Speakeasy talks its way into $6M

Private Equity Week…06/10/2002

From LexisNexis

Growing quietly under the radar screen, Speakeasy started out as an Internet cafe in 1994 . Since then the Seattle-based company has transformed itself into a broadband service provider and is expected to announce today that it has secured $6 million in fresh capital.

"We grew organically and in January 1999 we started focusing on broadband," says Mike Apgar, founder and CEO of Speakeasy, adding that he feels broadband services are getting ready to make a comeback. "After the shakeout, demand stalled, but I think it's coming back."

Just in case the demand isn't as great as Apgar expects it to be, Speakeasy has added some features to its service that might make its proposition seem a little sweeter. In addition to computer hook-up services, Speakeasy is offering entertainment packages that focus on Internet games and music.

An avid game play can use up a new game in a couple of days, Speakeasy's service allows players to pay a subscription fee and get a certain amount of new games each month.

Led by Colorado-based Cornerstone Ventures, the third round of funding included original investors Matthew G. Norton and Granite Ventures. The company's first round, which took place in May 2000, raised $11 million, then one year later Speakeasy closed on a little more than $8 million.

It was about that time that Cornerstone, which put $3.5 million into this round, first met with Speakeasy. At the time, Speakeasy was bringing in about $10 million in revenue and had big growth plans. "We felt their ambition to grow was not in line with the marketplace so we passed on the deal," says Neville Vere Nicolle, a partner with Cornerstone. Just recently Cornerstone went back for a second look and was pleasantly surprised, the company had tripled its revenue in the past year. That's when Cornerstone decided to give Speakeasy another shot.

However, Vere Nicolle's assessment of the telecom industry isn't as positive's as Apgar's is. "The telecom meltdown concerns me, but in any situation there are survivors, who haven't had major money to play with and became successful," says Vere Nicolle. "This market is not going away and we don't fund companies that have huge financial requirements. This round clearly takes Speakeasy to break-even."

Apgar says there is no question that Speakeasy will be profitable by the end of the year. Additionally, this is expected to be the company's last dip in the private equity pool.

The capital from this deal will be used to accelerate expansion of the company's network into regional areas and add further depth to its coverage in targeted urban markets. Right now Speakeasy is deployed nationwide in 80 residential areas and in 20 small business communities.