While some start ups have lost the sizzle, BuzzCity has successfully undergone two rounds of VC financing. The local Internet start-up, which sends out email to alert its subscribers of changes in their favourite websites, has almost one million subscribers.
Dr Lai Kok Fung, CEO & Co-founder of BuzzCity Pte Ltd shares his views on venture funding in a time of consolidation. Find out what are the Company's recipe for success, and gain useful tips and advice on the pitfalls to avoid before and when knocking on VCs' doors.
Could you take us through the venture funding process of BuzzCity?
Dr Lai: "When we first started to raise funds in April 1999, there were not many people within the VC community who actually knew about Internet investments, and we were really the first local to secure a VC investment", said Dr Lai Kok Fung, CEO & Co-founder of BuzzCity Pte Ltd.
"Things started to get heated up quite a bit towards the end of last year and beginning of this year due to several contributing factors, such as the Tom.com craze in Hong Kong but things have since taken a downturn because of the recent Nasdaq crash and a stream of bad news such as Boo.com's failure."
"As a result, in the last 2-3 months, VCs have become more cautious and the valuations that new start-ups have asked for have become more down-to-earth, which I think is good as that weeds out the hot air, consolidates the market and everyone starts from a level playing field," Dr Lai commented.
The first round took Dr Lai and his team 6 to 9 months to close (as at that time, VCs were not too familiar with Internet business yet) and they successfully raised S$3 million from investors led by OCBC Wearnes Walden (OWW).
How did you convince OWW into investing S$3 million in BuzzCity?
Dr Lai: We managed to convince them on our growth potential and of course, most VCs look for several qualities.
They look at the business model, size of the target market and the company's ability to capture a sizeable size of the market, its strengths, weaknesses, threats and opportunities, its marketing strategy and finally, the team behind.
They have to feel comfortable with the team executing the plan. Basically, these are the few major things that VCs look for even though they may reach a conclusion differently.
How did you nurture your relationship with OWW?
Dr Lai: "We base everything on trust. There isn't any magic in our relationship. We basically give a lot of time for communication and ensure that information is flowing freely so that everyone understands what's the situation."
"Our management style is such that we do not keep things from our VCs and we do not hold separate management meetings on matters that I cannot talk about when they are around."
"So, you need to build up the trust with your investors as well as business partners. They must feel comfortable with you and I always make sure that I hire people whom I am comfortable with and feel safe to bring home for dinner."
On May 31, 2000, BuzzCity announced its successful second round of financing of US$10 million (S$17 million) from OWW, one of its original investors and two new corporate investors, Europe's leading VC company, 3i and US-based BancBoston.
Dr Lai added, "Our first round of investment was from Asian-based investors, providing us the ability to launch Singapore, Hong Kong, China, Malaysia and shortly Taiwan."
"This second round will provide not only a capital injection but also the experience and market reach to help our global drive."
"The majority of the funds will be used to expand our marketing network to a minimum of 15 new markets globally over the space of 12 months. Key among these will be American, European and Latin American countries."
How did BuzzCity arrive at the S$3 million and US$10 million investment figures?
Dr Lai: We benchmark ourselves against two companies, which we believe we are a combination of. One is NetMind, a tracking technology provider, and YesMail, a company that has the permission to email marketing network.
These two companies were sold last year for US$350 million and US$500 million respectively, and there's a certain number of subscribers and revenues at the point of sale, and we compared ours against theirs and come up with some figures.
What advice and practical tips can you offer to potential technopreneurs on their chase for VC/angel funds?
Dr Lai: Firstly, the fundamentals must be right. In Singapore, the situation seems to be better controlled than Hong Kong and China where about 3-4 months ago, everything was based on hype.
In China, there are so many 'copy-cat' portals and e-merchant sites emerging that can only survive during the hype. So, get the fundamentals right and of course, the management team right too.
Secondly, don't think of flipping over a deal and becoming a millionaire overnight. It is a real rewarding and exciting journey if you do it properly because you get to build something that you can call your own. Especially in today's Internet age, this is the time where the traditional businesses are being challenged and the power of balance will change in these 2 to 3 years.
So, you can actually play a role in reshaping the power of balance not only on this island but in the entire world. Hence, you should view yourself as embarking on a journey that is real rewarding and exciting, and do what you believe in.
|Checklist of Must-Haves for Start-Ups knocking on VCs doors|
|1||Get your fundamentals right|
|2||Make sure your business model is up and business plan is right|
|3||Get the right management team|
Thirdly, be truthful to your investors on what you have done and do not over-promise on what you can deliver and achieve. Lastly, try to construct an open-ended legal agreement - ie, do not make it difficult for yourself to extricate from the agreement or antagonise your next round of funding.
In retrospect, which areas do you think you would have done differently if you were to seek VC funds today?
Dr Lai: I would have waited for the business to mature to a certain stage before I approach a VC - a stage where all the trade partnerships and better management team are in place. By then, we could probably raise more money without having to give up too much stakes.
With the recent stock market crash and poor market sentiments for Internet stocks, are you still going ahead with your listing plans?
Dr Lai: We made an announcement early this year that we expect to go public in 9-15 months' time and that hasn't changed. We view IPO as a logical step to raise more money for our further expansion needs and of course, it does provide an exit route for investors, but it is not an end in itself - it is an important milestone.
BuzzCity, which started off with a team of 7 staff, has to date 20 individuals employed in the Singapore office, which also includes foreign nationals who bring a strong level of international expertise.
The Company has just introduced the beta version of its wireless alerts in Singapore, which will allow users to receive their buzzes via any type of mobile phone or pager equipped to receive SMS.
"The service is available in Singapore and we expect to launch this offering in Malaysia, Hong Kong, Taiwan and China soon. We are also progressing the customisation of our email-based and wireless services to corporate users. This will allow corporations to communicate better with internal staff and external communities", said Dr Lai.
Over the next 12 months, BuzzCity aims to raise its membership base from the present 1 million subscribers to 4 million throughout the markets it operates in and at the same time, it intends to hire up to 50 full-time staff on a global basis.
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