Monday, April 19, 2010

VCs bet on the spread of business crowdsourcing

Area venture capitalists are betting that crowdsourcing — the idea behind Wikipedia and open-source software — can penetrate some of the most staid industries: patent research and business-to-business credit checks.

Cortera Inc. of Quincy has raised more than $20 million from Volition Capital, whose managers believe the company can beat Dun & Bradstreet Corp. by sourcing credit-check data from myriad small to midsize businesses.

Meanwhile, Cambridge-based General Catalyst Partners is one of several outside investors that have put $3 million in total behind Article One Partners LLC, a New York startup that claims to have crowdsourced “the world’s largest patent research community” for collecting examples of patentable techniques and designs.

It’s a compelling case, said Choate Hall & Stewart LLP Partner Carlos Perez-Albuerne, particularly for finding “industry prior art” — designs or methods that haven’t become the subject of patent applications. “Usually the knowledge is in the minds of industry players, and typically it’s the hardest prior art to find,” he said.

Currently, law firms hire lawyers or patent agents to research industry prior art, and the search is limited to a particular firm’s or client’s networks, he said.

The business of credit background checks also is ripe for innovation, said General Partner Larry Cheng of Volition Capital, previously Fidelity Ventures, the venture investing arm of Fidelity Investments.

Currently, such credit checks are purveyed almost exclusively by The Dun & Bradstreet Corp. (NYSE: DNB), which solicits detailed accounts-receivable information from roughly 10,000 of the largest companies in the world, Cheng said. “If you are a smaller business and you’re not a customer of large companies, then how well you pay your bills is not reflected,” he said. “There’s this whole missing tier of millions of companies and their trade experiences that is not reflected in how business-scoring models are done today.”

Cortera, which has dual headquarters in Quincy and Boca Raton, Fla., launched in 2006 by using venture cash to buy a credit reports database from eCredit Inc. The company now has about 100 employees and is nearing profitability on projected 2010 revenue of between $10 million and $20 million, CEO Jim Swift said.

The startup has about 20,000 users, about 10 percent of whom pay for a premium service that provides more detailed credit analysis. Mayhew Steel Products Inc., a Turners Falls company that manufactures hand tools, is one of those 2,000 premium-service clients.

“What I’m looking for is to set up new customers,” accounts receivable manager Karen Allen said.

The company’s typical customer is a hardware store distributor. Big customers such as MSC Industrial Direct Co. (NYSE: MSM), Stanley Black & Decker Inc. (NYSE: SWK) and Sears Holdings Corp. (Nasdaq: SHLD) are easy to approve for credit. “It’s the smaller ones that I’m more concerned about,” Allen said.

Dun & Bradstreet reports were able to provide information on those companies, but Cortera has them beat for ease of use, Allen said. “The simplicity is awesome,” she said. “I don’t have to skim through 30 pages of reports.”

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