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Translation Management Developer XTRF Scores First Round of Funding
Posted by Donald A. DePalma, Benjamin B. Sargent on April 16, 2014  in the following blogs: Supplier Business Issues, Translation and Localization, Market Data, Technology
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Last week, we spoke with Andrzej Nedoma, CEO of XTRF, a provider of translation project and process management software based in Poland. Nedoma told us that XTRF signed a “cooperation agreement” with Experior, a venture capital (VC) firm that will provide around US$2 million for product and company development. According to its co-founder Marzena Bielecka, Experior’s principals have long worked in investment banking and private equity. The firm invests in early-stage companies in Poland. We asked our usual questions about: 
  • The investment? Experior is XTRF’s first external capital source. Until now, the company has bootstrapped its growth from product sales after being spun off in 2005 from LidoLang Technical Translations, a language service provider (LSP). Two million dollars is a welcome investment in a region where the cost of development is lower than in the U.S. or Western Europe. 

  • Financial performance? As with most privately-held companies, Nedoma wouldn’t reveal current, past, or projected revenue. However, he did say that XTRF has grown 100% annually for the last few years. The company sells mostly to LSPs and corporate translation departments in Europe, but has also sold solutions in another very competitive market, the United States. Nedoma is confident that his strategy and the investment will allow the company to continue its current growth rate.

  • Control? Experior gets a minority stake in the company but XTRF management shareholders keep full control of the company and by far the majority of shares. While there will be no change in the company’s executive management, Experior will take a seat on XTRF’s advisory board. Nedoma expects to benefit from the venture fund’s financial and operational experience, thus pointing to a close advisory relationship. 

  • Exit strategy? As with any venture-backed company, its options include acquisition by another company or a public offering. XTRF must distinguish its translation management system (TMS) offering from the dozens of commercial TMSes, LSP-owned, and open-source solutions in the marketplace. Whichever direction it takes, the company’s biggest challenge now is to break away from the pack in the still evolving and very fragmented TMS market with innovative technology, increased visibility, and a strong portfolio of customers.

  • XTRF’s plans for the money? Nedoma said that XTRF will use the cash to “develop the company and game-changing technologies faster than we could on our own.” Nedoma referred to the company’s four-year development plan that will focus on increasing the usability of the system on all fronts, a classic challenge for the complex software used in managing translation operations. Besides building out the product, XTRF will increase its investment in marketing and sales, areas where traditional TMS competitors such as SDL and newer rivals such as Smartling easily outspend everyone else. Nedoma is also counting on Experior’s connections to introduce the company to new business opportunities. 
The TMS market remains immature, currently completing the first-wave conversion to cloud-based solutions.  However, demand from both corporate users and LSPs is still uneven and is being chased by too many suppliers. How will this investment change the market?
  1. The funding is big for the region but not for the global market. This investment is substantial for the Central and Eastern Europe region where the company is headquartered. The money will go further there than in London or New York due to the lower cost of hiring engineering, marketing, and operational staff in Poland. As XTRF expands its sales in North America, it will run into more heavily funded translation automation alternatives such as Cloudwords, SDL, Smartling, and TransPerfect. As it competes more in the U.S., XTRF will have to look for more generous investors from Silicon Valley. 

  2. XTRF has a solid technology – and cash will help make it better. From our product briefings with Nedoma and chief technology officer Dominik Radziszowski, we know XTRF’s current capabilities and future plans. More cash – wisely invested in product development, marketing, sales, and support – could help XTRF pull away from the pack. Innovation helps to push the entire field ahead, so these investments end up benefiting everybody.

  3. It will help with employee retention. In addition to keeping people like Radziszowski himself, hiring and retaining super-talented people means offering something better than Google, Skype, or Soundcloud would pay. But it’s not just pay that matters. Venture funding is very important to these people because it is a vote of confidence that validates the work they’ve done and will keep their heads in the game.

  4. Competitors lack the capital to make quick strides. Most of the players in the TMS category look a lot like XTRF before now – good technology but self-funded. Companies such as Kilgray, Memsource, Plunet, and XTM International – some are competitors, others are partners – have bootstrapped themselves largely from revenue, with limited or no external capitalization. European language technology startups may find themselves competing for research grants such as the European Commission’s Seventh Framework Project (FP7). There’s an occasional venture investment, such as Lingo24’s recent infusion. Lack of investment severely limits marketing and sales, making entry into the biggest markets a daunting prospect and forcing companies to take a long, slow road.

  5. It will expand the market. Big events like the latest VC round for Smartling and a host of smaller cash infusions show that big investors are betting on the industry. Each investment sparks confidence in the market for language technology. The winner won’t succeed by taking a bigger piece of the existing pie but rather by bringing new buyers into the market. Most international companies are not yet in the mindset of paying for language management software. On the LSP side, the winner will succeed in attracting the less tech-savvy providers as well as those who know that they need more technology to scale. 

  6. It highlights the possible outcomes – acquisition or IPO. As the language sector grew, many technology entrepreneurs sold their businesses to LSPs or other translation technology companies (witness Alchemy, eTranslate, GlobalSight, Idiom, Logoport, Passolo,Trados, and Wordfast – and most recently, MultiCorpora and SYSTRAN). Others look to selling to a larger software company outside the translation business. A third option is to maximize value with a public offering. Last month, the U.S. magazine Business Week wrote about the tech bubble and Silicon Valley’s echoes of 1999. “The median annual revenue for companies going public in 2000 was $17 million, compared with $109 million in 2013, adjusted for inflation.” There are no TMS companies in that US$100 million range. Yet. 
The bottom line: XTRF is in a race to market maturity and revenue. It’s a critical time for all TMS vendors to ante up with funds to enhance development, market more strategically, increase the number of sales reps, and support deployments in more regions.


 

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