BizBuyer Auctions Second Round to CMGI

BizBuyer.com of Los Angeles raised $5 million last month from @Ventures, the venture arm of CMGI, in its second round of venture capital financing.

The company operates an online marketplace for small businesses that currently handles auctions for telecommunications connectivity and phone system services – long distance and cellular. Chief Executive Bernard Louvat said the concept for BizBuyer came from his experience in trying to establish an infrastructure with four previous start-ups.

“In those instances, it struck me that it takes a lot of time to identify vendors and negotiate contracts that are needed to put an infrastructure in place,” he said.

Louvat then saw the strength of pure Internet business models and adapted that premise to the small business market. BizBuyer begins by attracting potential buyers to the site where a request for proposal (RFP) is filled out and submitted to the site. The RFP is then matched to appropriate vendors in the site and those vendors submit bids in real time.

“[BizBuyer] caught our attention because it is a shift in buying, where the whole idea is setting prices in a dynamic manner,” said Brad Garlinghouse, a general partner with @Ventures.

BizBuyer generates revenue through bid fees that are paid by vendors that decide to bid on an RFP. Louvat said currently, those fees are the company’s only source of revenue. In the future, BizBuyer will generate revenue from commission deals with larger vendors. Garlinghouse said the company could conceivably move into ancillary services such as office equipment and legal services. Small businesses that buy through the site can do so for free.

“The value proposition for the consumer is the help with the decision process as well as finding the best price,” Garlinghouse said.

Proceeds from the CMGI investment will initially be used to develop the company’s software and technology infrastructure. Additional proceeds will serve to enhance marketing efforts and drive traffic to the site.

“@Ventures is a sophisticated Internet investor,” Louvat said. “They have a pipe of Internet start-ups that will go public … and we also saw portfolio synergies.”

Following the offering, Peter Mills of @Ventures joined the board of directors.

The company raised $1 million from a group of private investors in its seed round earlier this year.