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Is raising capital from your customers a smart move?


Not so long ago, we received an email announcing that Webjet Limited “has subscribed for 20% of the issued capital of TaguchiMarketing Pty Ltd.”

If the name TaguchiMail is familiar to you, it’s probably because it appears at the foot of every Anthill email Newsletter.

We wrote about the innovative “optimised-content email system” back in February under the playful headline, Can our emails read your mind? (Yes, well, kinda.)

Here’s what we wrote:

While the email technology can’t read minds (literally), it can self-optimise.

So, what does this mean?

It can choose headlines based on their ability to improve Open-Rates during email dissemination. It can re-configure the order of stories and promotions in the email based on their popularity to increase Click-Throughs. Lastly, it can serve up information to reflect your tastes (it has a memory!) and the interests of ‘people like you’ (according to your tastes and demographic information, such as your location, identified by your IP address).

That all sounds pretty terrific. But what has impressed us this week is TaguchiMail’s approach to capital raising.

While most new technology developers will spend months chasing down angel investors and cold-calling VCs, often with the randomness of a headless chook, without too much planning or forethought (much to the potential investor’s frustration), sometimes the safest money is already right under their noses.

It’s called ‘strategic capital’ or ‘smart money’ (or a mix of the two).

Finding a ‘strategic’ investor.

On Friday last week, a small group of early-stage entrepreneurs gathered at the Melbourne offices of KPMG to take part in Anthill’s Venture Capital by Design Masterclass, hosted in partnership with Design Victoria.

While much of the discussion and workshop topics centred around how to attract a retail or sophisticated investor (get your business plan in order, prepare an IM, know what you want in your Term Sheet), there was one ‘take-home’ that had the room buzzing.

Pitch Club co-founder Peter Christo, when asked about pre-deal valuation (i.e. How can I put a dollar value against my business, technology or idea?), made the following observation (which I’ve paraphrased):

Your business or technology is worth however much someone else is willing to pay for it. How much are they willing to pay for it?

Well, that depends on how valuable it is to their business or how much they think it can be sold for down the track.

A loss-making technology might be worth nothing to an investor seeking a safe, passive stream of dividends, but it might be of great value to a company with a sales team able to monetise that technology.

I have heard similar sentiments made before by serial entrepreneur Dr Tom McKaskill, who has sold several companies at valuations much greater than EBIT multiples and written a number of books on the topic.

As a fundamental premise of his eBook Invest to Exit, McKaskill says:

Businesses which create value by developing an asset or capability which could be exploited by a large corporation achieve an exit through a trade sale to a strategic buyer. Strategic value is created through intellectual property or deep expertise which creates a sustainable competitive advantage in the hands of the strategic buyer.

It is the strategic buyer who exploits the growth potential through an extensive distribution network.

In other words, if the prospective buyer is in a position to make wads of cash from the business or technology that you have only just begun or failed to exploit, you could be onto a winning deal.

Back to Taguchi Mail.

In this instance, it can only be assumed that WebJet believes that it can monetise TaguchiMail’s technology beyond the cost of investment, as an operational instrument, or perhaps as a result of a tradesale down the track.

It no doubt has an opinion about the company’s growth potential as a satisfied customer and, now, as an investor.

Moments before writing this piece, I called Dean Maidment, Managing Partner at TaguchiMail, and asked what was the driving factor behind WebJet’s decision.

While Maidment cannot comment on behalf of WebJet, he was able to paraphrase the following observation made by WebJet’s Managing Director David Clarke, at the announcement of the deal:

“We now generate more sales from our email marketing than from Google.”

This statement speaks volumes and cuts to the core of this post.

Perhaps the next time you consider raising capital, don’t pursue the obvious targets. Stop to consider which organisations would gain the most ‘strategic value’ from being an investor in your company – who can make the most money from what you have to offer?

Because we’ve all heard that unforgettable Remington tagline, made famous by the late Victor Kiam, “I liked it so much, I bought the company.”