Web Hosting Talk : Web Hosting Main Forums : Running a Web Hosting Business : Venture Capital

[Artashes]

Does anyone here have the experience of approaching venture capitalists? Does anyone have investment/financing background? Were you ever in a position to seek multi-million dollar investments for your projects (be it seed cap for a startup, or business expansion)?

I am interested in the insights, lessons learned that you can share.

Best,

[Ariel74]

In 1998 I obtained significant VC money for my online electronics store startup; be prepared to give up some control of your business when you do this. Also you better have a detailed written business plan, complete with market studies and financials. Feel free to PM me.

[Aussie Bob]

Originally Posted by Ariel74

In 1998 I obtained significant VC money for my online electronics store startup . . .

If you don't mind me asking, what happened to that business? Did you use the VC funding and create a profitable business?

[Ariel74]

Originally Posted by Aussie Bob

If you don't mind me asking, what happened to that business? Did you use the VC funding and create a profitable business?

Yes. Very profitable, because at the time there really wasn't a lot of competition; stores on the Internet were a new thing. I ended up selling the business for a lot of money to one of my competitors.

Unfortunately, I was also pretty young at the time (early-mid 20's) and wasted most of that money (bought a car with cash, big screen TV, etc) ... if only I had it to do over now!

It's a lot harder to get that type of VC money now for anything Internet related, at least it seems that way to me. I am currently re-doing the ArielHost business plan to make it more attractive to VC firms.

[LukeKrogh]

Aussie Bob, I would be interested in finding out if you recieved some sort of financial assistance when starting httpme.

..or was it from the ground up. Anything you have to offer as being someone who started a successful business, ran it successfully, and ended up selling the business would be appreciated.

[Aussie Bob]

Originally Posted by LukeKrogh

Aussie Bob, I would be interested in finding out if you recieved some sort of financial assistance when starting httpme.

..or was it from the ground up.

No money from outside parties. It was built from the ground up with sweat and passion. HTTPme was organically grown using no investment capital. As the client base grew, so did the backend. Hosting is a very scaleable business and you can scale up from a reseller account to colo etc.

Anything you have to offer as being someone who started a successful business, ran it successfully, and ended up selling the business would be appreciated.

Slow and steady wins the race. I owned and operated HTTPme for 800 days, and those 800 days were filled with lots of tiny steps. Started out with a reseller account, and ended up with 32 servers and a great brand. Lots of little steps along that path and you combine all those steps together, and you can reach your destination, whatever that is.

[LukeKrogh]

Lots of little steps along that path and you combine all those steps together, and you can reach your destination, whatever that is.

...words to live by.

Well, good job on all you have acomplished

As far as the VCs. The large business magazines often publish this type of article. Try searching through their archives on their websites. They are usually very informative as they interview actual VCs.

[Quel]

I tried.

But the answer was no. Hosting business does not have assets. And they do not put money to run a business with no assets that can be sold if the business goes wrong. Full stop.

All of the investors that I approached agreed 100% between them on that. So I gave up this approach

My great business plan just went to the bin and now I'm growing slowly with my own funding. Aussie Bob's words are really nice to read, maintains in me the hope of succeding. Thanks Aussie

Q

[Artashes]

Very interesting. With a couple of people here having VC experience before, I have a question for you: would it make a difference to a VC is personal capital is invested at a seed stage? Would that increase chances to securing the funding, or is this irrelevant to how they recognize investment opportunities and how they make decisions?

Best,

[FireHost]

Originally Posted by agoraquimica

But the answer was no. Hosting business does not have assets.

If giving advice, please ensure to look outside your business. Many people on these forums own their servers, datacenters, etc. Which are all very valuable assets.

[Aussie Bob]

Originally Posted by agoraquimica

Hosting business does not have assets.

I would beg to differ there. The main asset for any hosting business is its cashflow or the customer base. If a hosting business has $5M/yr revenue, then you've got yourself a nice asset right there. Then you have your brand (domain etc) and any propriatary software you've developed along the way. Then you have equipment etc. It's all considered a very sellable asset, and there's much demand out there with hosting companies looking for growth by acquisition.

All of the investors that I approached agreed 100% between them on that. So I gave up this approach

Sorry to hear you gave up. I'd say the investors you talked with just didn't understand the hosting business.

My great business plan just went to the bin and now I'm growing slowly with my own funding. Aussie Bob's words are really nice to read, maintains in me the hope of succeding. Thanks Aussie

Slow organic growth is good too. Glad I could help. Good luck!

[KNL-BSW]

I think agoraquimica approached it wrong. Aussie Bob is right in the sense it does have assets, but when starting up most VC or any investor wants to see some "physical" assetts in the business plan before investing funds.

When looking for investors of any large amount the best method is to have your business plan designed around purchasing all of your own servers, software, etc... as these are the assetts of a hosting company during startup.

Once a company is started Aussie Bob was right in the sense that brand, customers, etc... become assets.

[Aussie Bob]

Originally Posted by l.stevens

I think agoraquimica approached it wrong. Aussie Bob is right in the sense it does have assets, but when starting up most VC or any investor wants to see some "physical" assetts in the business plan before investing funds.

Then they're pretty short sighted investors, IMO. They're getting in at the seed stage there, and you need seeds before you can harvest a crop!

If you can make it without investors, then that's great. When I sold httpme I was approached by an investor with a serious 6 figure chunk of change. I declined as I like to do things by myself, without investors bugging me. Back then we were also planning on taking a lot of time off, and building the family home, so the timing was all out.

[RyanD]

Originally Posted by Aussie Bob

Then they're pretty short sighted investors, IMO. They're getting in at the seed stage there, and you need seeds before you can harvest a crop!

If you can make it without investors, then that's great. When I sold httpme I was approached by an investor with a serious 6 figure chunk of change. I declined as I like to do things by myself, without investors bugging me. Back then we were also planning on taking a lot of time off, and building the family home, so the timing was all out.

I agree,

We started with nothing more than the $150 I personally put in to file the incorporation papers and get our local business license.

We've grown from that point with 0 outside investment and now have substantial "assetts" both equipment and in the customer sense.

Honestly, I could never see how things would have grown the way they did withoutside investors messing around in the business and exerting their control

[ph23man]

Originally Posted by Artashes

Very interesting. With a couple of people here having VC experience before, I have a question for you: would it make a difference to a VC is personal capital is invested at a seed stage? Would that increase chances to securing the funding, or is this irrelevant to how they recognize investment opportunities and how they make decisions?

I don't think your personal investment really affects a VC's decision to invest. Most VC's are looking for high to very-high growth businesses and ideas with serious IPO potential down the line. Unless you have some kind of plan to differentiate or approach the market in some unique way, they probably won't be that interested. Also, you can bet that high quality VC's focusing on tech (I guess web hosting falls along the lines of tech and IT) will do their due diligence, will understand the market, and they will grill you with questions. An average WHT user will tell you that web hosting is very, very competitive and so you can be sure VC's know this, hence the reluctance to even consider web hosting.

As for the assets thing, it really depends on the idea. Look at all these "Web 2.0" type sites getting VC funding. They don't really have physical assets, but they're gaining users by the boatload. No real revenue model yet but they're growing like crazy. Their exit strategy is a big buyout (a la MySpace, Del.icio.us). Personally I think it's another bubble, but that's a digression. VC's want a BIG return because a lot of their investments fail but they usually hit it big with a few, making up for losses and then some.

I'm not going to bring in statistics but I strongly recall that VC funding only represents a single digit percentage of funding for new businesses. Other sources you could look into are small business loans, angel investors, and family/friends. Some people say don't mix business with family but in reality, a lot of entrepreneurs get investments from family/friends. Just be sure to spell things out (your plan, the risks, etc.) very clearly and have some written agreement so there's no bad blood if it doesn't work out. You could borrow on credit cards but only if you can pay it back fairly soon because those interest rates will kill you. Banks pretty much look for physical assets too so that wouldn't be ideal.