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Westlake Village Firm Strikes Gusher

Crude oil has lost 40 percent of its value since July – but that has brought a windfall for a Westlake Village software firm. Seven Lakes Technologies Inc. helps oil well operators improve efficiency by squeezing as much money as possible from every barrel. That was a nice bonus when oil was trading at $98 a barrel last summer, but now that prices are struggling around $60, it’s a must-have. And petroleum engineers aren’t the only people with an interest in the software. In March, Seven Lakes received $20 million in Series A financing from a Newport Beach private equity firm. It was the largest venture investment in the greater Valley during the first quarter according to PriceWaterhouseCoopers and the National Venture Capital Association. Shiva Rajagopalan, chief executive of Seven Lakes, said his company met with a number of investors as it sought capital for expansion before agreeing to the investment from Carrick Capital Partners, a Newport Beach firm that specializes in software investments. Rajagopalan noted that Seven Lakes has grown its sales about 90 percent annually for the last several years. Last year it had revenue of $15 million and earnings before interest, taxes, depreciation and amortization of about 40 percent. “With those healthy margins, investors are naturally intrigued,” he said. “We had loads come down (from the Bay Area) to Westlake Village to meet with us.” Rajagopalan declined to release the terms of the investment but said an overriding reason he decided to go with Carrick was because of its experience in growing industrial software firms. Seven Lakes sells three suites of software that monitor and analyze well production, manage well-related accounting and schedule drilling operations. Most of its revenue comes from the production program called Mobile FDG. It uses both electronic sensors and humans to gather data about pipe pressure, hydraulics, pump and compressor functionality and other variables, and then translates that data into alerts about which wells need attention and prioritizes maintenance and repair jobs for field technicians. Rajagopalan said a typical oil field might have 100 operating wells, so keeping them all a peak performance is a challenge. While breakdowns are natural, if an average well pumps 100 barrels a day at $60 a barrel, it adds up to $6,000 a day, meaning a few hours of downtime can impact a company’s cash flow. The Mobile FDG program helps keep both the oil and the revenues flowing. “The software hides the complexity so engineers don’t have to clean the data or analyze the data, they just get the alert and can take action,” Rajagopalan explained. “You have to apply some heavy algorithms to figure all this out.” The accounting program works in a similar way to the production suite, aggregating data from various sources to track operating costs and alert managers to financial problems. The drilling software helps schedule contractors, though Rajagopalan acknowledges drilling has nearly stopped since oil prices fell. Seven Lakes doesn’t sell to the oil giants, but targets the mid-sized independent companies. Rajagopalan estimates they number about 2,500 in the U.S. and another 2,000 in the rest of the world. Seven Lakes currently has 27 customers, leaving plenty of room for expansion. Seven Lakes sells its software through subscriptions, with a typical well paying about $3,100 a year. To put that in perspective, Rajagopalan claimed one of his clients saved about $100 million in potential lost revenue last year because the software kept the wells pumping efficiently. Willson Beebe is a financial analyst at oil producer COG Operating LLC, a subsidiary of Concho Resources Inc. in Midland, Texas. He originally tried Seven Lakes software for a pilot project, but later bought it to manage wells because it worked with legacy programs already in use. “In our business, there are many different software applications for every discipline,” Beebe explained. “One of the big problems is getting each of those independent systems to talk to each other. By leveraging the data warehouse that Seven Lakes uses, we are able to pull data in from multiple sources.” ‘Paper heavy’ Rajagopalan came to the United States after graduating from college in India. He started working in ecommerce, but he entered the workforce just before the dot-com bust, so it didn’t last long. Instead, he worked in real estate until he got a green card and then landed a job at Chevron Corp. in 2007. He ended up living in a trailer outside Bakersfield, surrounded by 10,000 active oil wells. An IT guy, Rajagopalan spent time at the wells trying to improve data collection and processing. In 2009 he founded Seven Lakes to develop software based on his experience. What he learned from his time in big oil was its relative lack of sophistication in data management. “This industry is very paper heavy, actually very backwards compared to other industries,” he said. “I started learning about pumping oil and how IT and data can make it more efficient.” He named the company Seven Lakes because at the time he lived on Misty Lake Court in Simi Valley, and since he didn’t have a name in mind, the city official who registered the business suggested he play off his address. Why is the company in Westlake Village, a toney enclave far from a major oil field? Chevron sent Rajagopalan to Los Angeles and he married a woman from the Valley. Soon after launching Seven Lakes, he moved his wife and new son to Houston, the mecca of the oil sector. After six months the climate proved unmanageable, so he returned to California and set up shop in the Conejo Valley. The company retains a sales office in Houston. “It may have been better for the business if I had stayed in Houston, but if you’re not in California you may not have the attention of these investors,” he said. Jim Madden, the managing director at Carrick Capital Partners who now serves on the Seven Lakes board, said when oil prices plummeted he started looking around for a good technology play on the trend. “We did a number of calls to customers, asking them who has a better mouse trap,” Madden said. “Seven Lakes was mentioned on seven out of the eight phone calls. Of course, we checked out the technology to make sure it was as advertised and came away feeling positive.” Carrick’s portfolio includes companies in a similar growth position as Seven Lakes. For example, Axiom in New York is a legal technology firm providing software to large corporations. InfraScale in El Segundo handles cloud backup and data protection for companies. Madden said he plans to hold Seven Lakes for four to five years. His exit strategy will depend on the circumstances, and while Carrick has experience with both taking companies public and selling to large corporations, he expects most of the firm’s portfolio companies will be sold to strategic buyers. In the oil field software sector, competition comes from dozens of companies, including much larger companies than Seven lakes. They include P2 Energy Solutions in Denver and Quorum Business Solutions in Houston, which was acquired last year for $310 million. Rock Zierman, executive director at the California Independent Petroleum Association, a trade group for small producers in Sacramento, said the steep drop in oil prices has cut capital budgets about 50 percent nationwide. That makes it hard for a new service provider such as Seven Lakes to get traction, but if they can develop a track record there were will be interested buyers. “Like any industry, there is comfort if someone else has used it first,” he said. “(But) if someone can improve efficiency, folks are looking at that very closely.” Rajagopalan hopes the $20 million in investment money will help his company achieve scale. He plans to spend it by hiring a chief marketing officer and chief financial officer. He also wants to develop new products and start selling in foreign countries, starting with Canada and Abu Dhabi. “It’s important to stay ahead of the competition by a mile,” he said. “A couple years down the road, we’ll raise more capital on a Series B round, not because we are running out of money, but we want to scale further. At the end of the day, this money should get us to 75 clients, but then we’ll ask how to get to 500 clients and take this to the next level.

Joel Russel
Joel Russel
Joel Russell joined the Los Angeles Business Journal in 2006 as a reporter. He transferred to sister publication San Fernando Valley Business Journal in 2012 as managing editor. Since he assumed the position of editor in 2015, the Business Journal has been recognized four times as the best small-circulation tabloid business publication in the country by the Alliance of Area Business Publishers. Previously, he worked as senior editor at Hispanic Business magazine and editor of Business Mexico.
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