Interact Systems, Inc., has developed software tools that help hotel chains solve application integration problems. Interact's application integration server (AIS) provides a two-way interface between central reservations systems (CRS) and property management systems (PMS). At least two important trends in the hotel industry are relevant. First, hotels are shifting from manual to electronic booking of room reservations; electronic bookings will continue to increase as more reservations are made over the Internet. Second, competitive pressures are forcing hotels to implement yield management programs and to increase customer service. By integrating the CRS and PMS through Interact's AIS, inventories can be better managed, yields improved, and customer service enhanced.

All reservation traffic is routed from the CRS to individual hotel properties. This allows Interact Systems to create a database that can be used to track customers and to facilitate marketing programs, such as frequent-stay or VIP programs, as a way of increasing customer satisfaction. Interact forecasts application integration expenditures in the hospitality industry exceeding $1 billion by 2013.

Greg Thomas founded Interact Systems in 2007 and developed the firm's middleware software and hospitality applications. He has twelve years of systems applications experience and currently is Interact's chief technology officer. Eric Westskow joined Interact in early 2010 as president and CEO. He had worked in sales and marketing in the software industry for more than twenty years.

Interact Systems' AIS software development, which began in 2007, went through several design changes in 2008. The first product was sold and installed in 2009. Sales were only $500,000 in 2010. However, now that the firm has dependable markettested AIS products ready to be shipped, revenues are expected to reach $20.8 million in 2013.

Greg Thomas founded Interact Systems with $50,000 of his own savings plus $50,000 from friends. Two private investors provided an additional $200,000 in 2008. In addition, $1 million was obtained from a venture capital firm, Katile Capital Partners, in early 2010 in exchange for an equity position in Interact. The firm currently is seeking an additional $5 million to finance sales growth.

A. Verify the two important trends that are developing in the hotel industry.

B. Describe how Interact Systems' AIS software products will benefit the hotel industry from a profitability standpoint.

C. Describe how Interact Systems' AIS software will help hotels improve customer satisfaction.

D. Describe the life cycle stages that Interact Systems has progressed through to date.

E. What types of venture financing have been obtained, or are being sought, by Interact?

F. Relate major sources or players with the venture financing described in Part E.

G. What types of agency problems or conflicts should the founding entrepreneur have anticipated?

H. What, if anything, should the founding entrepreneur have done in anticipation of agency conflicts? 

I. Assuming the venture succeeds, what are the potential advantages to other stakeholders (customers, employees, and society more broadly)? 

J. If internal sales growth projections are revised downward after the current financing round, what, if any, disclosure to stakeholders (investors, employees, customers, etc.) should occur? Why?