TransNet Seeks Financing for Growth

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LAS VEGAS - TransNet Security Inc., Ontario, CA, a transaction management and fulfillment company, plans a second round of private financing this month to invest in operations before initiating an initial public offering next year. It also plans to expand operations in Europe, with a headquarters based in Vienna, Austria.


The company raised about $6 million in a first round of financing that was invested in technology and a 7 million square-foot fulfillment center to offer online merchants an end-to-end electronic commerce processing capability.


Its service is intended for online merchants that sell more than $1 million a year in merchandise and want to avoid the heavy expense of investing in computer systems and fulfillment operations. The company also is open to start-ups whose volume may not be that large at the outset.


The company attended the Electronic Retailing Association conference here Oct. 17-19 to seek more clients that require fulfillment and online order processing capability, said Dina Marie Schon, senior vice president of sales and marketing.


"Because my background is in direct response," Schon said, "I understand how direct response marketers behave and how to appeal to direct response customers."


Before helping to found TransNet, Schon was executive producer for Murad Inc., El Segundo, CA, a marketer of skin products whose infomercial sold more than $300 million in products. Its continuity program generated an additional $100 million in sales.


TransNet was founded by Schon's brother, Joseph Gioeli, who was a member of a rock band called Hardline before getting into the electronic commerce business. Another brother and band member, John J. Gioeli, is vice president of TransNet's fulfillment and distribution center.


The chairman of TransNet is James W. Power, a principal of J.W. Power & Associates, a security industry management and marketing consulting firm. His experience includes management roles at several companies that manage secure financial transactions, including TRW Data Systems, Citicorp subsidiary Transaction Technology Inc., Cardkey Inc. and Basix/Pinkerton Control Systems. He is chairman of InfoGraphics Systems Corp., a privately held security systems company.


Schon said the company is unique in its ability to provide secure transaction processing.


"Some studies say 80 percent of Web sites do not have secure processing," Schon said. "It's a major impediment to selling online when customers are concerned about Internet security."


The company has several clients from the direct marketing industry, including the West Coast distribution for 1-800-Flowers' gift and gourmet catalog of several hundred items. It also performs electronic commerce and fulfillment operations for fitness company Body By Jake, Sony Playstation, computer game company Squaresoft and Pheramore Inc., a maker of personal care products. Another client, NetSkincare.com, sells Murad, Dermalogica and Skinceuticals brands of skin care products.


TransNet offers a full range of services that vary in price. Its transaction services include credit card verification and also verification of fund availability. Those verifications are very important to electronic commerce, but many sites are not equipped to process them in real time. Oftentimes, they are batch-processed later, which delays the fulfillment process.


"Our system immediately allows a customer to check the information on an order if there's an error," Schon said. "We also follow up with an e-mail to the customer thanking him for the order and providing a tracking number to monitor it."


The system allows for real-time transactions 24 hours a day, seven days a week, without the need for registration, Personal Identification Numbers or cyberwallets offered by several companies. Because its software is installed on its own server, merchants are not required to install their own servers. TransNet's system includes an online shopping cart and secure check processing.


The merchant can receive real-time reports about the status of orders and inventory reports to notify when reorders are necessary. TransNet charges about $200 as a setup fee, followed by a fulfillment charge of between 50 cents and $1 an order. Some packaging may be quoted separately and the company demands a postage or shipping deposit. TransNet's pick-and-pack fulfillment center is located near Ontario International Airport, a distribution hub for Federal Express and United Parcel Service.


The company offers pick-and-pack fulfillment at $1 an order plus 5 cents for each additional unit in an order. Its mail-order processing is quoted by the job, while credit card processing costs 30 cents for every attempt at authorization. Its goal is to make the credit card processing cost between 5 percent and 7 percent of the typical cost per order.


Merchandise return processing costs about $2 a return plus five cents a unit. An additional $15 an hour is charged to inventory pallet-sized returns. Other services include monthly account maintenance, various reporting options, warehousing, and product storage and receiving.


For subscription customers, TransNet has a service to bill a customer's credit card monthly or quarterly until the subscription is canceled.


In addition to its fulfillment operations, TransNet maintains a cybermall called TNS Shopping Mall, www.tnsmall.com, which includes online storefronts connected to its secure order processing and fulfillment system.


TransNet plans to launch another Web site called SecureClub.com that sells products promoted through direct response television, radio and print media. The company also offers a TransNet "seal of approval" on sites to demonstrate to consumers that transactions are completely secure.
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