RewardsPlus Nets $5M First Tranche

There are few businesses more paper intensive than insurance, as anyone that has recently filed a claim can attest. However, like so many other business areas, a start-up company, intent on using the Internet to replace the reams of forms, has emerged.

Baltimore, Md.-based RewardsPlus of America Corp. recently closed the first $5M tranche of its third venture capital round. Piper Jaffray Ventures of Minneapolis and existing investor Century Capital Management contributed the capital.

“The round [is] designed to be $20 million, but we had the opportunity to purchase some common shares from a passive founder,” said Steve Schaefer, chief financial officer at RewardsPlus.

The company hopes to close the financing by year end and intends to use the capital infusion to support continued hiring as well as expanding its customer base. Since receiving the capital, RewardsPlus has begun a strategic relationship with Ceridian, which Schaefer said gives the company access to more middle and large market companies.

Including this $5 million, RewardsPlus has raised approximately $15 million in private equity since its formation in 1996. Zurich Centre Investments contributed $2 million of seed capital in July 1996, and, in May 1998, the company took in $8 million in its second round from Century Capital.

Schaefer said the company wants one of two types of investors to fill out the round. “We are looking for a venture-oriented firm with the right kind of tech investments, or a strategic investor that will help [add clients],” he said.

RewardsPlus offers clients access to the Internet technology platform that delivers group discounts on auto, home and life insurance, among other products through its ChoiceRewards program. The company’s delivery program consolidates benefit administration, communication, enrollment and vendor management. However, Schaefer noted that the company offers employees access to the program through traditional means as well as via the Internet.

“The [traditional] distribution channel is relatively overpaid,” said Ken Higgins, a principal at Piper Jaffray and RewardsPlus board member. “We were looking at the space and saw a company with attractive technology that understands the needs of carriers.”

Piper Jaffray has now made three investments in the benefits space through the $100 million Piper Jaffray Health Care Fund III. In March, the firm committed to Adminiquest, an outsourced benefits administration provider, and, in May, the firm invested in Simpata, a Web-based human resources and employee benefit program.