- The Washington Times - Sunday, May 9, 2004

Blackboard Inc. has acted like a public company for years. The Washington-based software developer began to issue earnings in 2002 even though it is privately held.

Now Blackboard is on the verge of holding an initial public offering of its stock and becoming the public company that its founders long wanted.

Blackboard said in March it would hold an initial public offering. In a filing last week with the Securities and Exchange Commission, the company disclosed plans to sell 3.8 million shares at $13 to $15 each. The sale, which likely will occur before the end of the month, will raise an estimated $53.9 million.

Going public will be a significant step for a fast-growing company that once had to lay off workers, only recently began to make money and faced questions about the youth of its founders.

But Blackboard has outlasted competitors in an industry that has become smaller in the seven years since the company formed. Blackboard’s education software, which it markets primarily to colleges and universities, lets schools place information from class assignments to grades online. Another software application lets students manage meal plans and tuition payments online.

Blackboard Chairman Matthew Pittinsky and President and Chief Executive Michael Chasen — who declined to be interviewed for this story in light of the impending public offering — met at American University and worked together at KPMG Consulting’s online-education practice in 1996, when they decided to develop their own software to accommodate electronic learning.

Both men were in their mid-20s then.

Venture capitalists such as Novak Biddle Venture Partners in Bethesda viewed Mr. Chasen, now 32, and Mr. Pittinsky, now 31, skeptically because it was not clear whether the men had the experience to run a successful business, but ultimately decided to invest in Blackboard.

Ching-Ho Fung didn’t have the same initial skepticism. He was searching for companies in which to invest after selling his own software firm, Performix Inc., when he met the Blackboard founders in 1996 in a basement office they rented a block from their current headquarters near 19th and L streets NW.

“They did what they could to make it look professional,” Mr. Fung said.

He recalls being impressed with their enthusiasm and knowledge of education software.

“They answered all my questions,” he said. “It was a good sales job. That was pretty much it. I was very anxious to give them money.”

Including the money Blackboard got from Mr. Fung, which he declined to disclose, the company has raised $102.8 million from investors.

But it has struggled to make money. Until the third quarter last year, the company never turned a profit. Its SEC filing last week showed it had modest net income of $786,000 in the first quarter on revenue of $25.2 million. It was the third consecutive quarter the company made money.

Blackboard has outlasted competitors such as Pensare Inc., Z University and Mascot Networks Inc., all of which have gone out of business.

Blackboard has gone through difficult times. In July 2001, investors urged the company to get leaner, and it laid off 30 workers. Now it has 466 employees.

The company established a sound business model early, analysts said. It didn’t rely on advertising revenue and it made good acquisitions, said Sean Gallagher, senior analyst at Boston-based research and consulting firm Eduventures Inc.

Its main competitor now is WebCT Inc., based in Massachusetts.

The market for enterprise software for the postsecondary market will reach an estimated $2.2 billion this year, Eduventures says. That is up from $104.6 million in 2002.

“It’s been a fast-growing market, so there’s a lot of opportunity,” Mr. Gallagher said.

A survey of 128 colleges and universities by technology research firm IDC last year indicated 56 percent of them use Blackboard’s course management software. About 29 percent of schools reported using the software of WebCT, IDC analyst Michael Brennan said.

A new threat will emerge soon.

In July, a consortium of four schools will make a new course management software application freely available to colleges and universities.

The free software will help schools save money on the licensing fees they pay companies such as Blackboard and WebCT, said Brad Wheeler, associate vice president for research and academic computing at Indiana University, which helped get the $6.8 million project started.

Many schools are likely to continue buying course management software, Mr. Wheeler said, but they also need inexpensive alternatives when budgets don’t grow.

“We’re entering an era where higher education is having to do more with less,” he said.

Blackboard won’t cede any ground to the open source project. The company is likely to be on the prowl for companies it can acquire to bolster its services and also develop new software applications with money raised through the stock sale.

The long-awaited initial public offering will occur when the IPO drought is ending.

Five companies went public during the first quarter in 2003, raising $644 million. During the first quarter this year, 43 companies went public and raised $8.3 billion, financial services firm Thomson Financial said.

At long last, it’s a good time to go public, said Ben W. Holmes, principal at Protege Funds LLC, an investment research firm in Boulder, Colo.

“There are more technology IPOs and they’re putting up a good show,” he said.

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