Spring/Summer 1997 – The First Turning Point
Our primary focus was WebPromote, and we had become one of the leaders in Internet Marketing with numerous top-tier clients. We were inventing and offering an ever-expanding suite of products and services. Sales were growing and we had created a nice “lifestyle” company, meaning that we were making a comfortable salary and were growing our full-service website-marketing company without much thought of an exit strategy. The era of big acquisitions and IPOs was just beginning.
To get good outside advice, we had established a board of advisors early on consisting of business owners closer to our parents’ age (we were all 27-30 at this point). While they provided great business advice (and I highly recommend building a Board of Advisors), our advisors had little awareness of what was happening in the Internet space. It was too new. The turning point for me happened when I attended the Spring Internet World show in LA in 1997 to check out our competitors and then exhibiting ourselves at the Summer Internet World in Chicago that same year. Our competitors were taking this seriously, thinking big, and raising capital. We were going to have to think big as well, but didn’t quite know how.
At Internet World, I met Van Vandegrift, who was also exhibiting. He was around our age but had already built and exited from an Internet startup in the Boston area. I credit Van with opening our eyes to the potential of what we had and pushing us to raise money or be left behind. Our competitors were playing a completely different game than we were, and we had to get our company to the next level. We weren’t going to make the same mistake that we did with Starting Point. Van became our first outside board member and Internet mentor (he also introduced me to my wife 2 years later).
Summer 1997 – The First Crappy Business Plan
I decided 2 ½ years into the company that it was finally time to put my MBA to use and write our first business plan. Our accountant set up a meeting with some local investors (there weren’t many) to hear our pitch. They tore it apart and gave us a valuable education in private equity. All entrepreneurs should find a real investor to tear apart your plan. Listen to them. Essentially, if we couldn’t show them a way to make a 10X return on investment (ROI) within 3-5 years, they wouldn’t be interested.
We finally had the “Aha” moment we needed. We weren’t creating a Business Plan, we were creating an Exit Plan. So, we had to work backwards. Where did the company need to be to create the exit the investors needed in 3-5 years and how do we get from here to there. We now knew what we needed to say, but didn’t realize that we still had a long way to go.
Spring 1998 – Bringing in the “Gray Hairs”
We made a couple more key hires in 1998, a VP of Finance, and a VP of Product, Mark Boyce. They brought a little more “gray hair” and experience. I’m not sure if that was Mark’s official title, but he was instrumental in taking our software products to the next level and creating a more structured development process. We were willing to bring in experienced people, listen to them, and give up some control and ownership in order to grow the company beyond ourselves. This was a crucial step that many failed startups in the 90s didn’t do.
Spring 1998 – Pitching Venture Capitalists
Back to the Exit Plan. So, we created Version 2.0 of the plan which presented figures that would be attractive to investors. Now, we thought, it was just a numbers game. Present to enough investors and someone will finally invest. We quickly realized that Midwest investors in early 1998 did not have an appetite for investing in an Internet company, even though we were self-funded, established, and growing. Ken spent much of 1998 pitching WebPromote and the plan to the VCs on the coasts, with no success. The few Venture Capital firms (VCs) that did express moderate interest required that we find a lead investor in our area, which was our Catch-22.
By the Fall of 1998, we realized that we simply did not have an exciting enough story to get a VC on the coast interested enough to take the risk of funding a Midwest company. We were getting discouraged. We were a full-service, primarily service-based Internet-marketing company. We had scalable portions of our business, but, overall, it wasn’t scalable. We were also starting to incur some debt since we had begun to operate like a funded company, without the funding. We had also outgrown our space and had built-out and moved into an 8,000 sq.ft. space. We had signed so many personal guarantees already that signing one more was no big deal.
October 1998 – Taming the Egos
We kept pitching the company, because that was all we could do. Our funding, ultimately, came in a very unexpected way. Ken had presented to a local investment firm, Platinum Ventures Partners, who passed on the investment. However, their CEO in Residence, David Tolmie, was interested in our marketing services for another one of their investments. As David got to know WebPromote, our people, and our products personally, he saw the exciting potential that was hard to convey to a VC a few thousand miles away. We got David interested in us and he agreed to become our CEO in December. Fortunately, none of us had an ego that kept us from ceding control, and Dave fit right in. Yes, we had one stressful conversation when determining Dave’s ownership, but that was probably unavoidable.
David is a very likeable, smart, and charismatic guy. When I met David, I was 29. It seemed, at the time, like we were bringing on a war-torn industry veteran (although there weren’t any Internet veterans yet). Actually, he was only 43, younger than me now. He was just figuring this all out like the rest of us, with more experience and resources. One resource was a large investor that he wanted to get WebPromote in front of, Alex Hern, founder of Inktomi.
The Private Jet
A few days later when I arrived at work, Dave informed us that a private jet was waiting at the airport to fly the partners and our attorney to Tampa for a meeting with Alex Hern. After that meeting, Alex committed to a $1M dollar convertible promissory note, which we really needed. A few weeks later, we created a partnership with this well-connected group to combine them with the original partners to create a new entity.
Surprisingly, we did have another option at the same time. Another local investment group put together by our Board of Advisors wanted to do a deal. They already knew us pretty well. While the deal would have cost us a smaller portion of the company, there was less strategic value to the deal. They were a little upset that we turned them down, but, in retrospect, even they tell us we made the right decision.