Success Stories: Sonic Foundry, Inc.

Sonic Foundry
Madison, WI

Monty Schmidt left the corporate world in 1991 to start a consulting business writing software drivers for sound cards. In the process, he developed a product that allowed personal computer users to easily work with and edit sound files, much the same way a word processor is used to edit text. In 1994, he attracted Curtis Palmer from Microsoft and Rimas Buinevicius, a seasoned engineer and business professional.

The Company was first incorporated as a Subchapter S Corporation in Wisconsin when Curtis and Rimas joined the Company. Initial financing included credit cards, personal savings and ultimately a small revolving line of credit with a local bank. In addition to spending much of their personal assets and taking no salary the first year, the three founders provided personal guarantees for the line of credit and the office lease that allowed them to move out of Monty's back bedroom. In preparation for a private stock placement in 1996, the Company was merged into a Maryland "C" Corporation. The private offering raised approximately $1.8 million from over 60 individuals, retirement plans and small organizations. As is typically the case, about one-third of the investor base represented family, friends and other business associates. The remainder was pulled together using a network of investment, legal and other advisors. Nearly all came from outside the state of Wisconsin. The offering allowed the Company to initiate marketing and engineering efforts, which led to a suite of well recognized media software tools.

In 1998, the Company successfully raised $15 million in an initial public offering of two million shares of common stock, bundled with warrants to purchase one million additional shares at a 50% premium to the 1998 market valuation. The offering was underwritten by the New York based firms of Dirks & Company and Security Capital Trading Company; firms known for their institutional strength. Following completion, the Company had 600 new investors and was listed on the American Stock Exchange.

During the strong market of 2000, the Company raised an additional $50 million from various sources, including the exercise of warrants issued in the IPO. The Company also issued additional common stock through private transactions with institutional investors, underwritten by New York based C.E. Unterberg, Towbin. These transactions were completed very quickly with a modest discount to market. To increase liquidity of the shares, the Company also switched the market for its stock to the NASDAQ and completed a 2 for 1 stock split.

The additional resources allowed the company to accelerate growth plans in its new media services, systems and consulting initiatives, resulting in the acquisitions of both STV Communications and International Image Services. STV was a leading provider of streaming media services offering webcasting, production and post-production services, high-end encoding, signal acquisition, hosting, content management, digital rights management, and syndication, based in Santa Monica, California. International Image, with offices in Toronto, Ontario and Santa Monica, California, was a leading provider of high quality media conversion services to various Hollywood and international television and film studios.

Following consolidation of the newly acquired businesses, the Company was transformed into a full-scale media software and services company with a broad list of customers, from media giants like Sony and Warner Brothers to children making music on their home PC. The product line has evolved from the original editing tool to a suite of "Create, Edit & Deliver" products. Anchor products include Sound Forge, Vegas Audio, Vegas Video, VideoFactory, ACID, and Siren. The Company now employs 250 employees with annualized revenues of nearly $30 million. As the Company looks into the future, it expects to see continual updating of current products as well as development of new technology, including development of media software management systems for large content companies such as television or film studios.