Diary of an entrepreneur raising capital: Who you gonna call?

October 19, 2009 | By Steve Sherlock

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.

City Slicker

So Steve … what’s the $1m+ going to do for your business? You have a site that looks like it works, why do you need $1m+? If the money is for blowing away on advertising, then you’re probably best focused on an equity stake by a media company (like iSelect, SEEK, etc).

[Reply]
Steve Sherlock Reply:
October 21st, 2009 at 5:22 pm
@ city slicker
thanks. yep an investor that also offers distribution options at much lower that market cost has its attraction.

we are not big believers in traditional media. instead I like the quote from seth godin “we are moving from an era of finding customers for our products to finding products for our customers”. I agree.

much of the the funding will be used to develop the product for our target group with key markets in mind.

[Reply]
http://www.redbubble.com Martin Hosking

Steve
Other thing to make sure you wrap this up in is the whole carsales.com.au success (only has traction in the Aussie market). I think there is more appetite now for easily understood business models in the e-tailer category given carsales, wotif an seek. So look at them (esp carsales.) Good luck.

[Reply]
Steve Sherlock Reply:
October 21st, 2009 at 5:28 pm
Martin, yes good point.

actually when we did our first seed round, wotif had just listed, which i think particularly helped our cause.

to support efforts with australian investors, I am considering engaging an investment bank with a very good track record in the online space. they’ve approachem and seem pretty keen and confident.

anyone with thoughts on things to look out for with such an engagement appreciated.

[Reply]
CitySlicker Reply:
October 22nd, 2009 at 12:35 pm
Hold it! There are really big differences between these companies. Look at their websites, and they all look like brothers. Look at their financial reports and you will see the really big differences. Let’s look just at the three companies mentioned here:

Carsales:
> current assets: $28.107m
> noncurrent tangible assets: $5.319m
> total tangible assets: $33.426m
> total liabilities: $35.196 (of which the biggest liability is long-term borrowing of $18.767m)

Seek:
> current assets: $73.464m
> noncurrent tangible assets: $262.108m
> total liabilities: $164.064m (of which the biggest liability is long term borrowing of $111.289m)

Wotif:
> current assets: $106.037m
> noncurrent tangible assets: $19.853m
> total liabilities: $142.548m (of which the biggest liability is $134.385m trade and other payables … short-term, and needs to be considered in the context of total revenue of $121.306m)

————-

Now look at Webjet:
> current assets: $32.542m
> noncurrent tangible assets: $3.537m
> total liabilities: $7.417m (of which the biggest liability is $3.942m trade and other payables … total revenue: $30.118m)

————–

Negative net tangible assets worry City Slicker, FCPA.
Trade and other payables in excess of one year’s revenue also worry me.

My own internet company has the following characteristics (nope, I’m not going to bore you with absolute numbers, except to say that sales are in 7 figures, and have increased 127% 2008 FY to 2009 FY):

> current assets: 111% of sales
> noncurrent tangible assets: 1% of sales
> total liabilities: 41% of sales (of which 78% is tax provision).

You can walk down the path of external equity and debt, have your company run by a board of anxious investors wanting to walk you to an IPO or trade sale as an exit strategy, and wind up as a dead stock on the ASX, or you can stay bootstrapped and stay in control of your company.

Good luck whatever you decide to do …

[Reply]
http://twitter.com/stevesherlock Steve Sherlock

@cityslicker

couple things I’d add to the list for these companies is:

* profit
* market cap / PE
* market share % & growth
* brand awareness %
* % of direct and brand search traffic vs. paid and generic key word search
* exit value / years worked by founders
* golf handicap

i guess the thing is city slicker, when you are anonymous I find it hard to qualify your comments nor put them in context, despite some good points that you make. (I personally never comment anonymous)

for example, for all i know based on your figures:
* your sales could be $1000, therefore your asset worth $11,000, your noncurrent tangible assets $1 and your total liabilities $400.

hardly an impressive story when not shrouded in %. But don’t worry you’re not alone, I have used % as well when referring to volumes that aren’t nearly as impressive when the $ sign sits next to them

all the same, contribution much appreciated. (gives me excuse to procrastinate for 10 minutes)

[Reply]
CitySlicker

Except that I said that sales are in seven figures, without the decimal point.
P/E are a bit pointless at present given the impact of the GFC.
As to the value of the brand, consider that when HP purchased EDS they ditched the EDS name altogether … that was a brand that had been going since Perot went around collecting mag tapes from companies in the back of his car.
As to anonymous, there are two major problems with platsering your name all over a blog:
1. it gets indexed by Google, and so rather than it being a communique from me to you, it becomes part of my internet profile.
2. it means that what I say is immediately identifiable to my company, which might upset my business partner.
The choice is anonymous identity and open speech, or full attribution and nothing to say.

[Reply]
Steve Sherlock Reply:
October 22nd, 2009 at 7:30 pm
@cityclicker, na I dont agree with your last sentence, that its an either or choice.

ive got something to say, and im happy to be fully accountable for every word of it. I think comments especially needs to be attributed, so that people can see where my biases come from, to help evaluate my comments.

if you’d like to have any further dialogue with me, your welcome to follow me on twitter, so i can put a face to the comments. or email me (steve at the url).

[Reply]
CitySlicker

The subject of your blog was …?

[Reply]
Craig

Steve you sound a little bit optimistic. Your site offers no usp and resembles the work of a junior coder. but good luck with convincing vc’s otherwise. I expect they are going to be reluctant but having said that you have already obtained some $. I expect to see some kind of defensive response per the above with cityslicker but write away regardless it will be interesting to watch

[Reply]
http://twitter.com/stevesherlock Steve Sherlock

@craig

lol – ok Craig, you got a laugh out of me, but appreciate that your at least sharing your point of view.

I don’t get your point though, given i doubt you’ll find any site that integrates Qantas and virgin rewards for one, nor allows avis, hertz, thrifty and budget priority members to actually compare their corporate rates.

will give you $100 buck if you can?

as for coding – yep could always i do better. anything specific you can point to?

your welcome to reply to me, though i find it hard to take you seriously given you aren’t prepared to be accountable and put your name to your post. not a balanced conversation i reckon.

[Reply]
http://www.twitter.com/stevesherlock Steve Sherlock

from now on I’m not going to reply to any anona-mouses. for all i know they could be my ex-wife. that last dude sounded like her

i agree with Robert Gerrish from Flying Solo. His article from today http://bit.ly/2yqvap where he says:

“I don’t know about you, but if I see a slick offering yet cannot see clearly who is behind it, I figure someone or something is being concealed.

Come out, come out whoever you are, or I fear you’ll disappear”.

So I’ll say the say to you Craig (or angela) come out, come out, whoever you are…

[Reply]

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