Founder-CEO Mike Rustici

Updated 16 June 2016 0718: Watershed announced 6/15 the closing of a $4MM Series A round that included participation from the LaunchTN-administered INCITE fund and Learning Technologies Group. Earlier this year, Rustici announced that LTG had acquired Rustici Software as well as an unspecified stake in Watershed, a Rustici spinout.-Ed.

WATERSHED LRS, the Rustici Software spin-out that aims to untether users of training/learning analytics tools from self-contained learning management systems (LMS), plans to raise $3MM to $5MM capital, Founder-President Mike Rustici told VNC.

Rustici said that this Fall he will turn his full attention toward leading Watershed LRS (Learning Record Store), while Rustici Software Co-owner Tim Martin takes full control of that company's operations, moving it forward in its current growth phase.

The two companies will remain based in Franklin, near Nashville. Rustici Software has internally invested about $2MM in developing Watershed LRS, said the founder.

Tim Martin

Standing-up Watershed allows Rustici Software, under Martin's leadership, to resume its pursuit of organic growth opportunities that are readily available, without having to invest in Watershed development, said Rustici.

"It's time to give Watershed more love than we could afford" inside Rustici, said the founder, who'll soon turn 38.

The Watershed LRS learning-analytics platform enables users to track and evaluate data from numerous training, learning and performance-development tools, rather than having access only to data available via specific LMS systems. For example, Watershed LRS allows extracting timely data from simulations, game-based learning, adaptive-learning programs, traditional classes and other real-world learning experiences, mobile and other contexts, said Rustici. Watershed details here.

Rustici Software's core business has involved selling to LMS makers -- hundreds, globally -- and content producers the software their developers need to ensure the smooth communication and playing of educational and training content offerings spawned by content producers worldwide. That mission continues.

Rustici said he believes Rustici Software -- with its sector-changing TinCanAPI (aka, xAPI) and SCORM offerings -- and Watershed are the marquee names in their respective e-learning segments, and thus enjoy some degree of "first-mover advantage." He said he also views as "very encouraging" the appearance of fledgling competitors for the tools and ecosystem-design pioneered by Rustici and Watershed. Rustici Software backstory here.

Watershed's two most relevant competitors are probably 4-year-old Saltbox Services, a Seattle-based company founded by two former T-Mobile learning and marketing executives; and, UK-based startup Learning Locker, said Rustici. Learning Locker's blog suggests it has become established in the UK's digital-learning ecosysem.

The initial Watershed round is likely to center on an equity raise through sale of a minority stake, though debt capital is not ruled-out. Proceeds will fund further platform development, sales and marketing. Rustici said no decision has yet been made regarding whether the raise will need to be a Series A. Given that Watershed already has dozens of pilot-stage paying customers, the company is not likely to sell a majority interest, Rustici said.

Current Watershed users include Google, BBC, Pandora, Medtronic, Healthstream, Autodesk, KFC (Kentucky Fried Chicken), AT&T, Applied Industrial Technologies, MedStar Health, and others. Watershed LRS's recently formed customer-advisory board is to have its first meeting in the next few weeks.

Watershed already has "a very healthy sales pipeline" as a result of drawing upon extensive existing relationships, said Rustici. He said the company is still refining its approach to reaching the broader market. Its sweet spot is likely to be comprised of prospects "large enough to be intentional about training and learning," with probably 1,000 or more workers, he noted, adding that market definition is still under scrutiny.

Asked about Watershed exit plans, Rustici began by saying he believes global demand for talent and productivity is only growing in importance, and "talent will only get more scarce."

Continuing, he said he believes legacy e-learning performance tools mostly "leave a lot to be desired," creating a major market opportunity for companies that can help employers "fully optimize" returns on talent expenditures.

Beyond that thesis, he said, "I have no idea where the world is going to take us with Watershed. All I know is there is a problem in our industry that I've watched for 15 years that we can finally address, and I want to see it solved -- and we are in a very unique position to do that." Succeed or fail, "We're going to enjoy the ride."

Watershed's earliest customers have been enterprises familiar with Rustici Software expertise in the e-learning sector, and others who in the past two years have heard Rustici and others present at dozens of professional and trade conferences where the company introduced the now-widely adopted "learning record store" concept, according to the founder.

Rustici Software projects at least $7MM sales for 2015, and has been bootstrapped to profitability since its inception. Its revenue in 2010 was reported at roughly $2MM.

Rustici said he retains controlling interest in Rustici Software and will remain an advisor; and, Martin will be an advisor to Watershed, though the firms will operate independently of one another, using licensing or contracts for what is intended to be limited intercompany dealings.

The 13-year-old Rustici Software company has about 50 employees, approximately 15 of whom will join Watershed LRS. While the spinout is being executed, both firms are taking a conservative posture on further hiring, said Rustici.

Asked about modeling for Watershed, Rustici said that, given Watershed's immediate drive for rapid growth, "if we're breakeven-or-better in year one, we're doing something wrong," said Rustici.

Planning for the capital raise is being handled internally, though outside advisors may yet be considered, said Rustici. He noted that his participation in EO Nashville affords him a valuable personal network.

Rustici Software's outside legal and accounting advisors remain, as previously reported, Connecticut-based attorney David Benoit and KraftCPAs. However, Rustici now banks with Pinnacle Financial Partners.

Rustici Software -- which promotes three Rustici, TinCanAPI and SCORM websites/brands -- will soon undertake a brand refresh that will give the Rustici Software brand renewed visibility of its own, Rustici said.

Update: Rustici Software has been considering commercializing its internal Jenafits corporate concierge service, as previously reported by VNC.

However, Rustici confirmed today that those Jenafits plans have been sidelined while management focuses on the Watershed spinout. VNC