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Crain?s Cleveland Business Article, MagnaHR Lands Angel Investment ? January 2002

By SHASTA CLARK Crain's Cleveland Business

It's a bird. It's a plane. It's a "super angel" that has swooped down to deposit $500,000 into MagnaHR's bank account.

Richard Hughes, president and chief executive officer of the Pepper Pike-based startup, describes his angel as "super" because the investor brings years of business and human resources experience to the deal. Mr. Hughes would not identify his angel but said he is local.

The investor has enough experience with human resources that he could work for MagnaHR, which is a possibility, Mr. Hughes said. For the time being, they are "negotiating" the investor's equity stake in the company.

Mr. Hughes plans to use the investment to continue building MagnaHR's web application, which manages human resources, payroll and employee benefits for companies that have 10 to 1,000 employees. The payroll function is outsourced to Brecksville-based Ahola Payroll Services.

"Firms such as Fidelity Investments, Sageo (a division of Hewitt and Associates), and several other large consulting organizations continue to provide outsourcing services to the large-employer market, leaving the small-to-medium-size employer market virtually untapped," Mr. Hughes said. "MagnaHR was created to fill this unique niche market by providing total outsourcing solutions and human resources consulting services."

Since Mr. Hughes founded MagnaHR last year, he put $750,000 of his own money into building the four-person company, he said.

"I didn't plan on putting three-quarters of a million dollars in," he said. Some profitable investments from the 1990s are helping him finance the fledgling company, while supporting his wife and two children, he said.

But his investments have paid off for small companies like NineSigma Inc., which is using MagnaHR to alleviate cumbersome administrative duties like payroll and benefits.

"We're not a large enough organization to have our own HR internal department on staff, but we are growing rapidly," said Carol Clark, chief financial officer of NineSigma, a Beachwood-based startup that serves the research and development industry. "(Before using MagnaHR), we would encounter situations where we would need to rely on trained HR personnel."

The year-and-a-half-old company had used other local human resources companies, but MagnaHR is "a high quality service at a highly competitive price," Ms. Clark said.

In Mr. Hughes' past life, when he was punching the clock for other companies, he gained finance and human resource experience that is serving him well now. He was responsible for overseeing the integration of employee benefits, human resources and payroll when Ernst & Whinney became Ernst & Young in 1990.

And he managed another human resources conversion when ABB Asea Brown Boveri Ltd. acquired Elsag Bailey Process Automation in 1999.

While working for ABB Asea Brown Boveri, Mr. Hughes founded a company that was "MagnaHR before the Internet," he said. The company, called IBS Inc., is a financial, human resources, and employee benefits consulting practice. It works with individual and corporate clients in wealth management, strategic asset allocation, fund selection and monitoring, and employee benefits and human resources. Although IBS is still in existence, Mr. Hughes focuses his time and manpower on MagnaHR's web application.

Through the web application, a company can choose which administrative services it wants to outsource. It can outsource a flexible spending account for its employees, employee benefits or legal and regulatory compliance.

MagnaHR will make sure that the company is complying with legal and regulatory rules by writing or editing an employee handbook.

"This, more than anything else, will help protect your company's assets by reducing the likelihood of any employment-related litigation," Mr. Hughes said. "Additionally, our virtual HR manager will provide e-mail or phone-based consulting for legal and regulatory issues and any topics covered in the policies and procedures."

Mr. Hughes said he would like to add more services to the web application through an acquisition. "There might come a point in time when I want to make a strategic acquisition to jumpstart the company," he said.

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