Tales of Three Ventures

Booz-Allen not only came up with the original idea for the venture but also did the initial planning and rounded up the founding equity partners to underwrite the initiative: Petroplus International N.V. of the Netherlands, BP, Royal Vopak, and Marquard & Bahls AG. The consulting firm also enlisted the support of the Rhine Barge Owner Association. Booz-Allen itself, however, will not be an equity partner. "We started with the intention of being an equity partner. We thought our willingness to put our own money behind the idea would inspire confidence, but some clients were confused about the roles and feared a potential conflict," Doshi reports.
Instead, the firm will take a 5 percent stake in everything over and above the cost. Having a stake in the upside, even if it is not as an equity partner, has proven to be a powerful incentive. "We're motivated like hell to get companies to use the site," adds Doshi.
The on-line exchange itself will be operated as an independent company with a CEO, management team, and board of directors. Booz-Allen will have a seat on the board. The four original partners have already been joined by three more companies, bringing the total number of equity partners to seven.
Doshi hopes to turn the Web site into the central place for the Rhine barge community. The site will provide the latest information on those who want to ship cargo, available barge capacity, and details about the individual barges. Barge users who currently pay a 10 percent brokerage fee will enjoy significant savings by using BargeLink, where charges will run 2-3 percent.
The initial cost of building the site is low, $2 million or less — money put up by the partners. Since the partners themselves are heavy barge users, Doshi does not expect to spend heavily to promote site usage. Subsequent development work will include integration with the back-end systems of the various participants.
"The technology is a no-brainer. We've done it a lot," says Doshi. The biggest hurdle turns out to be partner management. "The partners have different agendas," he continues, which forces Doshi to be a diplomat as well as a business and technology consultant. His biggest frustration: "Brick-and-mortar companies are not used to moving at dot-com speeds." So Doshi expends considerable effort in pushing, prodding, and flogging them. Through the partners, "we have liquidity, but not speed."

Booz isn't limiting its ambitions to the Rhine. Doshi has already begun exploring other rivers busy with barge traffic, with the goal of replicating BargeLink for those markets. The Danube has emerged as an immediate possibility, but he also is eyeing rivers in the United Kingdom and elsewhere.

Sailing the High Seas

Consultancy: Bain (eVolution)
Partner: BP Amoco, Cargill, and Royal Dutch/Shell Group
Venture: LevelSeas.com

By this time next month, eVolution Global Partners, the eight-month-old venture capital and services firm co-founded by Bain & Co., is expected to have delivered its first baby: LevelSeas.com, an on-line exchange for the global shipping industry.
LevelSeas, headquartered in London, is expected to bring together buyers and sellers of freight across the world and streamline the present administration-heavy chartering process. The on-line exchange was created by a $25 million stake from eVolution and its LevelSeas partners, BP Amoco, Cargill, and Royal Dutch/Shell Group.
"We believe that truly sustainable businesses are ones that not only facilitate much more efficient transactions, but also fundamentally improve workflows and make more efficient the way companies interact with each other," says David Sanderson, one of the cofounders of bainlab, the consultancy's Internet incubator, and the consultant who is now in charge of eVolution's U.S. operations.
Established last March, eVolution draws on the financial resources and expertise of its backers, Bain, VC firm Kleiner Perkins Caufield & Byers, and partners from Texas Pacific Group, a private equity firm.

Why invest in a global shipping exchange? The ocean transport industry is a $100 billion business, but it is inefficient, says Sanderson. LevelSeas will try to automate the marketplace where ship owners, shipbrokers, and cargo owners conduct business. Historically, the problem has been to get the larger players to agree on a common system.
LevelSeas will provide comprehensive freight management services encompassing market intelligence, on-line chartering, pre- and post-fixture activities, and risk management tools. LevelSeas, which has offices in San Francisco and Munich,  expects to have about 60 employees by next month.
Sanderson says that eVolution will combine Bain's experience in assessing businesses' assets and setting strategy, Kleiner Perkins' expertise in staffing and building start-up companies, and TPG's investment acumen. The firm plans to invest in between 10 and 20 ventures a year.
 Leading industry incumbents offer much more in the form of customers, brands, distribution, and know-how than their competing pure Internet start-ups, eVolution executives say. However, management of these leading public corporations often encounters significant obstacles in deploying their e-business. These include cannibalization of their core business and organizational barriers. Such obstacles level the playing field between the traditional bricks-and-mortar companies and the dot-coms.
By creating new on-line businesses, eVolution wants to help the traditional companies leverage their legacy assets. These new ventures would be independent Web companies that eventually would be taken public. eVolution will take equity stakes of, on average, 20 percent, and follow ventures from inception to IPO.

Bain helped LevelSeas with due diligence and strategic issues, says Stan Miranda, CEO of LevelSeas. About five Bain consultants, as eVolution representatives, were placed in key management positions and were involved in building the business out. Those positions were temporary and will be phased out as the company gets its management team in place. In the future, Bain may be tapped to help with other strategic issues, Miranda adds.

Running High on School Supplies

Consultancy: Deloitte Consulting
Partner: Epylon Corp.
Venture: Exchange for the K-12 procurement market

Like Rick, the American bar owner, and the French Vichy official in Casablanca, sometimes a consulting firm and a software firm work the same market and suddenly realize that they could join together opportunistically in what could become a very attractive, long-term partnership. That was the case when Deloitte Consulting, long a player as a consultant and integrator in the K-12 education market, joined up with Epylon Corp., a leading provider of hosted e-business solutions for education, government, and other public sector institutions.

The Deloitte Consulting and Epylon joint venture will create a school on-line procurement site for K-12 school systems. The venture has Deloitte taking a minority stake in exchange for a mix of cash and in-kind services. The companies, however, are not creating a separate organization — just a joint project team. "We didn't need the overhead of a formal joint venture," explains Douglas Taylor, Deloitte's global director for the public sector.
Instead, the two companies have set up a joint team to manage and run the operation. They split responsibilities along the lines of their traditional strengths. Epylon provides the software and operates the on-line procurement portal. Deloitte handles the required systems implementation and integration. The two companies will handle marketing and sales jointly. "This approach is much leaner and more flexible than creating a separate, formal company," Taylor adds.
Privately held Epylon Corp., San Francisco, currently has over 1,200 registered school districts and government agencies, representing over $7 billion in annual spending, and more than 1,500 registered supply partners, including Office Depot, Grainger, Staples, Xerox, Wesco, and Barnes&Noble.com.
The Deloitte venture focuses on K-12, a market consisting of nearly 100,000 public schools in 16,000 school districts plus almost 28,000 private schools. The partners estimate the K-12 market for their solution at $80 billion annually. Deloitte itself has more than 40 years of experience in the education market, working with clients to bring efficiencies to their business processes through technology. Deloitte currently has about 200 people working in the K-12 market.

Deloitte's services will be provided free of charge to the school districts; the consultancy will take its fees from the savings realized by the suppliers. "This is a very fragmented market, making the cost to suppliers very high," notes Taylor. He expects suppliers to gladly pay a percent of the transaction to Epylon, which passes a share on to Deloitte.
The Epylon venture is the latest from Deloitte Consulting Ventures, a $500 million fund set up by the consulting firm explicitly to make investments such as this. "We are looking for synergistic ventures," says Taylor. Once a venture is initiated, it is turned over to the Deloitte practice focusing on the specific area.
Taylor has high hopes for the Epylon joint venture. Epylon already has over 500 K-12 school districts signed up for its software, giving the venture a good base from which to jump off, yet still leaving room for growth. And while K-12 will remain its primary market, Taylor envisions expanding the effort to other areas of education enterprise.