DispenseSource Inc., a Rancho Santa Margarita company hoping to cash in on the frustrations of the typical office manager, is set to announce a long-awaited $10 million investment on Monday and the completion of its first field tests.
Founder Jeff Chavez calls the developments significant milestones for his company as it rolls out a system of vending-machine-type devices that keep tabs on office-supply use and ordering. But instead of dropping in coins to get the supplies, workers punch in a code that helps the business monitor who’s using what or limit access to certain departments and employees.
The machine hooks into a company’s back-office software to automatically order new supplies and register the purchase in the customer’s existing computer system.
DispenseSource will use the $10 million investment, led by San Diego’s Mission Ventures, to beef up its sales force and hire a business development team. The company employs about 10 people now and expects to have up to 40 by year’s end.
To make room, the company plans to move into a 13,000-square-foot headquarters building in November, across the street from its current facility.
Chavez’ most recent funding quest started more than six months ago, when practically anything with the word “Internet” in its business plan could get money. The tide has turned since those heady days, but Chavez said investors still are open to business models that target a specific need.
“Funding is always more difficult than it looks on paper,” Chavez said. “Due diligence has intensified, and our investors left no stone unturned. But the dot-com implosion actually helped us.”
DispenseSource aims at cutting costs and ensuring office supplies are always available, a pitch he hopes will play well to Fortune 500-size companies.
Two large companies that were using the system under a free pilot program have completed the tests and, according to Chavez, love it. He expects to sign on the first paying customers early next year.
In the meantime, the company has teamed up with Commerce One, a Pleasanton software company that designs systems that allow companies to hook up electronically. Under the deal, Commerce One will help integrate the DispenseSource system into suppliers’ purchasing systems and electronic marketplaces, allowing customers to choose from a variety of vendors. And OmniCell Technologies Corp., a Palo Alto company that makes similar devices used in hospitals to manage medical supplies, will manufacture the DispenseSource units.
Dispense Source also plans to ally with Corporate Express, an office supply distributor.
Office-supply sales in the United States exceeded $10 billion last year and some estimates peg worldwide sales at more than $200 billion. It’s that sort of money that attracted Robert Kibble, a partner at Mission Ventures who arranged the deal.
“I think this is a huge opportunity,” he said. “It’s going to be a big market, and therefore one would very much like to shorten the development time.”
DispenseSource has one significant competitor, San Diego-based Pyxis Corp., an offshoot of SupplyPro, Chavez’s former employer. Robert Curtis, DispenseSource’s vice president for business development, is also a Pyxis veteran.
The pair left after Pyxis expanded into the office-supply market, but don’t apologize for the move. They say their competing firm will help validate the market and boost the fortunes of both DispenseSource and Pyxis.
Chavez expects his investment to last well into 2001, but he’s already looking at starting a larger round of fundraising next summer.
And though for now he’s concentrating on office supplies, Chavez also is looking into new markets for the machine, including the so-called maintenance, repair and operations arena.
“We went into this with an office-supply focus, but there are lots of applications just waiting for a solution like this,” Chavez said. n
