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'War' ahead? Startup Initial State Technologies preps for capital raises
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Co-founder CEO Jamie Bailey

INITIAL STATE TECHNOLOGIES, the Internet of Things-oriented data-solutions startup based in Nashville, was founded by a system engineer whose ambitions were kindled as he sought to meet the needs of his corporate employer.

Now, that engineer and his firm represent a fresh example of one path by which digital-tech ventures can gain early traction in the nascent Mid-South software-as-a-service (SaaS) sector.

Spotlighting Initial State is timely: The company is working to raise $1MM in bridge capital and is likely in 2016 to pursue a Series A capital raise in the $2MM-$10MM range, Founder-CEO Jamie Bailey told VNC.

That bridge round is largely intended to help ramp-up adoption and demonstrate that effective demand for IoT solutions is not only real, but expanding rapidly. Bailey said he believes that, just as with e-commerce a decade or so earlier, ubiquitous IoT data streams connecting users with everything in their physical world they need to develop, monitor or control are just around the corner.

The company closed its $1MM Seed round in February. The actual timing of future raises will be heavily influenced by the traction the company gains, in the interim, said Bailey, who noted that he had cashed-in a $120K 401k cache to help fund the company, early-on.

Citing published estimates, Bailey said the IoT market is expected to total $1.7TN annually by 2019, with less than 10% of that associated with hardware and the preponderance associated with software and platforms.

Bailey doesn't expect to be competitor-free -- "There's a war coming," he said. And, he insists he views new entrants to IoT data/intel as mainly validating the attractiveness of the market. He said he takes some comfort from the fact that Initial State has a developed platform, while most others are still slogging through initial development.

Still, with no prodding, he cites as competitors AT&T's M2X; Boston-based Xively (part of listed LogMeIn NASDAQ:LOGM $1.5BN cap); and, such startups as BugLabs and AdaFruit, both New York-based.

Initial State's "freemium" business model is currently centered on selling individual subscriptions to its tools for extracting intelligence from visualized streams of data, which its technologies helps develop, de-bug and analyze. For now, individual technologists are its priority target, partly because they are believed likely to carry Initial State's message into their corporate employers or clients.

Its 23 investors include Angels -- including some Angels who share membership in the InCrowd Capital group -- and locally based Crofton Capital, which is led by Managing Partner Frank Gordon.

Individual investors whom Bailey said he is free to name include lead investor Jeff Jacobs, CEO of Stradis Healthcare and a partner in Crofton Capital; David Furse, advisor, mentor and faculty of Owen Graduate School of Management at Vanderbilt University; Joe Ivey, executive director of the Lipscomb University Center for Entrepreneurship; and, Jeff Dayton, a Charlotte-based venture advisor and Angel with decades of corporate C-level technology responsibilities.

Chris Hefley

The company's board of directors includes Bailey, Jacobs and LeanKit Founder-CEO Chris Hefley, based in Franklin.

Its outside advisors include local entrepreneur Shawn Glinter; attorneys Chris Sloan of Baker Donelson and Bill Galliani of Cooley; accountant David Hudson of Lexington, Ky.; and, it banks with First Tennessee. It has worked on brand-marketing with Gavin Ivester of FLO {Thinkery}.

Initial State began earning revenue in February. It has six full-timers on its payroll and is recruiting for both software development and marketing. It has not yet needed to post a job publicly to fulfill its Tech needs, said Bailey.

Backstory: Bailey, now 39, was about eight years into his decade as a systems engineer with Lexington, Ky.-based Lexmark (LXK, $2.8BN cap), when he began developing a silicon module to gather data from integrated circuits, thus shortening product-development and debugging time.

As Bailey tells it, that tool was so successful across numerous Lexmark business lines that it caught the attention of top management, which, with the personal backing of CEO Paul Rooke, transformed Bailey's work into Lexmark's first technology spin-out, in 2012. Lexmark remains an Initial State partner and retains an interest.

Also in 2012, Bailey and his family relocated to Franklin, after considering Lexington, Louisville and Cincinnati for their new base of operations. His wife is a hospitalist physician.

Nashville's edge? Bailey said that in 2012 it seemed clear Nashville had a better entrepreneurial ecosystem, better access to talent and ostensibly more capital. Only later did he learn that most true Seed-stage capital invested here was going into Healthcare, but by then they were hooked on Nashville, he said.

Shortly after arriving here, Bailey entered the Fall 2012 accelerator class of the Nashville Entrepreneur Center, the place Initial State still calls home.

In addition to Bailey, the startup's team now includes David Sulpy, co-founder and CTO; Raymond Jacobs, co-founder, director of business development; Adam Reeves, front-end software-development lead; Philippines-based Vanessa Magalong, software developer; and, Rachel-Chloe Gibbs, customer development and support.

Initial State has long-since pivoted from the "silicon" orientation it maintained while within Lexmark, toward SaaS, better to catch the wave of massive IoT opportunity that its owners perceive. VNC

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