Meet BenefitFocus: A ‘bootstrapped’ cloud company that crushed its IPO (interview)

Cloud company BenefitFocus experienced a smashing initial public offering this week, with shares nearly doubling in the first day of trading.

This under-the-radar company has a cloud-based subscription service to help employers manage their benefits plans. When BenefitFocus hit NASDAQ on Wednesday, the deal’s price $26.50 a share, well above the $21.50-$24.50 projections. Within 24 hours, shares nearly doubled to $53.55. BenefitFocus anticipated that it would raise up to $110 million at the high point of the range.

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Should you invest? Don’t miss our interview with BenefitFocus’ CEO at the bottom. 

Unlike FireEye and RocketFuel, software-as-a-service (SaaS) companies that experienced flashy public offerings today, BenefitFocus’ IPO was a relatively quiet affair. It hasn’t garnered much attention from the press since it launched in 2000.

The good news? It is poised to rake in revenues, as the Affordable Care Act health care law takes effect and large enterprises increasingly shift to cloud-based technologies. The insurance industry spent an estimated $55 billion last year on software services.

According to S-1 and SEC filings, BenefitFocus pulled in $68.8 million in 2011, with revenues jumping to $81.7 million in 2012. The company serves businesses (these enterprise contracts are particularly lucrative) and over 20 million consumers, helping them more efficiently shop and manage benefits, including life and dental insurance and health care.

The bad news? The company is still operating at a loss of almost $15 million. But that is to be expected from software-as-a-service players, and the same is true for both FireEye and RocketFuel. It’s more difficult to make consistent revenues when your customers aren’t “locked in,” which is how Oracle became a multibillion dollar giant.

Shortly after the announcement, I caught up with Jenkins to chat about the company’s growth, and plans for the future.

VentureBeat: How did you determine that now is the right time to go public?  

Shawn Jenkins: We’ve been thinking about it for a while. It’s a company that we started in 2000 to put all our benefits in one place. We have built a really powerful network of insurance providers, and we’re now looking more at enterprise companies. This is such a significantly under-penetrated opportunity.

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VentureBeat: What are some of the major challenges up ahead?

Jenkins: We operate in a very complex environment, as employer benefits are regulated state-by-state. The challenge on the engineering side is to solve the big implementations of the Affordable Care Act and all these new rules and requirements.

We have to stay current at a time when employer benefits are changing. But we have invested in product development talent and software engineers to expand our cloud technology to comply with employer mandates.

VentureBeat: Why haven’t we heard much about BenefitFocus?

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Jenkins: It might be the way we grew up — we were in full bootstrapping mode.

We didn’t have the option to take venture financing in our early years. But looking back, it was a good thing. Our management team stayed very disciplined.

VentureBeat: What are the benefits for you in going public?

Jenkins: It provides great visibility for the company and our model for customers. In future, we will bring a new way to offer private exchanges to employers

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[Editors’ note: Private exchanges, which have only existed for about a year, are run by outside benefits companies like BenefitFocus and typically offer more insurance choices than those offered by employers.]

It’s good timing, as there is a general awareness now that software-as-a-service and cloud delivery is a legitimate category.