Oodles.com founder Steve Sherlock has set himself the goal of raising a multimillion dollar Series A funding round by the end of January 2010. He is documenting his trials and tribulations and seeking feedback from readers on AnthillOnline.com. This is the third post in his series.
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.