Founders adopt milestone-based drawdown terms
Bootstrap till revenue kicks in
SPEAKING at last Friday’s Asian Business Angels Forum, Teoh Yew Jin shared his entrepreneurial journey since he and his co-founder Michael Leow launched Carlist.my in February, 2009.
He had shared his experience with me a few months earlier and said his presentation was pretty much the same, aside from one happy update. The number of unique visitors has gone up to 500,000 a month versus the 300,000 in January, while revenue per month had gone up between 10% and 20% within the same timeframe.
However, he declined to share revenue numbers.
That is understandable as he now has a new shareholder in the form of Catcha Media Bhd, which took a 50% stake in Carlist.my in February, valuing the country’s leading car site at RM10 million (US$3.2 million).
Not a bad sum for a three-year-old business. But even better is that as part of the deal, there is an option for Catch, led by Group chief executive officer Patrick Grove, to exercise an option for a further 10% in Carlist.my in 2014 but with a valuation of RM20 million!
Indeed in making the announcement of the acquisition, Grove described Carlist.my as one of Malaysia’s most valuable online properties. “It has tremendous potential to grow and we are extremely excited to work with the Carlist.my team to take this leading website to the next level.”
A computer engineer by training, Teoh is confident that Catcha will exercise the option. His belief is underpinned by the strong rise in revenue. “We went from RM2,900 in sales in 2009 to RM40,000 in 2010 to RM350,000 in 2011,” he says, declining to share the target for 2012. (RM1 = US$0.32).
The jump in 2011 was enough to convince Grove to move in quickly before Carlist.my became even more valuable. As it was, Carlist.my had turned Grove down before as they could not agree on the valuation. Grove clearly was not about to make the same mistake twice.
‘Very, very lucky with angels’
Teoh’s angels came from the “friends” category. “They never bothered me and were genuine,” he says, declaring himself to be “very, very lucky with angels.”
Part of their high comfort level with Teoh and his co-founder Leow probably stems from the fact that they were course mates while studying engineering at Purdue University in the United States.
As Teoh observes, “You learn a lot about someone’s character when you go to school with them for four years.”
The angels were comfortable that Teoh and Leow would spend their money judiciously and this was proven with the salaries the duo took. In the first year in 2009, they did not receive any salary. “It helped that we were single, had no girlfriends and lived with our parents,” says Teoh.
In 2010, they took RM1,000 a month and it was only in 2011, when revenue rose strongly that they each took home a RM5,000 a month salary.
In other words, they boot-strapped till revenue kicked in.
All in, the two founders and four angels invested a total of RM540,000 (US$170,590) into the venture, over two years. The money was released over four tranches and based on milestones achieved.
This sort of agreement with angel investors is unusual but shows also that Teoh and his co-founder did not wish to keep taking money from their friends if the business was not meeting some baseline targets.
In an ecosystem where angel investing is still weak, stronger incentives to spur it have yet to be announced, and where investing in property offers one strong returns over a three- to five-year period, entrepreneurs seeking angel funding clearly have their work cut out for them.
Teoh’s milestone-based drawdown, usually common at the venture capital stage, shows the way for other entrepreneurs.
“I feel this model works better rather than to have investors dump their money in at one go,” he says.
The duo did get critical help from Cradle Fund Sdn Bhd with RM500,000 in the early days of the business. As a result, Teoh is extremely appreciative of institutions that assist early stage start-ups to reach the next level. “They have been fantastic. We applied in January, 2010 and got the funding disbursed in January, 2011.”
Carlist.my users are able to search for cars down to specifics like price range, make, model, year manufactured with very fast search results, including detail, pictures and even video.