Revolution Growth banks on FedBid for first investment

Revolution Growth, the venture firm founded by AOL(s AOL) veterans Steve Case and Ted Leonsis, made its first bet today, investing an undisclosed portion of its $450 million fund in FedBid, an online auction venue for the federal procurement process.
FedBid runs a reverse auction site where qualified sellers compete for government business, bidding the price down to win the deal. This bizarro eBay (s ebay) for federal purchasing agents is one example of how the Internet can make buying processes more transparent and efficient for even the biggest customers.
Leonsis, who is now chairman of the board for Vienna, Va.-based FedBid, said the money will help the company expand its service to state and local governments. It plans to add staff, which stands now at 130 people.
There is “tremendous upside” in a move beyond the federal government — state, federal and local governments combined buy trillions of dollars worth of goods and services annually, Leonsis said on a conference call on Tuesday.
Currently, FedBid’s seven biggest customers are the Department of Homeland Security, the U.S. Army, the U.S. Navy, the State Department, the Department of Interior, the U.S. Park Service and the Veterans Health Administration,  according to Ali Saadat, FedBid CEO.
For the 2011 fiscal year, FedBid saved the feds $150 million on the sale of $1.4 billion worth of goods and services, Leonsis said. This year, the company is on track to hit $2.4 billion this year, Leonsis said.
FedBid takes a transaction fee of up to 3 percent of the total purchase. That fee is factored into each bid submitted through the marketplace. Average net savings on deals is 11 percent, including that fee, FedBid said.
Saadat said rivals sell software and consulting services to help build e-commerce sites like this one, but “we operate a fully managed marketplace.” The federal buyer posts what he or she needs and lets the service do its thing. “You post your buy and you don’t have to sit on your computer at all” since FedBid handles the process, Saadat added.
Technology aside, FedBid has also identified and recruited more than 3,000 authorized purchasing agents who post what goods they want to buy.
Some say there’s a downside to this automated process. Contractors contend that federal buyers use reverse auctions as an overly easy way to buy IT goods that might stand a closer, more detailed assessment, for example.
Still as government budgets remain under fire, Internet-based commerce sites could help cash-constrained agencies get what they need for less.
Photo courtesy of Flickr user Diana Parkhouse