Receiving a substantial capital injection from an industry heavyweight is a great milestone for any start-up.
For Oneflare, securing a $15 million investment from Fairfax Media Limited (through its subsidiary, Domain Group) earlier this year was the culmination of years of hard work to build the business to a level where it was more than just a good idea, but a proven business model ready for serious scale.
Attracting this type of investor can be different to that of the typical early stage investor, who is often willing to be more speculative in backing the potential of a good idea. Certainly the business needs to be more established and poised for growth, but there are other elements that go into it too.
When thinking about approaching an investor from industry or trade, strategic fit is a big factor. Rather than a purely financial return on their investment, a trade investor will likely look for synergies. If an investment offers growth opportunities for each party’s respective business, it will be an enticing proposition.
Initially we approached Domain to discuss partnering opportunities as there were obvious links between the two companies. During those conversations we continued to develop our business to a point where eventually felt we had reached an appropriate level of product-market fit and thus were ready to drive scale. We considered a number of options in which to do this, but given our relationship with Domain, they were a natural inclusion in the discussion.
Domain is continually looking to broaden its consumer and agent offering across the property lifecycle. Oneflare offered the perfect opportunity for them to move beyond property advertising into home improvement and trade services. They felt we had created a solid platform and market position from which to do that.
The other fit that is important with any investor is shared values. The relationship with investors, particularly for growth companies, is likely to be close and at times intense so you need to make sure you’re working toward the same goal in the same way for things to run as smoothly as possible.
Revenue and earnings
As with most investor classes, trade players will expect you to demonstrate the credentials and skill set of your management team, the market opportunity and plan for capturing that opportunity as well as how the invested capital will be used in that plan.
More so than with most early stage investors, the risk appetite of the trade investor will typically be lower. As a consequence you will need to demonstrate a consistent and growing revenue stream and if not profitable, a clear path to profitability.
Securing investment is likely to be a recurring endeavour for any start-up. The process can be really exciting, especially if the investment is large enough to propel the business to new heights – taking you from start-up to contender. If this is your goal, then start planning now. Make a list of the companies that could be a good fit, pay attention to what’s happening in the market and work on securing your business and revenue model.
Brett Kaplan is the CFO at Oneflare, an online marketplace that connects people to more than 90,000 businesses in over 150 categories to quote for jobs needed around the home, from cleaning to pest control, gardening, painting, building, interior design, pet care, beauty services, accounting and everything in between.