• by Laurie Sullivan  @lauriesullivan, May 10, 2010

WordStream announced Friday that it has secured $6 million in series B financing from Egan-Managed Capital and Sigma + Partners, but the real story sits behind one of the VC's decisions to dole out the funds.

Typical to any company, WordStream plans to use the funds to grow and expand its search marketing tools geared toward search engine optimization (SEO) and pay per click (PPC). And with any fledgling, the road could lead to either a buyout or an early initial public offering (IPO).

Along with the funding came the appointment of Frank Andrasco, a partner at Egan-Managed Capital, to WordStream's board of directors. His decision to take a WordStream product manager on the road to visit and pitch several marketing executives at a variety of companies sealed the deal.

At the end of the three-day tour, all marketing executives at the five companies that were visited wanted to become a WordStream customer to help build their business-to-business brands, answer questions, and gather sales leads, according to Andrasco.

For Egan-Managed Capital, investments continue to increase in 2010 compared with the prior year, as Andrasco and partners look for proprietary ideas built on the beginnings of a strong management team. The idea must have the potential to transform the way companies do business. Andrasco calls "search engines the new Yellow Pages, and WordStream is about making sure you're under all those headings."

WordStream isn't profitable, but Andrasco sees potential. Egan-Managed Capital invests with the hope that the most likely outcome becomes an acquisition, but Andrasco says there's nothing keeping WordStream from going through an IPO. "It's really a question of building scale, because these days that scale is a lot bigger than it used to be," he says.

These days, going through an IPO requires six quarters of more than 50% revenue growth and about $50 million or $60 million of top-line revenue, Andrasco says. It varies widely depending on the industry sector. For IT companies it's more difficult. Some companies in the clean energy sector can go public based on pre-2000 standards.

Calling WordStream "a hidden gem," Andrasco can "see the excitement build for an earlier IPO, but it's not something we hang our hopes on because with every passing regulation it becomes more difficult to do," Andrasco says.

Fifty-two percent of companies expect to spend more on SEO in 2010 than in 2009, and this compares to only 9% that expect to spend less, according to the State of Search Engine Marketing Report 2010. The report, published earlier this year by the Search Engine Marketing Professional Organization (SEMPO), reveals that on average, 50% of companies surveyed expect to spend more on paid search in 2010 compared to 2009. About 16% say they will spend less. About 34% expect to spend the same.

Egan-Managed Capital manages three venture capital funds -- Egan-Managed Capital I, Egan-Managed Capital II, and Egan-Managed Capital III. The VC has financially infused companies such as Whaleback Systems, Grove Mobile, NetScout, and Sprockets.