When news hit the wire last week that online food delivery portal Just-Eat had closed a £10.5m funding round with Index Ventures, claims that the VC market was in a state of complete hibernation suddenly had a little less weight behind them. Along with London-based fan-to-fan ticket exchange Seatwave, which bagged a further $17m last month, the company proved there was still scope for large scale deals in the European online sector.
But looking at the particular revenue models of both these businesses it’s fairly easy to see why they’ve been successful. Leaving the social networks in their wake, clambering for the dried up remnants of advertising spend, Just-Eat and Seatwave are collecting money directly from their users. In both cases the sites collect payment for a service or product that somebody else provides, be it tickets or a pepperoni pizza. It’s a cashflow no-brainer. Seatwave collects from the buyer but doesn’t pay the ticket vendor until after the event, and Just-Eat settles its bill with the restaurants twice a month.
I spoke to Judith Clegg, who runs entrepreneurial network The Glasshouse, earlier this week ahead of Show Me the Money, a panel discussion the organisation hosted on current investment and exit strategies.
“One of the things the current financial environment has done is challenge the risk profile of different investors,” Judith explained. “Two years ago you may have been funded pre-revenue but very few businesses are achieving that now.”
Nic Brisbourne, partner at VC firm DFJ Esprit, told the Show Me the Money audience that while high profile deals were still happening, VCs were definitely a little more conservative of late. In a bid to defend the lower company valuations entrepreneurs were now faced with when trying to secure funding, he said there was a need to judge the risks of a big investment on the way in against the likelihood of a big exit on the way out.
Few would argue funding opportunities are in abundance right now but if you’re a business owner looking for investment have you considered whether you really need it at this stage? Also speaking at the event, Bebo founder Michael Birch insisted that funding was a not a prerequisite for success. He said: “If you’re able to pursue a business opportunity without raising money then don’t get distracted by it. Raise money when it makes sense to do so.”
Michael, who has just launched Profounders Capital, “to bridge the gap between angels and VCs”, with fellow dot com giant Brent Hoberman, wasn’t about to completely discredit the importance of investment of course. “Funding can act as a stamp of approval,” he added. “There’s also the added the benefit of the investor’s network and the advice they can offer.”
Michael is not a big advocate of the monetisation above all school of thought though, insisting that it’s still important to go for the land grab first because there’s no point trying to monetise a site with no traffic. He’s putting his money where his mouth is on that one too. When asked what the revenue model was for Profounders Capital’s first investment, TweetDeck – a desktop and mobile application for sites such as Twitter and Facebook – his response was thus:
“We’re going to wait for Twitter to come up with a revenue model and follow them.”
