Week 11: Hasta la vista, baby!

Sometimes a diary needs to remain private, and unfortunately this is one of those times.

After three months of publicly discussing the issues I’ve encountered while trying to raise capital for Oodles, the process is now at a point where several parties have expressed a genuine interest in acquiring a controlling stake. As a result, I now need to employ some uncharacteristic discretion. Besides, until something tangible actually happens, there’s not a lot I can say.

I promise to come back and provide a final update once we reach a conclusion, but in the meantime I’m going to sign off by reflecting on what I’ve learnt about capital raising over last few months, what I’d do again and what I’d do differently.

First the things (I think) I got right.

Top of the list was pretty much everything I did in trying to expand my network of business contacts and gather feedback by seeking out experts, potential advisors and experienced operators.

These activities, which ranged from endless coffees with well-connected friends (Who you gonna call?) to a trip to London to observe a ‘Dragon’s Den’ (Enter the Dragon), generated excellent referrals and, thanks to the generosity of the entrepreneurs I met, provided invaluable advice on my business strategy.

I also feel my time was well spent investigating the different kinds of investment channels, including The Australian Small Scale Offerings Board (The Clayton’s Stockmarket). This not only broadened my understanding of the various capital-raising avenues, it also helped clarify my thinking on our ideal investor.

That contributed to the excellent, albeit risky decision to effectively eliminate many potential investors by narrowing my search focus exclusively to strategically-aligned companies. Talking to people who understand your sector definitely makes it easier to explain your company’s value, and can lead to opportunities beyond the capital-raising process.

In my case, however, it also raised some unavoidable issues, including the need for our existing investors to stand aside (for potential partners with the skills and resources to take the company forward).

Now the things I think I could have done better.

For a start, before embarking on the capital raising process I could have thought more deeply about the value we offered each set of prospective partners and ways to more effectively express the potential return on their investment (especially versus competing investment opportunities).

Clarity inevitably comes with experience, but clearer thinking early on could have saved some time (mine and investors). It might have also curbed my enthusiasm for talking techno babble about cool bits of code, etc., to people who just wanted hard numbers.

Looking back, I suspect I could have also been a little more strategic about playing potential investors off against each other.

One thing I don’t regret is writing this blog. Plenty of people looked at me with horror when I said I’d publicly set a deadline for raising money, and committed to sharing my experiences. But doing so has undoubtedly helped inject some discipline into the process and forced me to continually collect my thoughts and reassess my strategy.

Hopefully it’s been of value (even if it’s only entertainment value) to other entrepreneurs.

As I said at the beginning, this is the penultimate column. Look out for the final instalment soon.

Steve Sherlock is co-founder of Oodles.com, one of Australia’s leading online car rental aggregators.

Week 10: Naked Bungie Jumping

The capital-raising process can be an emotional roller-coaster ride and I’ve found it challenging at times over the past couple of months to keep myself motivated and my team focused.

That’s especially true now, when we have a couple of potential suitors considering the company, which means in some ways the process is in a state of limbo.

If ever my optimism or motivation wains slightly, I try to picture it all working out in the end, just as planned. And if that doesn’t work, I just imagine how lucky I am not to have to get up each morning and do something really challenging, such as naked bungie jumping. Suddenly, seeking capital, staying motivated, etc., seems relatively simple, not to mention a lot less embarrassing.

Another good way I’ve found to keep my mind focused and engaged is to stay abreast of industry developments and contribute to blogs, forums, etc. Wotif.com’s recent launch of Wotflight.com for example gave me the opportunity to share my opinion on the venture (my review), and reflect on the potential impact of the company moving into to the cars space.

I also accept invitations to speak at travel industry conferences — such as Eyefortravel Singapore and the Australia Aviation Summit — about innovation and differentiated business models. This gives me the opportunity to sit alongside some of the world’s biggest and most successful travel companies, and I enjoy the chance to speak as an entrepreneur and travel professional (toastmasters training was useful after all). These events also help build Oodles’ profile and provide a level of credibility that potential investors can see first hand.

They also keep my adrenaline going and force me to keep thinking about our overall strategy for successfully executing and realising our plans once we have secured funding.

Ensuring the people around me stay focused is not always so easy.

We have a small full-time team plus half-a-dozen outsourced professionals and I try to keep everyone up to date. Sometimes, however, I wonder if I communicate so much it’s actually detrimental.

One of our staff members recently resigned, and she admitted her move was at least partially influenced by concerns about job security. Given I’ve been very open about talking to potential investors based in Europe, the US and other parts of Australia, she was a bit worried that Oodles would re-locate post investment. It was a reasonable concern because there is a good chance the business will relocate if it makes sense, and I’ve tried to be completely transparent about that.

I guess it’s about finding the right balance.

I’m currently tackling the same awkward issue in relation to communicating with potential investors — i.e. what is the right amount of contact to ensure a lead doesn’t go cold but that you don’t look like your dagging them?

I think I’m pretty patient because I appreciate that potential investors are often busy running their own companies and the key issue can be timing. Plus it’s not that we are necessarily in a hurry; it’s simply that I’m chomping at the bit to start executing our post-funding strategy.

This week I decided to follow up one potential investor and received confirmation that the company remains interested but it is in the middle of a major project and needs more time.

I’m glad I contacted them because the fact that they are still considering investment is encouraging but I started thinking about how it would sometimes be easier to receive ‘no’ and just move on.

It wasn’t long before I found myself contemplating another naked bungie jump.

Steve Sherlock is co-founder of Oodles.com, one of Australia’s leading online car rental aggregators.

Week 9: Money for nothing

I can never figure out if that Dire Straits song goes “money for nothing and your chicks for free” or “money for nothing and your cheques for free”.

Let’s stick with cheques for this post, because everyone knows you don’t get chicks for free unless you play the guitar on the MTV. Plus, getting cheques for free is in context with what I want to talk about.

Up until now I’ve only spoken about my experiences trying to raise capital by working with VCs, Angels and, most recently, ASSOB. What I haven’t covered is a source of funding that we at Oodles have found both accessible and beneficial. A funding source that didn’t require any equity dilution or require us to take on debt.

Sounds like money for nothing. Not quite.

I’m referring to the various grants made available to businesses in Australia by all levels of government.

We’ve already raised $340k by tapping into these grants and we hope to qualify for up to $290k more before the end of this financial year.

In themselves, these grants are not enough to really grow a business, but they can buy you some breathing space in which to further develop your product and business model, making you more attractive to value-adding investors. In effect, they help fatten the cow while you continue to seek capital from commercial sources.

The grants we’ve secured have come from a variety of sources, including Melbourne City Council (startup grant), AusIndustry (COMET Grant* and R&D Tax Offset**), Austrade (EDMG***) and Commercialisation Australia (CA)****.

The CA grant — which effectively replaces the COMET and (controversially dumped) Commercial Ready grants — supports skills and knowledge, proof of concept and early stage commercialisation. Grants can range from $50k up to $2 million, and several require the company to match the amount.

How to secure grant funding

Now for some advice gleaned from my own experiences.

First, you need to focus on getting the right grant. There is nothing worse than spending time and money only to see your application rejected because you didn’t meet the criteria. That happened to me with an MCC grant. We sucured a startup grant and subsequently applied for an expansion grant, but the grant contained some technicalities I neglected to address and my application was rejected. Doh!

That’s where grant application assistance companies have a role to play, because they know the right questions to ask and the right information to provide. We use GrantReady and “lemme tell ya them guys ain’t dumb”.

Here are the five steps that I take when talking to the grant application assistant company:

1. Find out what sort of companies are applying for the grant you have in mind.
2. Find out the reasons companies are being told they are not eligible.
3. Find out the criterion that leads to successful applicants being accepted.
4. Find out what the government body providing the grants is saying about the type and stage of applications being accepted.

Only then should you put forward what you are thinking of applying for and why. That way, without revealing anything about your own circumstances, you learn what the organisation is looking for and you can then try and mould your application to fit.

It’s no different really to an investor saying, “I’ll invest but you’ll need to focus on this area of the business first”. Of course, not every business will be capable of being so flexible, but if you are, the incentives are there.

We are currently in the process of applying for a CA grant and our application needs to cover commercialisation of a post R&D project.

In our case, I think our Oodles VIP Cloud system fits the bill given we’ve done the R&D and have successfully tested the product in the Australian and NZ markets. Our VIP membership has also doubled over the last three months and booking metrics are very encouraging towards expanding it to other countries.

The fact that we’ve already received lower level grants could also work in our favour because Government wants to see that you’ve successfully used previous grants to grow your business through its life cycle and that you are ready to further commercialise your business. They also know that your operation has already been put under microscopic scrutiny.

If you know of any other grants worth applying for or have any questions about the grants or advice I’ve mentioned, start “bangin’ on the bongos like a chimpanzee”!

** This grant captures much of software development and research, potentially refunding up to one-third of your R&D expenditure in your annual tax return.

*** An EDMG grant can help cover overseas sales trips, conferences, and marketing campaigns, including Google Adwords spend (provided you can prove it was an overseas client clicking the ads and making the booking).

**** Anthill recently published an article about the Commercialisation Australia grant.

Steve Sherlock is co-founder of Oodles.com, one of Australia’s leading online car rental aggregators.

Week 8: The Clayton Stock market

When I embarked on my current search for new funding, I thought I was familiar with most of the likely sources: friends (relatives and fools), angels, angels with teeth – Venture Capital (VC), strategic investors (the Holy Grail), an IPO or Lotto.

But it turned out that there was one I wasn’t aware of: The Australian Small Scale Offerings Board (ASSOB), or as I like to call it, the Claytons Stock Market (you know, the stock market you have when you’re not having a stock market).

An alternative listing on ASSOB?

ASSOB is essentially a mini stock market that allows companies to raise up to $2 million (in total) by making personal offers (i.e. not via prospectus or advertised) to a maximum of 20 Australian-based retail investors. An additional $3 million can be raised from so-called sophisticated investors* and overseas investors.

I learned about the organisation late last year when I attended a meeting of the Brisbane Executive Club at which ASSOB CEO Paul Niederer gave a presentation. I subsequently contacted Niederer, who put me in contact with Simon Ward from Melbourne-based Tauro Capital, an accredited ASSOB member.

I met Simon last week and he provided more detail on the ASSOB ‘listing’ process.

One of the more attractive elements is the relatively (and I mean relatively) low costs involved. ASX listing fees for an IPO can range from $25k to more than $200k, and that’s before you pay to have your accounts audited and success fees to various corporate advisors, including underwriters and lawyers. According to the ASX, for an IPO of less than $10 million, total fees can typically amount to an average 10 percent of the amount raised.

By comparison, ASSOB charges an application fee of just $990 and a listing fee of $4,000. Accounts don’t need to be audited, which also saves money. But an applicant must engage an accredited ASSOB member to sponsor it — that’s where a company such as Tauro Capital would come in — and the sponsor will charge a retainer and a success fee (budget on around $30k retainer and a five percent success fee). You still have to pay for legal advice.

A sponsor’s primary responsibility is to help navigate you through the pre-listing process, including the creation of an offer document (including an IM), production of a promotional video and compliance with the Corporations Act.

After speaking to Simon, it seems the tough part is convincing a sponsor to actually take you on. A company like Tauro isn’t going to commit its time and resources unless there’s a good chance for success, which means it employs a fairly rigorous vetting process. This appears to work, as he claimed over 80 percent of companies listing on ASSOB did get funded.

The ASSOB platform itself has an inbuilt incentive for early birds, with shares being offered in three rounds at staggered values. For example, shares could cost seven cents in round one, 10 cents in round two and 12 cents in rounds in round three.

Once the final round is completed, shares can be bought and sold in a secondary market, similar to the ASX (founders often can’t trade shares during a 12 months escrow period).

Simon said (had to get that one in!) that in preparing the offer documents, applicants were required to use Tauro’s own suppliers of graphics, PR and legal advice. He claimed his company did not get a kickback from these suppliers — it was purely about maintaining quality. That sounded reasonable to me, but you’d have to think that the absence of competition would do little to help keep costs down.

From a PR perspective, working with ASSOB does not provide the same leverage as an IPO, but it’s still a listing so there are PR opportunities.

The pitching process is pretty much done by the offer document and video, which can be accessed by up to 10,000 potential investors. I was given a few offer documents to have a look at, and they are very professional, although at around 40 pages long there is a lot of information to digest (i.e. I mostly looked at the pictures).

After meeting with Simon I can see how ASSOB would make sense for some entrepreneurs.

The process takes care of a lot of issues, such as putting together an IM and finding quality investors, which means the capital raising process can be less distracting than trying to do it all yourself. Plus, most companies that participate are not revenue positive — that would be a problem for the ASX** — which means ASSOB seems to provide a genuine alternative to very early stage startups.

The Holy Grail

From Oodles’ perspective, however, I don’t think the model is a particularly good fit at the moment because we want to target a specific type of investor — ideally strategically-aligned travel companies who would bring a lot more than just cash to the deal.

Having said that, Oodles’ development could still be at too early a stage for strategic investors, and if that proves to be the case then I may consider the ASSOB model. In other words I’m keeping an open mind.

If you have any questions on ASSOB, post them below now. Simon and his colleague Chris have promised to monitor the discussion and answer any specific queries.

*A sophisticated investor is defined as an investor who has for two years running earned at least $250k gross per annum and has a minimum $2.5 million in Net Tangible Assets (NTA).

** According to the ASX (http://www.asx.com.au/professionals/pdf/asx_ipo_brochure.pdf), companies undertaking an IPO must be profitable – in fact that have to show an aggregated profit after tax of at least $1m over three years plus $400,000 over the last 12 months. If that’s not the case then they need at least $2m in net tangible assets (including amounts raised under the IPO or a market capitalisation of at least $10million post-IPO.

Steve Sherlock is co-founder of Oodles.com, one of Australia’s leading online car rental aggregators.

Week 7: Once bitten, twice shy

First the good news: We have a couple of companies kicking our tyres.

Now the bad news: I can’t tell you much about it.

I realise the aim of this column is to be as open and honest as possible about my experiences raising capital, but at this point I’m eager not to do anything that might jeopardise our chances of success.

If you think I’m being a little too prudent then let me tell you a painful story about how I learnt not to count chickens, the hard way.

Four years ago, when my brother and I launched the very first beta version of Oodles.com, we actually received an offer from Wotif.com to acquire the business.

Not surprisingly, we popped the champagne. But we didn’t stop there. Even though nothing was signed at this stage, we actually put our stuff in storage and moved to Brisbane to continue negotiations. To top things off, I even sold shares in a competing business so as to avoid any conflict of interest.

Of course, the deal fell through. Wotif.com was immersed in preparation for its $400 million IPO and felt the acquisition would become too much of a distraction. We were disappointed but we also understood because at that stage of our evolution we were not in a position to enhance the company’s float.

The lesson is that even if one gets a term sheet (investment offer), remember it’s not a done deal until the money is in the bank.

I’m sure you’ll understand that this time around I’ll be waiting until the ink has dried before I announce details or even crack a smile.

What I can share is some of the feedback we’ve received so far from potential investors and a little background on the source of the current interest.

Most venture capital firms we’ve met told us we were either too early for them, not seeking enough money or (as an online travel business) outside their area of expertise. Private investors have largely advised us to seek strategic investors, given we’re seeking more than the average angel would invest.

Where our pitch (‘Car rental comparison for loyalty members’) has resonated is with larger travel and media companies. Generally speaking, these people see a compelling story, which is why we’re focusing our efforts in this area.

One of the companies we approached is a global operation with a strong local presence, and it has now asked for a copy of our information memorandum. The other is a European-based firm, which I approached last year during my trip in November to the GetFundedShow in London (Week 4: Enter the Dragon). A representative from the company visited Australia and while in Melbourne he asked to review our financials.

I’ll keep you up to speed, but in the meantime we’re continuing to pursue a number of strategies.

Next post I’ll relate my experiences in dealing with an unlisted securities platform.

Steve Sherlock is co-founder of Oodles.com, one of Australia’s leading online car rental aggregators.

Week 6: Life’s a Pitch

This week I’ve focused on refining my pitch down to just six words.

It’s only taken five years, hundreds of hours of debate with my brother and countless networking conversations, but finally I think it’s almost succinct enough.

For me, whether it’s speed dating or a business proposition, a great pitch should help others understand your vision and get them excited about it as quickly as possible. For some reason my spiel has never generated that much enthusiasm in the speed-dating world, but the business environment is different (I hope).

Generally speaking, my pitches usually follow a formula, which explains (in order) the following:

1. What does the product or service do?
2. What problem does it solve and for whom?
3. Who are we and specifically why do we believe we’ll succeed?
4. How will we make money?
5. How will we bring it to market?
6. And how are we most likely to exit?

If I meet a potential investor, I tend not to do a PowerPoint presentation. Instead, I just have a conversation through the above points. If they are interested I will leave a printed version of the PowerPoint and an IM (Information Memorandum).

Then I give them a week to read and digest before calling them for any feedback.

I also have two versions of the conversation. One for investors and the other for strategically aligned companies. I make the point to both that we might need another round of funding before we get aligned with a strategic partner.

I’m also cognisant of the fact that some strategically-aligned investors may prefer an acquisition. As it was pointed out to me recently, there are ways to deal with this. For example the opportunity could be for a strategic investor to buy ‘X’ percent now, and then lock in to buy the rest in several years time using a multiple of earnings formula. This way they take less risk upfront and you have the opportunity to build value for existing shareholders with the help of a strategic investor.

Investors often say, “You’ve got to kiss a lot of frogs before you find a prince.” Not sure what the equivalent is for entrepreneurs, suffice to say you’ve got to be prepared to have a lot of conversations before you get invested in. I see the goal of each conversation as being not necessarily to get an investor, but rather to practice the pitch and continually gather helpful feedback.

I’ve done a number of pitches so far and got some nibbles, but I’ve got many more to do. I won’t do a running commentary on all of them, however, because I don’t want to jeopardise any ongoing talks.

What I will do, in my last post for the year, is leave you with my six-word Oodles pitch: “Car rental comparison for loyalty members.” Yes, yes, brilliant I know, though keep your cheque book in your pocket for now.

Let me know your feedback or any wisdom you can impart on the business pitch (or ways to improve my speed-dating performance).

See you in January and in the meantime have a great Christmas and New Year.

Steve Sherlock is co-founder of Oodles.com, one of Australia’s leading online car rental aggregators.

Week 5: The dark art of valuations

This week I’ve been attempting to work out the value of our company, which means I’ve been taking the business world’s equivalent of a Dark Arts class at Hogwarts.

Coming up with a pre-investment (or pre-money) valuation is necessary in order to work out how much equity a potential investor ends up with. And coming up with a valuation that is agreeable to all stakeholders is critical, unless you want to go back to prospects with a revised price after a bruising internal dispute.

The theory is as follows: if the pre-money valuation of a company is $1,000 and an investor puts in $500 to buy new shares, then the post-money valuation is $1,500 and the investor holds 33.3 percent of the total shares (diluting the existing shareholders stake by the same amount).

In our first round of investment some three years ago (when I had my L Plates on) I thought that if the company was worth $1000 then an investor injecting $500 would end up with 50 percent of the company. That would, of course, only be the case if no new shares were issued and the $500 went straight into my pocket. Doh!

I decided to calculate a rough valuation by basically adding up what has been invested and re-invested into the company so far. My next step was to find a way of supporting the figure.

My first thought was to break down the different segments of the company (product, brand and IP, traction and potential) and apportion a value to each. I was aware, however, that this was a pretty subjective approach.

I also realised that I’d not taken into account money reinvested from revenues. Was this an acceptable practice?

Another option was to start again and use the common approach of devising a value by using a multiple of current profit — or in our case revenue. That seems a fairly straightforward approach until you have to also add in future revenue/profit potential for a highly scalable business like ours.

Finally, if one is talking to both potential investors and buyers, you need to be mindful that the valuation will likely need to be different for each.

At this point I’d have been happy to add two drops of unicorn’s blood, a twig of mandrake and a dash of love potion in the hope a valuation would magically appear before my eyes.

After all my agonising over the correct formula to apply, it was pointed out to me that ultimately the value I put on the company is irrelevant because all that matters is what the market is willing to pay.

With that in mind, I’m now planning to test out the valuation I’ve arrived at on as many real ‘live’ potential investors as possible.

In the meantime, I’d be interested to hear what other formulas you have used or heard of.

Steve Sherlock is co-founder of Oodles.com, one of Australia’s leading online car rental aggregators.

Week 4: Enter the Dragon

If you’ve ever watched the television show Dragon’s Den then you’ll understand exactly how the GetFundedShow in London works.

Basically, in front of an audience, 20 young aspiring travel businesses stand up and pitch to four business experts (the ‘dragons’). Five pitches per session with the dragons changing each session.

The entrepreneurs have strictly five minutes to present their business and then about another five minutes of questions from the dragons. It’s a pretty tough format that quickly exposes those who are underprepared or presenting a model that doesn’t stand up to scrutiny.

At the end of the first day of this year’s show, four companies made it through to the next round of pitches, held the following day. All were high-quality pitches, with the winner being www.housetrip.com.

Sitting in the audience it was obvious that every company taking part would have benefited enormously from the process, given that they had to get their business to a point of being investor-ready with business plans, Information Memorandums, presentations and lots of practicing.

I had contemplated pitching for Oodles, but given the stage we’re at, and having already raising two rounds and now seeking a larger round, I didn’t think it was a good fit.

Instead, I took the opportunity to network with all the investors and successful travel companies in the room. I ended up giving about 40 two-minute pitches, quickly describing the pain relief we provide to our target market. In terms of refining and sharpening a pitch, the process was invaluable.

GetFundedShow also included presentations by a number of successful entrepreneurs and investors. Here is some of the advice they, and the dragons, passed on:

Glen Fogel, who effectively does all of Priceline‘s acquisitions:

• Make projections conservative so that you hit them.
• Projections must be supported down to minute details (source of traffic, conversion rates, repeat user rates from this source, etc.).
• Ensure you have dynamic numbers so that when an investor or acquirer wants to know certain info, it can be produced instantly.
• When counting revenue, enter it when it’s paid rather than when you get the order (like PPC, expense now and revenue in following months).
• Higher valuation if you have brand momentum can increase your price by 60 percent
• If you build your business with SEO grey hat or brand squatting then your business is being built on a foundation of quicksand.
• There is no replacement for making profits if you want to be acquired.
• Don’t use investment bankers, get lawyers very early on and bring auditors in early.
• Don’t ask investors to sign a non-disclosure agreement (NDA).
• If you are being acquired, talk to other businesses that have been acquired by this company.

Bill Morrow, who heads up www.Angelsden.co.uk, which represents thousands of angel investors around the world:

• Angels want to see where their money is going, rather than lose money in faceless broker transactions.
• They invest on the other side of world, if need be.
• Investors want to know if you’ve had the discipline to do an IM.
• Angels spend an average of two minutes and 12 seconds looking at your business plan.
• They need to know the idea, the pain, how the pain is solved, how it’s differentiated and the people involved.
• Never write in a business plan, “We have no competition.”

Alex Hoy from SeedCamp said an Angel should have the ability and networks to help get money into the company down the road. He put forward four ‘No’s that can lead to a ‘Yes’:

1. ‘No’ means feedback.
2. Know why you will win.
3. Know your investors
4. ‘No’ substitute for traction.
5. Yes!

And finally, from me, if looking for an Angel, find out about what losses they’ve had and address those criteria early on to re-assure them that your scenario is different.

Steve Sherlock is co-founder of Oodles.com, one of Australia’s leading online car rental aggregators.

Week 3: I think, therefore IM

I mentioned in previous posts, this is not my first capital raising but it is definitively the biggest and potentially most important. Despite additional pressure, I’ve found the process of writing the business plan this time a lot easier and I’m much more confident.

Some of this is due to previous experience, but mostly it’s because my company Oodles, thanks to its new digital wallet for frequent renters, has now significantly differentiated its model from potential competitors in our space.

This differentiation ties our whole pitch and business plan together. It gives us a real story to tell potential investors and provides a sense of urgency to the capital raising and execution, so as to head off the risk of someone copying before we get sufficient traction.

The flip side to being different is the likelihood that a unique product is also untested in the market and therefore more risky. In our case, luckily we’ve had our innovations in the market place for the past few months and have compelling metrics to support and validate the strategy.

My focus this week has been on drawing up the first draft of our Information Memorandum (IM). Unlike the business plan, I haven’t found this particularly easy at all.

The IM is effectively our business plan combined with a more formal document that covers various legal issues, including subscription information, escrow period, dividend policy, etc. In order to better understand what is required, I attended a seminar on raising venture capital a couple of months ago (co-incidentally organised by Anthill). As a delegate I received access to an IM template, which is what I’ve relied on.

Much of what is required in an IM I’ve found to be over my head. So to check I was on the right path I sent the draft to BusinessPlans.com.au, and I’m glad I did because they told me what I already suspected — i.e. it wasn’t very good. The problem is that I tend to focus on the technical side of our product offering, which is a good way to send a potential investor to sleep — or at least that’s what I’m advised.

I’ve decided, therefore, to pay BusinessPlans.com.au to overhaul the IM document.

In my next post I’ll pass on what I’ve learnt from the consultation process, and explain some of the more technical aspects of the IM.

While I’m willing to get help from others to make sure the IM is of a quality standard and addresses all the issues that a professional investor will expect be addressed, I still believe it was imperative that I wrote the business plan (as opposed to a consultant).

In my view, the person running the business has a much better understanding of all the key differentiating factors that need to be communicated.

Steve Sherlock is co-founder of Oodles.com, one of Australia’s leading online car rental aggregators.

Week 2: Dealing with rejection

Over the past week my capital raising strategy has taken an interesting turn.

At a recent travel technology conference I met an investment banker who seemed to like the Oodles story. As a result of a subsequent meeting, there is now a good chance we will engage this man’s investment bank to raise capital from its network of Australian investors.

I have been encouraged to discover that this particular bank happens to have an outstanding track record in our space. Have to admit that I’m always a little sceptical about a retainer fee, even though their five percent success fee is about standard.

This development will not change my approach in terms of sourcing European and US investors. In fact, I anticipate that a two-pronged attack will work in our favour.

My thinking is that, firstly, when an investment bank gives an IM to a potential investor, that investor knows that the same IM has been given to a number of other potential investors. In theory, this could inject a sense of urgency to the decision-making process.

Likewise, the fact that I am dealing directly with potential European and US investors also provides a bit of healthy competition to the investment bank. I’m hoping the bank will want to get an offer on the table before I come with something myself.

From the 100 investors that I have contacted so far, I received a 20 percent reply rate. Without any follow-up yet, I have lined up four meetings in London and one phone conference with a US-based VC. From my perspective, that seems likely a pretty good start.

Throughout the entire capital-raising process I intend to do what I’ve always done, which is to see so-called knock backs as opportunities for feedback. Every reply I’ve received so far — positive or negative — has revealed something interesting about that particular investor’s criteria and/or some useful feedback on our model.

One potential investor even spotted a bug in our software. (I sent him a $20 gift voucher — our standard policy for anyone who reports a valid bug).

Whatever response I receive, at least I know where I stand with that contact.

I’m also mindful of the approach that Hotmail founder Sabeer Bhatia took when looking for investment. He was reportedly rejected by countless potential investors and ended up presenting to more than 30 before finally sealing a deal for the modest sum of US$300k for 15 percent.

He could have secured a deal earlier but it would have meant revealing more about the idea and dropping his value — something he wasn’t prepared to do. The rest is history, with a US$400 million exit to Bill Gates.

For me, the moral of that story is that if you really believe in your value proposition, then you won’t move from it and you must be prepared for knock backs. You have to just keep going.

Next week I will discuss our IM preparation, as well as our business plan.

Steve Sherlock is co-founder of Oodles.com, one of Australia’s leading online car rental aggregators.

Week 1: Who you gonna call?

There is not much point in having an ‘investor-ready’ business if you can’t find any actual investors.

With that in mind, the first thing I did this week was create a profile of the sort of person/company our business is interested in talking to.

In our case, the ideal partner is either a VC with a track record of investing in businesses similar to ours, or a strategically-aligned industry player (i.e. online travel and media player).

Factoring in the relatively modest level of funding we are seeking also helped narrow down the field, given that the amount we are aiming to raise is just too small for many VCs*.

With these parameters in place, I set about tying to compile a database of potential investors and making first contact.

I went about getting contact details in three ways.

Firstly, I consulted my own database of travel and media industry contacts compiled from years of attending industry conferences and selected those I thought might be interested in taking a stake in Oodles.

Next, I asked my existing network of business associates and friends for their contacts.

I’m lucky enough to have a mentor who has raised in excess of $20 million in venture capital and the majority of it from Silicon Valley. He was kind enough to give me a photocopy of 50 business cards of VCs he’s met. This group has basically given me the US coverage I was after.

I’m also targeting European investors, but unfortunately I (or my friends) don’t have any personal contacts in this area. Instead, I looked at events at which they might congregate and I came up with a funding exhibition, www.getfundedshow.com, which runs each November in London as part of World Travel Market, a major travel trade show I have attended several times over the years.

The funding exhibition involves mostly startups pitching to an audience of investors and travel industry players.

I thought about pitching but decided against it because we are after a fairly specific kind of investor, which means a scattergun approach is of less value. In addition, I’ve had feedback from some investors that they don’t like competing publicly for investment opportunities.

Instead, I’ve booked a ticket to London to attend the event in order to network with the investors taking part.

In preparation for the trip I asked the exhibition organisers for contact details for all the investors attending and all the travel executives. What I received was simply a list of delegate names and their companies.

After scouring through company websites, contacting PAs, tracking blogs and searching through LinkedIn, I ended up with around 45 contact details.

One thing I found useful was to purchase ‘Inmail’ credits via LinkedIn, which allowed me to email an investor directly with a small message introducing myself, telling them I’ll be at the show and requesting their email address so I could send them some information. I used a similar strategy with PAs.

You’d think it would be pretty easy to compose an email alerting a potential investor to an opportunity and inviting a conversation. However, I found it very difficult to strike a balance between composing a message that was short and punchy (so they would read it) but also detailed enough to build interest.

After about 10 rewrites I decided the best approach was to simply introduce Oodles, explain what makes us unique and provide them with a test log-in so they could experience our product themselves by making a booking.

In my next instalment, I’ll let you know how successful my ‘first contact’ was.

*At this stage I am not targeting smaller private investors and angel networks, which means I see no need yet to advertise our investment opportunity more widely.

Steve Sherlock is co-founder of Oodles.com, one of Australia’s leading online car rental aggregators.

Like most online entrepreneurs, when my brother and I launched our company we figured that within two years we’d be popping the champagne and arguing how to spend the millions we’d earned.

It’s a bit disheartening then to find that six years on, after endless hours of brainstorming, debating, arguing, fighting and sometimes even agreeing, we’re still looking for that ‘rich beyond our wildest dreams’ exit strategy.

It’s not the only thing we’re looking for. We also need investors who are willing to help our company – online car rental aggregator Oodles.com – move into the next phase of its development.

Oodles is performing well. We’ve enjoyed sustained growth over the past few years in terms of our visitation and conversion rates, and we recently took top spot in the Hitwise parade for our segment.

Not long ago, however, we saw an opportunity to differentiate ourselves in a crowded market by refocusing the brand to meet the unique needs of frequent travellers. Since then we’ve developed a ground-breaking website that will help these travellers minimise business expenses, maximise frequent flyer point benefits and offer all the convenience of a car rental express pickup service.

Now we want to execute our business model on a global scale, and lift the presence of the Oodles brand in our key markets of Australia, New Zealand, the US and the UK.

All of that requires dollars.

This is not the first time I’ve looked for capital. In fact, over the past six years we’ve raised around $2 million from a combination of private investors, who have taken equity in the company, and government grants (including R&D, COMET and MCC).

This time I want to attract a new type of investor; the sort that would invest in companies like Twitter or Facebook. By that I mean one that will back our efforts to create a unique targeted product relevant to a sufficiently large audience, rather than focus on a short-term return on investment.

So how are we going to get it?

Well, that’s the hard bit. We do have a broad strategy, which we will pursue over the next four months, and it involves identifying and then stalking (I mean pitching to) potential sources of venture capital, as well as strategic investors.

I’ve been lucky enough to meet some successful entrepreneurs who have raised millions in the US, and have access to a list of around 50 VCs based in Menlo Park and Palo Alto, California – so that’s where I’ll start.

I am not discounting Australia as a source of capital, but I have my doubts there are Australian VCs with the appetite to back an online travel or media brand at the level we are seeking. If investment came from Australia it would more likely be an existing media or travel player. However, these are the companies we’d be looking to exit to after we’ve built the value, rather than them getting in on the ground floor.

In essence, I’m stepping into unknown territory. End each week I’ll explain what I’ve been up to, providing opportunities for fellow entrepreneurs to learn from our mistakes and (hopefully) our triumphs. I’ll also use Twitter to provide regular updates throughout the process.

I’m eager for this to be a collaborative process, rather than a spectator sport. So if you believe I’m going off track or you have ideas to contribute, I hope you’ll let me know. Oodles.com is no superliner – we can change direction and tack very quickly if we get good feedback.

The aim is to secure and seal a multimillion-dollar Series A funding deal by the end of January 2010.

Let’s see how we go.

Steve Sherlock is co-founder of Oodles.com, one of Australia’s leading online car rental aggregators.