By Eoin Callan

Brian Moran, a veteran of the international building trade, returned to his hometown of Dublin in 1999 to form BuildOnline.com, an e-commerce website for the construction industry. The company has pursued an aggressive investment strategy and forged early links with large investors new to early-stage financing of internet companies.

FIRST ROUND: A surrogate entrepreneur
SECOND ROUND: Building bridges
THIRD ROUND: Strategic Financing
RISK: Conflict of interest

FIRST ROUND: A surrogate entrepreneur
r Moran started the company with E2.09m ($2m) funding from BancBoston, a US investment bank, and Delta Partners, a US venture capital company with minimal European exposure. Within six months he landed a deal with the Irish government to use the company's online project management tools for the E36.6m development of the Guinness family's last Dublin residence, in the city's prestigious Phoenix Park.

When Mr Moran decided to expand his horizons and make a play for Europe's E1,066bn construction industry he enlisted the services of Mark Suster as his CEO, to give him an "in" with top-flight investors and bring more e-commerce know-how to the venture.

The decision to hand over control of his business to a "surrogate entrepreneur" was not taken lightly by Mr. Moran. But at the end of the day, he says, "you have to decide if it will increase your chances of success".

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SECOND ROUND: Building bridges
Under Mr Suster's direction the company raised second round funding of E17.2m. Investors included BancBoston, Goldman Sachs, the investment bank, Viventures, a French fund backed by Vivendi, the communications and property group, and Global Retail Partners, an early-stage venture capital firm.

Goldman Sachs' large European property management portfolio made it an attractive investor to Mr Suster. "The construction industry is one which is fairly conservative and Goldman has a great reputation in that industry and lots of experience," says Dominique Laffy, a venture capitalist with Global Retail Partners.

Adrian Jones, executive director at Goldman Sachs, said: "E-construction has the potential to deliver vast savings for the European construction industry, and our investment in BuildOnline.com will further their development in Europe."

Financial giants like Goldman Sachs are new to the job of nurturing internet start-ups and some have had clumsy moments along the way. "They can really destabilise the situation," says Olivier Protard, a venture capitalist with Sofinnova Partners who has co-invested with investment banks. "It really depends on the corporate culture at work and the individuals involved, but some seem to lose their temper or walk away at the first sign of difficulty. They are used to calling the shots."

"We were not intimidated by Goldman, if we were we wouldn't have gone ahead," says Mr Moran. BuildOnline was careful to structure the deal so no single investor could impose their views, said Mrs Laffy, who invested in the company alongside Goldman Sachs and BancBoston.

"Where the VC's are superb at understanding early-stage businesses, our investment banks add the maturity of understanding the path to IPO and complex deal structuring," says Mark Suster.

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THIRD ROUND: Strategic Financing
r Suster said BuildOnline was seeking a third round of financing from "strategic investors - meaning players from our industry that would use our product". The strategic financing round should allow BuildOnline to remain private for longer and steer clear of volatile public markets until the climate improves for internet stocks.

r Suster said existing investors would be "willing to take a lot more cash from strategic investors than they typically would from other financial investors. Because they see the additional value they get by having strategic investors at the table, even though they dilute the relative share".

BuildOnline have given the job of managing third round funding to a top rival of Goldman Sachs, according to Mark Suster. The deal will be finalised shortly. "We certainly had the debate if it made sense to go with existing investors leading this round, and we are very happy with our existing investors, but we feel it gives us the next level of leverage," said Mr. Suster. The decision will ensure fierce competition for the position of underwriter should BuildOnline decide to go public.

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RISK: Conflict of interest
Investment banks still see their biggest returns from start-up businesses as underwriters at the IPO stage. Early-stage investments are seen as one way for banks to "make sure they have the opportunity to be considered for the IPO", says Mrs Laffy.

This creates a potential conflict of interest for investment banks that find themselves in the position of major stakeholder and underwriter. "You get into a situation where you are trying to overvalue your stake as a shareholder, and overvaluing the share price when its being offered to outside investors, that's really the basic conflict of interest," says Mr Protard.

r Suster said most investment banks had resolved the dilemma by building "a Chinese wall between the banking side and the venture capital side. If the investment bank feels like they have to invest in order to win the business then basically they have a gun to their head, where they are being forced into investing money. So they typically like to separate those activities".

r Suster is still calling the shots in the boardroom, by all accounts. "I'd give him top marks on that score," said Mr Sheehy, an investment officer with BancBoston Capital. "It remains to be seen how he will adapt to the next step: to really build the business."

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BuildOnline[http://www.buildonline.com/]

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