Funding, on-demand model drive HighRoads sales

Mass High Tech
Christopher Calnan
The Journal of New England Technology June 22, 2007

Woburn software maker HighRoads Inc. plans to announce next week that it is closing $9 million in Series C financing that company officials say will support development and marketing efforts at a time when HighRoads is stepping into the black.

The new funding, led by Waltham's ABS Ventures, along with this year's projected profitability for the maker of benefits management software for human resource departments, arrives two years after the company completed a major makeover.

Lou Volpe, managing general partner for Lexington's Kodiak Venture Partners, a returning investor in this Series C round, said HighRoads should have progressed earlier, but it took time for executives to determine the company's obstacles.

Founded as IE-Engine Inc. in 1999, the company changed its name to HighRoads in 2005. As HighRoads, the company expanded the features of its software from benefits procurement to human resources management, moved to an on-demand delivery model and raised $8 million in capital.

Those changes seem to be paying off. Last fiscal year, HighRoads posted a 150 percent growth in revenue compared with the previous year and its highest revenue since 2001.

HighRoads COO Michael Byers said a three-year-subscription sales model has helped provide stability in terms of revenue flow.

"It's given the company great predictability and visibility," he said. "We've had just unprecedented results."

Florida-based Ultimate Software Group Inc., which also develops HR software, got similar results when it switched to an on-demand model three years ago, said Sharyle Doherty, vice president of product development for the company.

Paul Hamerman, an analyst for Cambridge-based Forrester Research Inc., said the switch to on-demand "is a proven model, and there's pretty good precedent for this type of turnaround."

The benefits software market, however, is dominated by New Jersey-based Automatic Data Processing Inc., Germany's SAP and Oracle Corp., which is based in California, said Hamerman.

Several other human resource software companies operate in New England, including Cambridge-based H3 Inc., Auburndale's Deploy Solutions Inc., Mansfield-based HR Knowledge, and Kronos Inc., which was recently acquired by entities affiliated with Hellman & Friedman Capital Partners VI LP.

Byers declined to disclose HighRoads' annual revenue, but said its customers include New Jersey's Honeywell International Inc., New York-based IBM Corp., Illinois-based Kraft Foods Inc. and Owens Corning Sales Inc. in Ohio. The typical HighRoads' customer, said Byers, employs more than 50,000 workers and includes defense customers such as Maryland-based Lockheed Martin Corp. and Virginia's General Dynamics Corp., Byers said.

In addition to ABS Ventures, which lists mostly health care and software portfolio companies on its website, and Kodiak, other investors in the Series C round included Boston firms Egan-Managed Capital and AH Ventures.