2006 2nd Half    

Year in Review

2006 marked a year of strong growth for Chrysalis, both at the portfolio level and internally. The firm made the last initial investment out of its third fund, CV II, in Cybera; tended to a rapidly maturing portfolio; and began making initial investments out of CV III, including Chronicity and SinglePipe Communications. Both Chronicity and SinglePipe are representative of the firm's active company-building efforts. Each was formed as the result of relationships and interests which we have cultivated for a long time, allowing us to play a major role in not only the funding but the formation of these entities.

We saw two exits, including the recent $45 million sale of CELS, a compliance and ethics training company that experienced rapid market uptake since our May 2004 investment and will serve as a key piece of acquirer SAI Global's international efforts. Numerous others in the portfolio are hitting an "expansion" stage, including MedServe and Intechra, each of which completed large equity raises in recent months to fund accelerating growth and acquisitions.

Internally, the firm has brought in new talent and fostered the development of existing team members in order to manage a growing portfolio and set of investment opportunities. New additions included Associates David Parento and Chris Sklarin, Accounting Manager Amy Burch, and Executive-in-Residence Richard Vance (formerly CEO of CorSolutions). We also promoted Koleman Karleski, who joined the firm in 1997, to Managing Director, and Matt Winn, who joined the firm in 2005, to Associate. We believe that we have assembled an excellent team.

We would like to thank our entrepreneurs, co-investors, and other partners who contributed to our success during the year. These relationships, and the resultant level of expertise and knowledge brought to bear on our activities, will continue to help us build great businesses and drive investor returns. We look forward to an exciting and active 2007!

As a reminder, the content below represents news for the latter half of 2006. Please click here for a recap of the first half of the year.

In this issue:

New Developments
  • Richard Vance Joins as Executive-in-Residence
  • Matt Winn Promoted to Associate
  • Chris Sklarin Joins as Associate and as Director of Ohio Business Development
  • Irv Bailey Selected to Participate in Afghanistan's Reconstruction

New Investments
  • Chrysalis Leads $4 Million Series A in SinglePipe Communications
  • Chronicity, Inc. Secures $12.5 Million Series A Led by Chrysalis
  • 2006 Summary of New Investments
  • 2006 Summary of Follow-On Investments

Portfolio Company Developments
  • Compliance and Ethics Learning Solutions Acquired by SAI Global for $45 Million
  • Intechra Completes $30 Million Series C and Acquires Three Companies
  • MedServe Completes $70 Million Series C
  • HealthMedia Acquires MySelfHelp.com
  • 2006 Summary of Portfolio Company Transactions

Meet Our CEOs
  • Robert (Bob) Baurys, Chronicity, Inc.
  • Cliff Duffey, Cybera, Inc.

New Developments

Richard Vance Joins as Executive-in-Residence

In February 2007, Richard Vance, former CEO and President of CorSolutions Medical, Inc., joined Chrysalis as Executive-in-Residence. In this role, Richard will evaluate new business opportunities in the healthcare services and technology sector and assist current portfolio companies within this sector.

Richard has over 20 years of experience in healthcare IT, product development, health services research, and healthcare analytics and modeling. Most recently, he founded MCALC, LLC, an investment and consulting company, in 2005. As CEO and President of CorSolutions, the nation's second largest disease management company until it was acquired by Matria Healthcare, Richard was recognized as one of the top 10 disease management executives by Managed Healthcare Magazine in 2004. Previously, he held leadership positions at Humana and at Wake Forest University Medical Center.

Richard holds a BA from Wake Forest University, an MA from University of Chicago, and a MD from Wake Forest University.

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Matt Winn Promoted to Associate

In January 2007, Chrysalis Analyst Matthew H. Winn was promoted to Associate. In this role, Matt will provide analytical support to the investment team for Chrysalis' three primary investment sectors: healthcare services and technology, media and communications, and business services.

"This promotion reflects not only Matt's stellar work as an Analyst, but also the intelligence, enthusiasm, and energy that he brings to our organization," said David A. Jones, Jr. "His experience working for a growing online retailer prior to Chrysalis has been a great asset to our team and to the entrepreneurs and management teams with whom we work. We look forward to his continued development and success as an investment professional."

Prior to joining Chrysalis in 2005, Matt worked in business development for an e-commerce startup. He earned a BA with Honors in Economics from Princeton University in June 2003.

Congratulations to Matt on this well-deserved promotion!

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Chris Sklarin Joins as Associate and as Director of Ohio Business Development

In October 2006, Christopher R. Sklarin joined Chrysalis as Associate and as Director of Ohio Business Development. Chris joins us from JumpStart, Inc. in Cleveland where he was an Investment Associate specializing in early stage investment analysis and transactions. Prior to JumpStart, Chris was Vice President of Business Development for Inspherion, an Ohio-based business intelligence software company. Chris holds a BS in Electrical Engineering from the Massachusetts Institute of Technology and an MBA from the Haas School of Business, University of California at Berkeley.

At Chrysalis, Chris sources deals in Ohio and provides analytical support for Chrysalis' three primary investment sectors: healthcare services and technology, media and communications, and business services. He is based in Cleveland.

Please join us in welcoming Chris to the Chrysalis team.

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Irv Bailey Selected to Participate in Afghanistan's Reconstruction

In September 2006, Chrysalis Senior Advisor Irving W. Bailey was selected as a leader of the Businesses Building Bridges (BBB) initiative and met with Afghan President Hamid Karzai to discuss Afghanistan's reconstruction.

Seven high-level U.S. business leaders were selected by Secretary of State Condoleezza Rice to offer strategic vision and guidance to Afghan leaders on how to activate private sector growth in their country. The BBB leaders are to develop a set of recommendations for the Afghan government on ways to aid and promote the private sector, and also to develop partnership and mentoring links with Afghan business leaders, to encourage further foreign investment and U.S. business involvement in Afghanistan.

Irv is a former director of the Board of Governors of the National Association of Small Business Investment Companies (NASBIC). He also serves on the boards of Aegon N.V. (NYSE: AEG), Computer Sciences Corporation (NYSE: CSC), and Hospira, Inc. (NYSE: HSP). Irv has co-invested with Chrysalis since 1998 and subsequently joined the firm as Managing Director from 2001 - 2004. He currently serves as Senior Advisor and participates in deliberations of the firm's investment committee.

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New Investments

Chrysalis Leads $4 Million Series A in SinglePipe Communications

In December 2006, Chrysalis led the initial $4 million equity financing of Lexington, Kentucky-based SinglePipe Communications, a facilities-based wholesale communications provider of Voice over Internet Protocol (VoIP) services.

Concurrent with this financing, SinglePipe acquired ALEC, a Lexington-based Competitive Local Exchange Carrier (CLEC), allowing the company to offer turnkey solutions for residential VoIP, hosted PBX, and SIP Trunking over its highly reliable network. The company's existing private network allows the company to provide wholesale local telephone service at a lower cost compared to traditional voice options, as well as to offer the rapid and cost-effective introduction of new features and services at no additional cost. Channel segments including CLECs, internet service providers (ISPs), cable companies, integrators, and other technology service providers that use SinglePipe's turnkey VoIP service to sell to small and medium sized business (SMB) customers and rural customers who typically lack the network, the back office, or the expertise to deploy VoIP to their customer base.

Chrysalis Principal Wright Steenrod has joined SinglePipe's board of directors.

Please click here to view the complete press release.

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Chronicity, Inc. Secures $12.5 Million Series A Led by Chrysalis

In October 2006, Chrysalis led the initial $12.5 million equity financing of Dallas-based Chronicity, Inc., a provider of integrative treatment for Attention Deficit Hyperactivity Disorder (ADHD) and related conditions. Co-investors in the financing included the company's co-founders Robert S. Baurys II and Susan Hrim. Bob Baurys previously founded Fibromyalgia and Fatigue Centers, Inc. which under his leadership grew to more than 15 treatment centers across the nation.

Operating under the name of ADD Health and Wellness Centers, Inc., Chronicity offers a uniquely integrated and customized approach to treating ADD (Attention Deficit Disorder), the more commonly used term for ADHD. Through the development of a proprietary treatment algorithm which includes nutritional counseling, medication management, psychological services, skills coaching, and an outcome management system, ADD Health and Wellness is creating a revolution in the treatment of ADD/ADHD via its unique one-stop shop approach. As a result, the company offers more focused and comprehensive services than the traditional care offered by primary care physicians. In its facilities, medical, testing, and counseling services, which are typically all separately owned and located practices, are fully integrated. The company maintains an outcome database, the first of its kind, to quantitatively monitor and measure the success of its program.

Chrysalis Managing Director Koleman Karleski and Executive-in-Residence Thomas T. Ladt have joined Chronicity's board of directors.

Please click here to view the complete press release.

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2006 Summary of New Investments

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2006 Summary of Follow-On Investments

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Portfolio Company Developments

Compliance and Ethics Learning Solutions Acquired by SAI Global for $45 Million

In January 2007, Compliance and Ethics Learning Solutions, Inc. (CELS), a Chicago-based holding company created to target the compliance training sector, was acquired by SAI Global Limited (ASX: SAI), a global provider of standards, compliance, and business improvement solutions, for $45 million.

A syndicate of investors including Chrysalis, KB Partners, OCA Ventures, CID Capital, and management initially funded CELS in May 2004. CELS used proceeds from the $6.45 million initial financing to fund a merger with Midi, Inc., a small Princeton, New Jersey-based provider of compliance and ethics on-line education and awareness solutions to corporate enterprises. At the time of the acquisition, CELS/Midi had become a leading provider of enterprise-wide compliance and ethics programs for Global 2000 companies, providing organizations with the compliance and ethics training courseware and program management tools needed to reduce legal risk and to enrich a consistent culture of compliance and ethics worldwide. CELS/Midi serves blue chip clients in North America and directly complements SAI's existing business in Europe, North America, and Australasia.

Chrysalis Managing Director Bob Saunders served as chairman of CELS' board of directors until the time of the acquisition.

Please click here to view the complete press release.

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Intechra Completes $30 Million Series C and Acquires Three Companies

In January 2007, Jackson, Mississippi-based Intechra, the nation's largest information technology asset disposition (ITAD) company, completed a $30 million Series C equity financing. Chrysalis co-investors in this round included First Avenue Partners, Oxford Bioscience Partners, and Richland Ventures.

Concurrent with this financing, Intechra acquired three companies from Chasm Holding Corp: EPC of Los Angeles, California; Market2Market of Columbus, Ohio; and SpaceFitters of Hartford, Connecticut. The acquisitions give Intechra unmatched size, scale, and geographic reach among ITAD companies in the United States.

Intechra is the only ITAD provider to be vertically integrated and have locations from coast to coast with a full complement of remarketing, recycling and refurbishment services. Its processing centers in Hartford, Columbus, Dallas, and Phoenix handle remanufacturing and remarketing and can process about 335,000 assets each month, including computers, monitors, laptops, routers, servers, etc. The recycling centers in Casa Grande and Los Angeles and a recycling operation in the Dallas facility can together recycle about nine million pounds of electronic assets per month. Geographic proximity reduces shipping costs for clients while increasing speed to market for remarketed assets.

Chrysalis led the company's $4 million initial financing in August 2005 and participated in its $12 million follow-on round in December 2005. Chrysalis Managing Director David Jones, Jr. serves on Intechra's board of directors.

Please click here to view the complete press release.

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MedServe Completes $70 Million Series C

In October 2006, Houston-based MedServe, Inc., a leading provider of medical waste solutions, completed a $70 Million Series C equity financing to fund continued consolidation of local and regional operators in the medical waste industry nationwide. With an investment commitment of $50 million from Avista Capital Partners, combined with an additional $20 million in existing shareholder commitments and debt conversion, the company closed three more transactions by year-end 2006 with several more planned for 2007.

MedServe's management has completed eight acquisitions over the past 18 months in its quest to become the second largest company in the medical waste management sector. These acquisitions, combined with strong organic growth, have tripled MedServe’s customer base and quadrupled revenues in the first nine months of 2006. The company is led by Roger Ramsey, former founder and chief executive officer of Allied Waste Industries and co-founder of Browning Ferris Industries (BFI) and Mike Fields, former president of BFI Medical Waste.

Chrysalis led the company's $12.1 million Series B financing in September 2005. Chrysalis Managing Director Koleman Karleski serves on MedServe's board of directors.

Please click here to view the complete press release.

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HealthMedia Acquires MySelfHelp.com

In November 2006, Ann Arbor-based HealthMedia, Inc., the global leader in online delivery of behavior change interventions, acquired MySelfHelp.com, a Boston-based online behavioral health company.

MySelfHelp.com offers programs for depression, insomnia, eating disorders, grief, self-esteem, guilt, and other mental conditions, addressing health problems which cost employers and health plans billions of dollars each year in lost productivity, disability claims, and healthcare costs. This acquisition rounds out HealthMedia's behavioral intervention offerings for wellness, disease management, medication compliance, and behavioral health, and provides the company with a suite of new products it can roll out to hundreds of thousands of its current participants.

Chrysalis is HealthMedia's largest shareholder, and Managing Director Koleman Karleski serves on the company's board of directors.

Please click here to view the complete press release.

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2006 Summary of Portfolio Company Transactions

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Meet Our CEOs

Chrysalis is privileged to work with a group of talented, seasoned, and exciting CEOs. In this newsletter, we profile two CEOs who joined the Chrysalis portfolio in 2006:

Robert (Bob) Baurys, Chronicity, Inc.

Bob Baurys is the CEO of Dallas-based Chronicity, Inc., which operates under the name of ADD Health and Wellness Centers, a provider of integrative treatment for Attention Deficit Hyperactivity Disorder (ADHD) and related conditions. Bob is a serial entrepreneur with more than 20 years of experience in both the technology and health care industries. In addition to various niche software and retail endeavors, Bob ran three healthcare businesses, including a wound care home service provider, a durable medical equipment distributor in the home health market, and a specialty products and services provider to the nursing home industry before his most recent efforts which led him into contact with Chrysalis. We met Bob, and his long-time business partner Susan Hrim, RN, while they were building Fibromyalgia & Fatigue Centers, a company dedicated to the treatment of Fibromyalgia and Chronic Fatigue which grew to more than 15 centers across the US. After cultivating our relationship over two years, we worked closely with Bob and Sue to help them develop a broader opportunity to enable healthcare productivity enhancement and consumerism and together founded Chronicity in August 2006. The company is focused on utilizing retail centers to deliver differentiated clinical care for chronic conditions. Chrysalis led Chronicity's $12.5 million Series A financing in October, the first investment of CV III.

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Cliff Duffey, Cybera, Inc.

Since founding Nashville-based Cybera, Inc. in 2001, Cliff Duffey has served as Chairman, CEO, and President, establishing the company as the quality leader for managed data network solutions to multi-site retail customers. Recently recognized by American Venture Magazine as one of "The Top 40 Under 40 Leaders in the Emerging Growth Technology Industry," Cliff has led Cybera from inception to its first periods of positive EBITDA and free cashflow. He also successfully raised $12.8 million in a Series A financing in 2006, in which Chrysalis was an investor, to fund the expansion of sales and marketing efforts. Prior to Cybera, he served as Chief Technology Officer of Bluestar Communications until the time of its acquisition by Covad Communications in September 2000. He has also served in several management positions at Lucent/Ascend Communications, Intermedia Communications, and Harris Corporation.

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