Sourcepass Unveils Additional $65M In Funding, Proxios Acquisition

‘[The acquisition] expands our footprint and the reach of our resources to strategically help us be more broad with our geographic presence across the U.S. to support more small to midsize businesses. It also gave us some depth to help support some of our key verticals with a lot of really good engineering expertise around financial services, health care, legal and nonprofit organizations, which are verticals that we’ve been very focused on,’ says Sourcepass founder and CEO Chuck Canton.

Managed services and security provider Sourcepass this month unveiled its seventh acquisition in 18 months with the purchase of cybersecurity solution provider Proxios.

Sourcepass also disclosed the raising of an additional $65 million in funding, bringing total funding in the company to $135 million, said Chuck Canton, founder and CEO of the East Northport, N.Y.-based company.

The price of the acquisition was not disclosed. However, Canton told CRN, Proxios is a profitable organization with over $16 million in annual revenue at the time of the acquisition.

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Proxios brings to Sourcepass an IT services and cybersecurity provider with over 50 employees, 65 customers and 6,500 endpoints, Canton said.

With the acquisition, Sourcepass gets a major expansion into the mid-Atlantic U.S. market, as well as an office in Connecticut and clients in the Northeastern U.S., Canton said.

“It expands our footprint and the reach of our resources to strategically help us be more broad with our geographic presence across the U.S. to support more small to midsize businesses,” he said. “It also gave us some depth to help support some of our key verticals with a lot of really good engineering expertise around financial services, health care, legal and nonprofit organizations, which are verticals that we’ve been very focused on. So this really expands our bench and our physical reach.”

There are three driving factors behind every one of Sourcepass’ acquisitions, including Proxios: the culture of the acquired company, how customer-focused it is, and the existence of a customer base where Sourcepass can improve the customer experience, Canton said.

Aside from those factors, Sourcepass’ acquisition of Proxios is primarily one of geographic expansion.

“There is some network management capabilities and cloud capabilities that adds to the team, but not an entirely new offering,” he said.

There are also cross-sell opportunities from the acquisition, Canton said.

“What their clients are using today is probably 35 percent of our entire portfolio,” he said. “So advanced cybersecurity with our SOC [Security Operations Center] service is something that we could cross-sell. Our ERP solutions, using Microsoft Dynamics, big data solutions, or web and mobile app development solutions, are all things that they can take advantage of. So we’re working to do that. And that’s where it goes back to one of the tests of an acquisition, which is, can we improve the client’s experience? If not, let’s not do it.”

Sourcepass learned about the opportunity to consider an acquisition of Proxios because some of its executive employees previously moved to Sourcepass, Canton said.

“Sourcepass is a little bigger,” he said. “They liked our vision, our investment thesis. So they joined us. But they also love Proxios and the great team. They have their CEO Patrick Butler, a great professional. And so they explained when they joined us that they loved what they were doing, and that culturally we should talk to Proxios and see if there is some special strategic partnership that that could occur. Those employees introduced me to Butler. He and I hit it off. We talked about our businesses. And that’s when we decide that we joined forces.”

On the investment side, Sourcepass has now received $135 million in investment over three rounds, comprised of a combination of equity and debt, Canton said. New York-based private investment firm Metropolitan Partners Group is the lead investor in Sourcepass. Other investors include venture capital funds and angel investors.

Metropolitan’s investment strategy allows the companies in its portfolio to be run without outside interference by those who are best able to do so, said Richard Lin, a managing director of the company.

“We structured our transaction with Sourcepass to allow Chuck a pretty wide berth to deploy the capital according to his growth plan,” Lin told CRN. “And part of that includes acquisitions. A lot of our capital went into the prior six acquisitions. And then the last tranche went to Proxios.”

Metropolitan looks to invest in companies that are founder-run and owner-operated, Lin said.

“We look for entrepreneurs that want to grow their business and have a desire to retain control and economics as they grow,” he said. “And from my perspective, I’m not an operator. I’m not going to be able to run the business as well as the guys that we fund. We do the work up-front to agree to a business plan and define financial goals, but control remains with the management team. We also structure our deals so that once we get a certain return on our capital, then most of the incremental upside can accrue to the existing founder and existing management team, the guys doing the hard day-to-day work to drive our collective success.”

While Metropolitan has invested in other IT firms in areas such as telecom and data centers, Sourcepass is the company’s only MSP investment so far, Lin said.

While Metropolitan benefits from Sourcepass’ upside, it has taken a non-controlled investment in Sourcepass, Canton said.

“They enable the operators who specialize in the space,” he said.