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How these startups made us all bite on Shark Tank

On the surface there couldn’t be more stark of a contrast between the two founders I chose to invest in on Shark Tank last night – Mick D from The Adventure Group (TAG) and Michael Timbs of Betswaps.com.

But when you look deeper both shared common traits that had more than one Shark circling. In the end the thing that led to the quality of the outcome for the entrepreneur was the fact that multiple sharks competed for the deal. This drove up the valuation from initial low-ball offers. He who has the gold sets the rules; if you NEED investment and only one investor wants in then your chance of a cracking result are low indeed.

It’s hard enough to whet the appetite of one investor, let alone two or three at one go. Getting them to fight over you is really no mean feat. So what made them so special?
TAG.

Mick came into the tank looking for $100,000 in return for a 20 per cent stake in his company, valuing his business at $500,000.

TAG offers high-quality, unique and adventurous outdoor experiences for clients alongside some of Australia’s former special forces operators (like Mick, a 20+ year armed forces veteran serving in the Australian and British Special Air Services units). I had previously invested in two of his comrades from the Australian Special Air Service Regiment (Indoor Sky Diving Australia ASX:IDZ – a great investment that will return my fund), as such I know that that unit tends to select and then train individuals who have a low tolerance for mission failure – I already knew the calibre of the individuals involved.

We were told that TAG offered “unique sensory experiences with a strong special forces flavour”. I can believe that from the memorable entrance – first impressions count and are quite helpful. Being ex-Army myself that got me intrigued (to be honest the sight of special forces soldiers rappelling from up high at the beginning of Mick’s pitch was quite exciting).

TAG aims to build resilience, teamwork, and leadership through two “experiences”: the Cave consists of the ex-Special Ops forces teaching small groups of people skills that could save lives.

SOE simulates what it’s like to be on a real mission. It comprises seven different high-end experiences where a small team of clients are taught how to plan, prepare and carry out a mission including hostage rescue, and escape evasion recovery.

Depending on which mission is chosen, it typically involves parachuting, planes, trains, automobiles, and boats.

I thought this was clever – it meant TAG could upsell customers six other times after they’d done it (SOE) once. I was sitting back thinking, “I’m liking this already”. But there were lots of reasons not to like it, including:

– The main risk – whilst Mick uses and will bring on more ex-special forces personnel to the deliver the authentic experience to customers he is fronting the business

– It is a body shop – you leverage people to get extra revenue and that is tough – it can be done and lots of businesses do it but if you had the choice you wouldn’t.

TAG’s conservative revenue for next year was $500,000, and triple that a year later.

Fellow Shark Andrew Banks got the ball rolling an offer $100,000 for a 35 per cent stake.

While I liked it, I felt there were many moving parts with the business but was willing to go in halves with Andrew ($50,000 each for 17.5 per cent apiece). Andrew is a great investment partner in this business, the target market for the flagship product are senior executive with decent disposable income looking for an experience they can get nowhere else – Andrew has amazing exposure to that space.

Naomi Simson then decided to throw her hat into the ring with a $100,000 offer for 25 per cent of TAG — plus a business manager — conditional on her being able to list it on her online platform.

The advice to Mick was to decide who he wanted to do business with before negotiating.

Mick’s gut feel was two sharks would be better than one so he asked Andrew and I to reconsider for $100K for 30 per cent, which we agreed.

FIRST IMPRESSIONS

One of the biggest mistakes an investor (or anyone for that matter) can make is to judge a book by its cover.

Thankfully, I did no such thing when the baby-faced Michael Timbs walked into the tank. The 24-year-old turned out to be a shrewd businessman – four sharks ended up taking the bait before a deal was finally done.

Unlike TAG, there was no sensational entrance for Betswaps … just a screen and a portable poster.

Betswaps is touted as the world’s first sports tipping marketplace. It essentially sells information. Michael was asking for $200,000 for 10 per cent equity, valuing his startup at $2 million.

Betswaps is not an online bookmaker – which I’ve got a real issue with. It sells tips or information for more than 40 different sports and over 100,000 different betting markets.

For example, if you’re a novice punter on Melbourne Cup day, Betswaps allows you to compare top horse racing tippers, see their win-loss record, profit and return on investment (for those who followed their tips).

Customers can then see who has tips available for sale and securely purchase them.

Michael was confident in his pitch and knew his numbers well: $100,000 in revenue, including $25,000 last month alone. It’s forecast to pass the $1 million sales mark next year.

Most of the revenue comes from selling advertising.

I was first out of the gate with a $200,000 offer for 35 per cent. I wanted to get this into play, I knew it had legs and wanted to smoke out any other interest.

Michael was resolute. He refused to budge, saying he was set firmly on 10 per cent and I was asking for too much.

Andrew came in with 30 per cent for the same amount while Naomi heated things up at 20 per cent.

New Shark Glen Richards made the playing field very uneven, agreeing to take 15 per cent equity for $200,000.

I lowered my 35 per cent offer by 5 per cent but to avail. Michael just stuck to his guns. It was annoying but I respected that. He could only do that (with confidence) because he had forced four of us on the hook.

He revealed that Betswaps had recently started raising capital and was overwhelmed with interest. A common tactic in this process but I was not surprised, if it was not true it sure worked as a negotiating ploy.

At that point I could have taken a punt or let it slide. Every investor knows they’re taking a risk in these situations and that you win some and lose some but I was confident that Michael and his team could deliver the goods.

In the end Glen and I agreed to take a 15 per cent stake for $200,000 in Betswaps. Michael got a great result only because he left lots of sharks in the game – if you are selling you want an auction with lots of bidders – the vendor always does better in that situation.

Unlike TAG, Betswaps gets to leverage network, software and a marketplace, its revenue is not proportional to its staff count. These businesses are enticing, they are the ones you want to own, run by good, capable and eager founders in an area they have a head start in.

Both TAG and Betswaps were successful on the day because they had the basic ingredients to succeed: a compelling offering, good business acumen and a passion for their venture.

It’s important to stick to your guns and have a clear plan when negotiating – always have a bottom line, middle and walkaway point. Otherwise you might give up too much equity and live to regret it.

Steve Baxter is an entrepreneur and investor, founder of technology startup hub River City Labs, founding director of StartupAUS and a Shark on Shark Tank Australia.

Missed an episode of Shark Tank? Watch them here.

This article was originally published on Linkedin. Read the article here.

Why this Perth inventor scored an own goal

There are times you come across a homegrown business idea with the right ingredients to succeed or a stellar product that’s destined for big things.

When Perth-based David Lambasa walked into the tank last Sunday to spruik Clever Score — his modular scoreboard business – there was a lot of promise. The product was cleverly designed and easy to use – two very good ingredients to have in any offering.

David was seeking $200,000 in return for a 25 per cent stake to help Clever Score expand internationally. He had been running the business for 10 years with no margin erosion – factors that looked good on the surface. But as we digged deeper there were some clear red flags which later turned into no-go zones. David was repeatedly asked how much sales Clever Score registered each year but somehow kept avoiding the question. Getting him to share some basic numbers on how his decade-long business had been performing was like trying to get blood from stone.

As a potential investor, I found that extremely frustrating. It felt like he had something to hide. It felt like I couldn’t trust him. And this is a major problem in any relationship. We gave him a chance to redeem himself and he finally revealed that he makes roughly $200,000 a year in sales. He insisted though that his profit margins were good. As we probed further we were told that his costs fell between $70,000 and $80,000 per annum, leaving a balance of $120,000 if the top end figure is used.

We’re later told that he takes home less than $75,000 in salary. How the remaining tens of thousands of dollars are spent remained a mystery. I found it to be the most confusing thing ever pitched to me. I had no idea what I was investing in, no idea what was on offer, and I had no details of what the required $200,000 would be spent on. In the end, I decided I couldn’t work with him and was out.

Here are some tips on how David could have done better:

1) Explain what the investment would cover. Whether it’s $200,000 or $2000, investors want to know how their money will be spent. Don’t forget that most investors have had their fair share of long nights, challenges and struggles to achieve success so why should they just sit back and freely dole out cash?

2) What problem are you trying to fix and how do you fix it. David wanted to expand internationally as he felt he had done enough to corner the local market. However, he no idea how to go about it and wanted ideas from us Sharks on how to maneuver international markets.

3) What are the forecasts or success metrics? Details were again scant and David had no data or numbers to explain the return on investment in return for $200,000. When buying property, would you part with your money without getting an understanding on the suburb, its median prices, growth potential and demographic information? So why are investors expected to give anything away without first understanding what’s in it for them? My advice to anyone pitching their business is to have precise answers when asked how their money will be spent. No pussy footing, no beating around the bush – just get to the point and back it up with facts.

Steve Baxter is an entrepreneur and investor, founder of technology startup hub River City Labs, founding director of StartupAUS and a Shark on Shark Tank Australia.

Missed episode one of Shark Tank? Watch them here.

This article was originally published on Linkedin. Read the article here.

Don’t forget to ask for help

Say you scored a mentoring session or some time with somebody who you think can help with your business, excellent and well done – good people are busy people. Whatever you do make it count – a mentoring session isn’t just a verbal website tour or pitch – don’t forget to ask the mentor how they can help. They can only help if you get them fully into the picture.

Talking to people about their business for the first time can be a lot of fun, I often find that I get a good lesson in an area of commerce that I may have never had direct exposure to before. There are some constant fundamentals that are important but not everybody can be an expert in everything, and sometimes an outsider’s perspective is very valuable.

There are some valuable things to make sure you’re prepared to tell the person you’re chatting to. That person is probably hesitant to enter into a Non-Disclosure Agreement (NDA) for many reasons, if you can’t trust them do not talk to them. You need a high degree of confidence and faith in who you’re talking to. If you’re not comfortable do not talk to them.

Whenever I get the opportunity to mentor businesses, I want to know big picture things like:

What does your business do? Why does it exist?
Type of business (Software as a service, app, fast moving consumer goods etc.);
Stage of business maturity (pre-sales, post revenue, cash flow positive, profitable etc.);
Goal – how big do you want this business to be?

I tend to get down into the weeds pretty fast and get a sense of how well you know your business and market. This gives me a good illustration of you – a way to affirm that you are the right entrepreneur with the right mindset and skills.

Whilst a lot will depend on the type of business and its maturity level I usually start with my old favourites – tell me about you, your team, the problem, the solution, traction and other big picture items. Then I follow with lots of boring financial stuff like:

– What does your product/service cost to provide?

– What do you sell it for?

(BTW – if you stumble here get ready for grief)

– How do you find your customers?

– What does it cost you to get a customer to be a paying customer?

– How is your customer churn? (How many customers do you loss versus gain/keep)

– Who are your competitors?

– Why do people buy from you?

– Why do people buy from your competitors?

The list could go on forever but generally any advice I give will relate to the above topics. You are in business – that may be a startup but forget the romantic notion of entrepreneurship and startup – you’ve already made that leap – you now have to make money. If you do not make money you are a charity! Save the startup bravado for the bar or a meetup!

I also want to be sure that you understand the cost to deliver your product or service. I want to know that you know or are in the process of finding out the best way to get customers – the only really hard thing about business is selling (the second hardest thing is collecting the money – maybe for another article).

Understand how to find the customers and what their drivers are. Understand who your customers are – some sectors are amazingly stratified meaning that you may get better success using channel partners, integrators and the like. All of that comes with margin and cost overhead. I want to know that you understand this.

At the end of the mentoring session you need to remember to ask the mentor how they can help further. If you’ve had a productive session and they haven’t been put off by your approach the mentor will most likely ask if there are introductions they could make for you to customers or other stakeholders. Don’t blow your chance to ask for something.

All mentoring relationships start with a first session, some (not many) continue on. Subsequent sessions should be an update, they should also come with a request for more help or introductions.

It is rare that any two mentors will give the same advice in a given situation, everybody provides their own perspective. Before you chat to a mentor, research and try to spend five minutes thinking about their business journey – the advice you get from a successful ex-telecoms entrepreneur will be very different to that of an experienced digital marketer. Not that either are necessarily wrong – they have just been coloured by different journeys.

And the best part is that you don’t need to take any of it. It is advice, not a dictator’s edict. Understand the context, understand how or if it applies to you at all and most importantly – keep listening.

This article was originally published on Linkedin. Read the article here.

Why I’m sending 20 young Queenslanders to Silicon Valley

In April this year I wrote an article highlighting how Australia is creating a generation of workers, not entrepreneurs and how as a nation we are missing out on a once in a lifetime opportunity.

Our economy is still hugely reliant on stuff we dig out of the ground, yet we live in an age when next generation technology is creating opportunities to break into every industry sector.  Australia needs technologically capable and entrepreneurially inspired young people. If our future business leaders are going to succeed, they need to be willing to take risks, start businesses, to fail and try again.

In Australia a large proportion of our first-time entrepreneurs are in their thirties and forties. Relatively few younger Australians engaging in creation of high-growth startups, compared to other countries and particularly to Silicon Valley. As a result, many startups founded here are at the lower end of the risk-reward curve, and are focused on small niches or domestic markets. Too often Australian startups are based on a business model with early revenue generating opportunities rather than a global game plan and as result we have relatively few truly disruptive high-risk startups that tackle global opportunities.

Australia has a long history of innovation and a strong track record of entrepreneurship in traditional industries such as property, resources, tourism, and agriculture. But our track record in forming tech companies that scale globally is limited. Having young people become entrepreneurs is important because startups are high risk (most fail) and as a general rule, an individual’s risk tolerance decreases over time, particularly once they have a mortgage, a family and an established career.

Having a founder starting young can be a factor in creating world-changing businesses, and we’ve seen that with Steve Jobs at Apple, Bill Gates at Mircosoft, Sergey Brin and Larry Page at Google, and Mark Zuckerberg at Facebook. It’s not co-incidence that all these companies were founded on the western coast of the United States. Silicon Valley is the nadir of global innovation.

I was 24 years old when I launched my first business out of my spare. Pretty much everyone I knew, from my commanding office to my girlfriend, thought I was crazy to leave a safe and secure job and risk everything.  But I was lucky enough to have had the exposure to technology, and to have an inkling of the potential of what was then an emerging internet.

Today, while young Australian’s hopefully have more of an inkling than I did about what is happening in the world of technology, far too few are starting their own business, or even looking to develop their coding and IT skills. More foreign students than local ones study computer engineering or ICT courses at university. We need to capture the imagination of the next generation, to show them what is possible and encourage them to go make a job, not just go get a job.

That is why I’m putting my money behind my mouth, and have enlisted the support of sponsors to take 20 young Queenslanders on two week-mission to Silicon Valley to immerse themselves in Silicon Valley’s rich culture of high-growth entrepreneurship. From November 16th to the 26th they will visit the offices of global tech companies such as Google, Facebook and Twitter, attend networking events with startup founders and student entrepreneurs, meet with fellow Australians who are running startups in the Valley, and take part in educational events to equip them with an understanding of what is involved in launching a globally successful tech startup.

When they get back we will share their experiences, so that more young Australian’s open their mind to the possibilities of technology entrepreneurships. It’s not about starting American companies or exacerbating the Australian “brain drain”. It is about helping young Australians learn from Silicon Valley’s success and catalyse the formation of Australian companies that will become global successes and make a mark on the world.

Follow the Startup Catalyst mission at: http://blog.startupcatalyst.com.au/

This article first appeared on BusinessSpectator. View the original here.

Opinion: Wotif a great example to our state’s future entrepreneurs

WHEN Wotif was snapped up for more than $700 million by global travel juggernaut Expedia last month, it was a proud moment for our state.

Born and bred in Queensland by local businessmen Graeme Wood and Robbie Cooke, the success of this pioneering online brand is a fantastic example of what’s possible for local entrepreneurs with the courage to dream big.

Wotif was set up in 2000, powerfully defying the crash-and-burn statistics of the global dot.com bubble. Today’s Australian tech entrepreneurs live in more certain times, with the capacity to be in the global export business from the outset – tapping into a ready-made business network such as the Apple App store, with its 570 million registered credit cards.

Wotif is just one example of the potential that exists within our state borders, with an estimated community of more than 100 start-up entrepreneurs in Brisbane alone.

Queensland has the fundamentals in place to become Australia’s leading start-up state in the coming decade. We have a thriving business community with a strong SME culture, a history of business leadership and innovation and one of the world’s most attractive lifestyles for entrepreneurs.

But this is not about more small business serving Queenslanders only, this is about high-growth globally dominant businesses started here, employing people in this state and exporting smarts to the rest of world, that is the allure of the tech start-up sector. If we take control
of the growth of our entrepreneurial community, the returns to Queensland and Australia could be enormous.

The recent Crossroads Report by StartupAUS identified that high-growth tech start-ups could account for $US109 billion and 540,000 new jobs by 2033. To say it is a huge opportunity is an understatement.

So what’s holding us back?

There are three important steps for our government and the local business community must take:

wotif_img
Wotif was set up in 2000, powerfully defying the crash-and-burn statistics of the global dot.com bubble.

1. Commitment to an ambitious state business vision. It’s time to shift our focus beyond the traditional sectors – mining, agriculture and tourism. While these remain important, they are largely dependent on commodity prices and currency – two factors we can’t control. We need to embrace a new wave of innovation – this wave is coming to us, delivered by tech start-up businesses in San Francisco, Tel Aviv, Berlin and London. We need to own our share of those successes so that the next Facebook, Instagram, WhatsApp, DropBox etc are a Queensland success story. New business innovations will come, they will disrupt the status quo but are we really content to merely be digital consumers of somebody else’s good idea?

2. We need to build the start-up network. Start-up cultures don’t thrive in isolation, they require a supportive network of people. Networking and activity hubs are a vital part of this mix.
We need to encourage our entrepreneurs out of the garage and plug them into a network of people who can help them succeed. We need to encourage risk taking, back them with capital and support them.

3. Our young people must become more entrepreneurially enthusiastic. Queensland must support future entrepreneurs as entrepreneurialism becomes more popular among our university and TAFE student population. We need an education system that produces lots of high quality graduates and imbues them with entrepreneurial zeal.

In the US it has been found that up to 20 per cent of students who participate in an entrepreneurship-training program in secondary school will start their own company – a rate about five times that of the general population.

The dividends to Queensland from the Wotif brand have been enormous in employment terms alone. Serial entrepreneurialism is the hallmark of a successful start-up culture, and we have also seen Wotif founders reinvest the gains from this business into multiple other ventures.

Imagine the shift in our state fortunes if we were to see more Wotif’s emerging from our Queensland business community in the next five years.

Let’s use Wotif’s recent success as inspiration to help position Queensland as a state that produces high quality entrepreneurs and thriving, scalable, global businesses.

This article first appeared on The Courier Mail. View the original here.