You know there are tectonic shifts in the local tech scene when a nine-digit sale of a 10-year-old Internet company barely draws any attention.
Earlier this month, Glenview-based SurePayroll announced that it would be acquired by its more entrenched rival Paychex for $115 million. The all cash deal is expected to close later this year.
While the sale is a win for the company’s founders and venture capital investors - which include Mesirow Financial, BlueStar Ventures and Kettle Venture Partners (the later two stopped making new deals many moons ago) - the exit was a long time coming. SurePayroll, which pioneered the process of online payroll processing for small and medium-sized business, raised most of its $17 million in funding in 2000 and 2001.
Unlike most of the local and national dot-coms that raised millions in VC financing during the first wave of the Internet boom, however, SurePayroll spent much of the last decade building a real business. The 160-employee company has been profitable since 2004, said longtime president Michael Alter, who added that everyone will be retained in what will continue to operate as a wholly-owned subsidiary of Paychex.
When Alter and SurePayroll founder and serial entrepreneur Troy Henikoff first began building the company 10 years ago, venture capital was flowing and dot-coms were rewarded more for their concepts than their accomplishments. The business environment is different today, said Alter, even within the backdrop of two-year-old Groupon’s rumored $6 billion valuation.
“Now to get a good valuation you have to have a real business with real revenue, growth, customers and profitability,” said Alter, who is not the same guy who runs The Alter Group real estate development company and who owns the Chicago Sky women’s basketball team. “A decade ago you needed to have a good name behind you and a statement that you were a dot-com that didn’t even have to be logical.”
While there was no shortage of ludicrous companies during that time that raised tens of millions to sell pet food and hypoallergenic merchandise online faded (there was actually a company called Gazoontite.com that raised $30 million and briefly operated a storefront in Schaumburg), it was companies like SurePayroll, which used the web to offer efficiencies within already existing industries, that actually changed the world.
Expect more similar stories like this to emerge in the years and decades ahead.