Published September 20, 2000
You have matured a business concept into a business plan, gathered a qualified team and are poised to activate an effective website profile. Where’s the sustaining capitol for your fledgling enterprise?
The best ideas are worthless without funding incubators. In exchange for a share of the company, nurturing professionals catapult fledgling businesses to success by their expertise and money.
There are no guarantees, of course. The high-risk sophisticated investors for new business startups, rich persons or their companies, are called Angels. They meet the accredited federal requirement of $1M minimum net worth and/or annual earnings of $200K. Angels are on the hunt for qualified early-stage winners, perhaps like yours.
The key for new companies is not just a new idea but to nurture a new business concept, connecting sellers to buyers. Online, the margins are better and the salability not restricted as with the real-world linear sedentary specimen.
New business models are commonly rejected by the conventional corporate mindset. Industry blindness is an advantage for upstart companies to establish themselves before their presence is noticed.
A market ready for picking has been college textbook sales on the Internet. John Bates (35) and Matt Johnson (23), cofounders of BigWords.com, sell 2.5 million titles from 150 publishers, more than any other supplier. According to PC Data, it’s a specialty high volume book sales with two-million unique visitors, overall ranked third to Amazon.com and Barnes & Noble.
“The Internet and college textbooks are the perfect match,” says Bates. “We’re selling to the most savvy tech audience on the planet and the most media-saturated—college students who are 98% wired, liking the Internet and using it. Before, the only way you could buy textbooks was to stand in long lines and pay whatever price was being charged. We knew there had to be a better way.”
VarsityBooks is also online to fill the deep need for college textbooks at 40% off the bookstores. It’s a $3,000M industry, formerly untapped and ripe for the opportunity.
“We’re looking at a hockey stick growth chart,” says co-founder Eric Kuhn. VarsityBooks offers 400,000 new book titles. Students check their orders against required book lists for 58 universities.
Follett Corp., the largest conventional supplier of new and used textbooks, is bracing to defend its 585 campus bookstores by joining Internet-based competition with their own Web portal, Efollett.com.
So where’s the gold? Bill Gross, who’s Idealab has funded twenty substantial new companies, is one of many investors looking for untested concepts with potential.
For example, CarsDirect, a new idea for selling cars online, launched their Web site before negotiating back-end purchasing agreements. This was a brief test. The morning after opening, Gross was told five cars sold online during the previous 24 hours. “That’s great,” he said. “Now hurry up and turn it off.” They learned that a car-selling market on the Internet was real, but they had to buy retail and sell at wholesale for the brief experiment.
Andrew Filipowski, founder of Divine Interventures, is building what he calls the “Great Mall of Incubation,” everything for the entrepreneur. The brash Filipowksi sold his Platinum Technology to Computer Associates last year for $3,500M.
DI’s approach is to house startup companies with the necessary public relations, sales, web-design and legal expertise. Experienced with maturing two information technology (IT) startups, Rich Earley and Louis Borders of Whiplash, are very satisfied with their performance progress guided by Divine. Theirs is a business-to-business (B2B) site for the travel industry.
The price tag was 22.8% of their company in exchange for a $6M investment and know-how. Earley says that his company was launched at least two quarters sooner than would have otherwise been possible.
DI, the incubator for Whiplash, drafted nondisclosure agreements (NDAs), employment contracts, located his VP of sales, developed a sales strategy, built their Web site, and helped raise an additional $30M second round of funding from corporate investors.
Even their name, purchased for their Web site from a retired Texas chiropractor, was negotiated by DI for $125K instead of the asked-for millions.
Only a very select few applicants are approved for this level of investment support. Typically, 25-65% equity is surrendered to be funded by this structure of venture capitalist. This hasn’t deterred some thirty-six companies from standing in line for acceptance.
Among them are i-Street, one of the 60% Internet dot-coms that crossed over from brick-n-mortar structures to digital marketing; LiveOnTheNet.com, a webcaster of live events and advertising; and Opinionware, publisher of software for Web sites to gather and analyze opinions from their users.
“Plenty of opportunities are to be exploited on the Web,” says Idealab’s Bill Gross. “They include education, recruitment and health care, ready for innovation.”