot-com busts and deteriorating market environment, the founders are finding it increasingly difficult to favorably negotiate on an ever-changing deal without significantly giving away equity. The company needed the capital to fund their aggressive growth in two key areas: 1) technology investments in the CRM and website, and 2) product development to solidify the company’s brand loyalty. Fortunately, they find themselves on a close path to profitability, enhanced by some cost-cutting and efficiency measures, and now have three concrete options on the table: 1) continue with the unfavorable terms in the Series D round, while increasing the valuation 2) work with current investors on a “bridge funding” internal round, or 3) finance the round yourself, using own capital and short-term debt financing. We believe that the third option, or financing the company by themselves, is the best course of action for Circles.

POCD Analysis

People

The founders of Circles, Janet Kraus and Kathy Sherbrooke, have experiences and expertise that compliments each other, and the necessary skills that will allow them to execute their business plan. Janet Kraus, CEO, has experienced in marketing and salesmanship. During her time at The Body Shop, she was involved in the development of marketing campaigns and raising of social funds. On the other hand, Sherbrooke is a technical expert. She was involved in the redesigning and launching process of Resumix’s next generation software and also helped the company in moving their software from a proprietary platform to an open system, a step that Circles is currently trying to take.

Opportunity

In 2000, the corporate concierge service industry was fragmented with only a handful of companies competing in this business. During this time, the company that moves quickly can gain from a first mover’s advantage given that information is key in this business. For example, a company that moves quickly to establish relationships with third parties companies can build a larger database of service providers compared to their competitors, enabling them to provide more value for their customers.

Context

Deal

History of Financing

The first round of funding, at $505,000 in 1997, was primarily from friends, family, and bank loans, to finance operating office activities. The Series B round of funding, at $1.1 M in late 1998 in two tranches, was from angel investors and Commonwealth Enterprise Fund. The Series C round of funding, $15.75 M in January 2000 with a pre-money valuation of Circles at $25 M, was lead by TL Ventures, as a convertible preferred security with no participation.

Potential Current Round (Series D)