Start with local dollars. Use them to develop your product, prove your value proposition. Then turn elsewhere — Silicon Valley, perhaps? — for the capital you need to scale.
That’s what the team behind Phenom People did. It got us wondering: Is that the ideal Philly tech funding game plan?
Back when the company was known as iMomentous, in 2013, the Horsham, Pa.-based hiring platform raised an undisclosed seed round from all local investors, many of whom have had big local wins and are re-investing that capital.
That list included Karlani Capital, Kenexa cofounder Rudy Karsan’s fund (Karsan was behind the second biggest tech exit since 2000 — he sold Kenexa to IBM for $1.3 billion in 2012); Gabriel Investments and a group of angel investors, like Vincent Milano, former CEO of Exton biopharma company ViroPharma that sold to Shire for $4.2 billion in early 2014. (Milano’s stock was worth $5.7 million at the time of the exit, the Philadelphia Business Journal reported.)
(Karsan recently joined the company’s board. In a statement, he said: “Prior to Phenom People, the talent experience for most companies was similar to getting shaken down in the airport security line. If you don’t believe me, CEOs should try to apply for a job at their own company and ask themselves — was that a phenomenal experience?”)
Then, just recently, the company closed a $6 million Series A from Silicon Valley-based Sierra Ventures.
CEO Mahe Bayireddi (that’s pronounced “mahi,” he said, “like the fish”) opted for a West Coast investor because he wanted to tap into the Silicon Valley network as he builds out what he calls a whole new category in the hiring tech industry: “talent relationship marketing.”
The company work with customers like Deloitte, Accenture and Aramark to improve the experience for both the jobseeker and the hiring company. Bayireddi wants job searching to be as easy and intuitive as online shopping.
Features include personalizing the experience for the applicant, like using LinkedIn to highlight people she might know at the company and suggesting other jobs she might be interested in, and helping companies reach the “passive candidate,” ones who might not be actively looking for a new job but just poking around to see what’s out there, by creating candidate profiles based on data that Phenom People collects.
Bayireddi, 35, who lives in Warrington, cofounded the company with his brother, Hari Bayireddy, and Brad Goldoor (yep, the brothers spell their last names differently.) The trio also cofounded couponing app SnipSnap with SnipSnap CEO Ted Mann but stopped working on it in 2012.
Local investors like Gabriel Investments’ Richard Vague have spoken of the lack of Series A-focused investors in the area and how that sometimes drives companies to relocate when they need to find that funding, but Phenom People plans to stay put and nearly double its 70-plus staff, Bayireddi said. While more than half of the staff (48 people) are based in Hyderabad, India, the rest are in Horsham, in a 4,200-square-foot office in a corporate park. Bayireddi said much of the growth post-raise will be in sales and marketing and based in Horsham.
So, is it the sweet spot? A model to follow? Or maybe what we’re trying to say is that it seems a good story for Philly’s tech scene. It feels like a move into maturity. Local dollars, built off the backs of big local wins, get a company to its Series A, then that company goes on to find that money elsewhere but stays put.
We haven’t seen this model with too many companies yet. (Let us know who we’re missing.) Several Philly tech companies have raised later-stage rounds from out-of-town venture capitalists, like Zonoff, RJMetrics and Curalate, but they largely did not raise seed rounds from local investors — though RJMetrics calls local angels Gabe Weinberg and Kartik Hosanagar early investors and First Round Capital invested early in Curalate (still, First Round is an outlier). That may be because the local early-stage investment scene has been growing in the last few years and those companies were looking for that early funding in 2012.