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How I raised $2M in just 5 weeks from one of the richest persons in Australia
Anoosh ManzooriCEO & Founder of Shape Capital
I have been involved in investing, raising capital and selling companies for around 10 years. But I started my career as a startup founder 20 years ago during the technology boom of the late 1990s.
In the year 2000 I was running a small software company and had secured a $500,000 offer from an investor. The days following the offer the tech bubble burst, the investor followed the downward spiral and my offer for funding vaporised before we could close it.
I started the company as a 22 year old just 10 days after my last university exam. I had been working on the project for two and half years living the tech dream completely broke and surviving on coffee, pizza and 4 hours’ nightly sleep. In my mid 20’s I had to decide if I wanted to get a day job or keep working on my crazy idea. Venture capital had significantly contracted and most investors shivered at the thought of investing in technology. Our industry got branded as the dot com bubble!
I decided to ditch my idea but stick around and look for another business idea to work on. I started a consulting company providing web development services to small group of clients who still had an interest in the internet. I used this time to allow myself time to find my next idea.
In late 2003, I saw an opportunity in the cloud hosting and domain registration market. At the time I was renting a small office (size of a double closet) at a tech park for just $40/week, not the most inspiring place to work. I took my girlfriend at the time, who is now wife, to a really boring movie so we could sit at the back of the theatre and brainstorm ideas for a business name!
I had accumulated around $30,000 in funds from my consulting business and decided to put all of it into the new venture. I started promoting our services to small businesses online and was acquiring a customer every few weeks and then eventually one every few days and before too long acquiring one new customer every 5 minutes.
By 2006 I had reached 25,000 customers, 20 staff and at the time I had managed to fully self-fund the growth of the business by re-investing everything back into the business. We moved offices 3 times in the first 3 years as we outgrew our office space. The growth was intense but we needed to grow even faster to make a decent profit from our activity. We were selling a low-priced service and needed volume to make it work.
I needed to hire another 15 staff and add more hosting infrastructure and capacity for growth. We needed to be a national provider and expand our reseller network. My plan was to double the customer base to 50,000 customers, introduce new products to lift revenue and margin and then look to sell the company to a strategic buyer. My plan was to do this all in two years as margins were getting compressed as competition was starting to chomp at my feet.
We operated in a highly commoditised and very competitive market selling a low-ticket technology service of web hosting and domain name registration services.
I also had over 1000 resellers who were white labelling our solution as their own who effectively became our indirect competitors. Out task was to acquire customers cost effectively and to make enough margin to run the business and show a solid profit. At the time I was thinking about raising capital but I was barely profitable as we were investing everything back into the business. I knew that once we had over 50,000 customers we would have serious scale and would be extremely profitable.
I worked out that I needed $2M in funding to reach my target goal and milestone of 50,000 customers in 2 years. Raising $2M was a lot more money 11 years ago and the number of tech focused investors in Australia in 2006 was still very small compared to now. I needed a strategy to firstly get introduced to the right investors and also have a pitch that made sense to them.
I wrote a ‘very’ short pitch deck, only 5 slides – less than 100 words per slide:
- What we do and why we do it
- Business Model – how we acquire customers, what it costs to acquire each customer, life time revenue per customer, and current financials
- $2M investment – strategy for how we will add another 25,000 customers
- How I plan to grow revenue by selling more products to existing customers
- Exit strategy – plans to sell to a strategic buyer in 2 years.
Finding an investor:
I contacted a number of investors directly but soon found that it may take 2 years to find the right one. I started to contact advisory firms and was referred to one in Melbourne who took us on as a client. They introduced us to 2 investors, one of them being Daniel Besen – whose family is one of the wealthiest in Australia, net-worth of $2 Billion.
In our meeting, I provided a copy of my 5 page pitch deck and proceeded to take Daniel through it. The presentation went for around 15 minutes and Daniel and his investment director asked a dozen or so questions about the business.
The following week, Daniel made an offer to invest the full $2M. After some negotiation and due diligence, with the support of my advisor, we raised the money around 5 weeks after we had first met.
Interestingly 2 years after raising the money we had exceeded our customer target numbers. We reached 75,000 customers and had captured a 10% market share – 1 in 10 small businesses in Australia was hosting their website with us. I sold the company to MYOB in 2008 (2 years after we raised funds) who at the time had 400,000 customers and was wanting to move into the web hosting game.
Key points and lessons I learnt:
1. My pitch deck and presentation was well received as it focused on how we would acquire customers today and why I needed the funds to add customers. The deck clearly showed the gap in funding the company neeeded and where Daniel could help.
2. Less is more; try to distil down what you do, keep your pitch simple and to the point. Try to link the funding you need to milestones.
3. Use an advisor who can introduce you to the right investors. It will save you time and you will get a better outcome. If you want me to help you raise capital simply apply here.
4. When investors like your business, they will move quickly. Make sure you are investor ready, be realistic about your valuation, and keep focused on the end game.