Rixty: Stay lean and focused, then raise money
By Karamjit Singh October 24, 2012
- Rixty has 10 people, three years after launch
- Injection of funds from MOL to help it be more aggressive
THANKS to open source software and cloud-based services, there has never been a better nor cheaper time to build out a product or roll out a service. As a consequence, the dynamics of raising money for start-ups has changed too, says Ted Sorom (pic, left), the founder of Rixty Inc, the payment solution company that MOL Global Pte Ltd just acquired.
“When you go raise money, especially as a first-time entrepreneur, investors want to see what you have done on your own first, be it some metrics around the business or strategic relationships formed,” he says. It is much less about the idea, he contends.
Rixty had advanced well beyond the idea stage when Sorom started looking for money in June 2009, which was about two years after he and co-founder Don Ferguson (pic, right) had started working on their idea of allowing people to turn in their coins in exchange for gift cards which they can then use to buy games or virtual goods for games online.
It may be the United States, but there are still a lot of people who don’t have credit cards or even bank accounts, a situation made worse after the economic slowdown in late 2007. Plus, it is estimated that at any given time, there are approximately US$10 billion (RM10.05 billion) worth of coins sitting idle in US households.
With a product in the market already and the prospects of scaling promising, Sorom was able to lock in US$1.4 million by the end of 2009. They were self-funded till then. Taking a small amount of money meant giving up less of the company while they built out the business model.
Adopting the lean model was another. They still have just around 10 people in the company, with the focus on developing the back-end technology and other key components of the business.
“That was our strategy,” he says.
What’s interesting here is that the money was raised from a combination of a venture fund that specializes in seed funding and a group of angels – in total around 10 investors.
It sounds like a lot of people taking an interest in the business which was still at an early stage, but Sorom says that it is usually only the ones who are on the board who are active, while the rest do not interfere as the amount put in by each was small.
In fact, the initial advisor to Rixty, who still sits on the board, is Keval Desai, who invested US$25,000 in that round. Keval’s background is interesting – he launched his own online payment systems in early 2000, then spent a few years with Google.
He exemplifies what Sorom says about bringing in angels who add value beyond the money they bring, specifically their experience and network in the related or complementary areas that a start-up is in.
Strategic partnerships and distribution reach are key too, and Rixty launched in June 2009 with a partnership in place with Coinstar, a public-listed company which places kiosks that accept coins in exchange for gift cards at retail outlets and stores.
Rixty started with 5,000 kiosks and today has over 7,000 with Coinstar. Consumers convert their coins to cash by paying a nominal fee when they turn in their coins for gift cards.
But what Rixty did was to absorb the almost 10% fee Coinstar charges for its service. It may seem high, but because the coins are exchanged for gift cards, what Rixty did was to strike a commercial agreement with various games developers and game publishers which offset this by giving Rixty a fee in exchange for Rixty offering gift cards that could be used for their particular online games. It is a win-win situation for all three parties.
In fact game developers play such an important role that Sorom actually calls them his “customers” while the end-user is called the “consumer.”
“They are who we serve as we are principally in the business of helping them monetize their product,” he adds. For the end-user, it is about ensuring they have an easy-to-use payment system.
While MOL started as a payment provider too, it has since branched out successfully into being a games publisher and platform. Has Rixty been tempted into such?
Sorom does not answer the question directly but says Rixty just sees real value in being focused on what it does best, pointing out that the competitive landscape in the United States is such that one really needs to be laser-focused on the task at hand and not get tempted and distracted by what may seem attractive and complementary businesses.
Its new relationship with MOL will be of particular interest to its game developers, says Sorom, “because they will now have an opportunity to tap into MOL’s customer base in Asia to sell their games to.” This also raises Rixty’s profile within the gaming ecosystem as a major player.
Interestingly, Sorom says that one of the things that attracted them to MOL was the culture of MOL which Sorom says is very Silicon-Valley like and the fact that English is widely spoken in Malaysia.
“All these made is a lot easier to choose MOL versus some of the other companies we could have worked with.”
The next challenge is to build out the business much more aggressively and with other markets in South America on the radar, especially Mexico. It looks like Ganesh Kumar Bangah, MOL’s founder, may need to spend time in Acapulco soon!
MOL plants its flag on the American continent