“I grew up in a small town in South Africa, a boy watching movies like Wall Street and wanting to be something more. I always knew I wanted to run my own successful business, that I didn’t want to lead a boring life. It’s probably a fairly typical story of many entrepreneurs, but I guess what sets me apart from others is that I don’t fear failure in the same way that many do. Sure, I don’t want to fail, and I do everything I can to avoid it, but the fear of failure doesn’t prevent me from taking big risks. I think I have courage. And this willingness to take risks with my own money was definitely a big factor in landing the funding we did for Yola. I think it made a big difference that I had personally invested about R2 million of my own money into the business. It showed a willingness to put my own neck on the line, which showed a real commitment to making the business work. And I think that we had a great idea as well.
It all started in Cape Town. I was running one of my previous companies called Clicks2Customers, and we created website-building software for our own internal use to build websites faster for our customers. We realised there was a market for businesses to be able to build their own websites, instead of having to pay someone else to do it for them. The idea made a lot of sense, particularly in the mass market targeting small to medium-sized businesses.
Every business needs a web presence, but entrepreneurs often lack the capital to pay a company to create one for them. If we could give them the tools to create their own website for free, we would be on to something big. We also knew that the world was changing and that software was moving increasingly to the web, so the idea was to put the software online instead of selling it to people on a CD which they would then have to install. Taking the company online would also open up access to an enormous global market. With that, I decided to leave Clicks2Customers in 2007. I bought the technology and the intellectual property out of the company and spun off a new company, SynthaSite in March 2007 which is what eventually became Yola in April 2009.
I tried unsuccessfully for about five months to get funding in both South Africa and the United States. But the South African venture capitalists didn’t really get the business concept – they didn’t think it would work – and the US venture capitalists weren’t really looking to invest in a South African-based company. So it made sense to run the company from the United States. However that brought with it its own set of problems.
The funders wanted to know how I was going to get into the States, how I was going to organise work permits and the like. At the time I didn’t have any really good answers to those questions. I had to do research to find out about the visa process, and let me tell you, it’s complicated. The only way to really get into the US is to apply for what’s called an L1 Visa which means you have to work for a South African company and then get transferred to an associated company in the United States. So that’s what we did. We set up SynthaSite in South Africa and an associated US company, and then applied for visas. It took four months and a lot of paperwork, but we succeeded. I had given myself a timeline of three to four months to get funding, but it took me closer to nine in the end. Fortunately I had equity built up that I could draw on and I liquidated some shares I had in other companies in order to keep the company afloat.
In 2007, we managed to raise $5 million from Columbus Venture Capital, which at the time was part of Johann Rupert’s Richemont. Getting that initial investment was a big boost for us. It enabled us to set up offices in the United States and to keep paying salaries so that we could continue to work on developing and improving the product. Landing that initial amount wasn’t easy. Generally you need to have something to show funders before they are willing to invest. So firstly, we raised what’s known as a convertible note – a small amount of funding which was put in by family and friends just to keep the business afloat. This stabilised things and allowed us to get to the point where we had built something that investors might be interested in taking a bite out of. It’s easier to start with lower funding requirements and then build up to the bigger investment amounts.
The process involves paperwork and patience. The first thing you have to do is put together a short business plan – something readable that you can distribute to potential investors. This is the pre-funding business plan. It focuses on the core market, shows the opportunity and reveals why the business is scalable. It really speaks more to the ‘blue sky’ and the business model, while the post-funding business plan gets down to the nitty gritty of how you are going to make it happen. Part of writing a winning business plan is to understand the difference between the two. The first is a sales pitch; the second an execution plan. You put together the post-funding business plan once you have a term sheet from interested funders – it’s longer and shows the details of how you are planning to spend their investment to make the business work. I was very fortunate when we were writing the business plans to have a Harvard MBA intern, Brian Elliot, working in the company. This is one of the many benefits of being selected as an Endeavor entrepreneur. Endeavor is an NGO that mentors and grows entrepreneurs in developing countries, of which South Africa is just one. Having Brian as an intern was an enormous help in putting together the post-funding business plan.
Getting the initial funding is only the first step, however. If you’re hoping to attract more funding, as we were, you need to show investors that you can really run with the business and make a success of it. So we worked really hard at optimising the Yola product. The first thing we needed to do was make it easy to use. We’re technology people but we understand that most business owners are technophobic and that they’d only use Yola if it was simple. We developed it so that users can choose a template and then simply drag and drop text and images on to the site. You can add whatever capabilities you want and then you simply hit the ‘publish’ button and it goes live to the web. It can take ten minutes to build a simple site or a couple of hours to build something more complex.
So how do we make money from a free product?
It’s simple really. Users can choose if they want to have their own domain name, such as www.entrepreneurmag.co.za, or a Yola domain name like www.entrepreneurmag.yolasite.com. The Yola domain name is free but we sell the other domain names. This is one income stream and we’ve calculated that if one in every 30 people purchases a domain name, it covers the costs of the other 29 who choose the free option, and allows us to make a profit. As the ratio of paying to non-paying customers improves, so the business makes more money.
We also have plans to launch a template marketplace, which will provide a second income stream. We will buy templates from designers and sell them on to users who want them. It’s a bit like iTunes where the software is free but the content is paid for. However, users are still able to get a completely free website if they want – that’s our selling point. They will just have paid-for options as well, should they wish to choose those. In 12 months we’ve added more than two million users to our database. People embrace the product because it’s easy to use and we help them along the way. We’ve developed comprehensive tutorials and help pages so that people have access to as much assistance and information as they might need. There’s 24/7 email assistance and a community forum where users give each other help and advice.
We’re aiming to have four to five million users this year, which we believe is totally doable. Because we focus on the SME market, the economic downturn is actually really good for us. Small to medium businesses are looking for ways to save money and boost their businesses – and a Yola website can help them do both at the same time. Based on our initial success, we landed a further $20 million in funding from Reinet in February this year. The deal is based on an equity structure and although we can’t mention the percentage of equity they own, we can say that it is less than 49%. We always knew that we’d need visionary investors to back this business, because although we weren’t reinventing the category, the concept was new. Of course, we had to sell the vision to them. But by then we had established a track record based on the initial $5 million investment and what we’d managed to achieve with it. Reinet was created out of Richemont, so there was a connection there.
For investors, I believe the entrepreneur is as important, if not more so than the business concept. For this reason it’s essential that you are a person with credibility and a reputation for doing business in an open, transparent and ethical way. I don’t think you can build credibility; I think it’s something that you prove. You either have it inherently or your don’t and then you prove that you have it by the way you conduct yourself. I know lots of guys who have no credibility because of the way they do business. They’re unethical and no one wants to invest in someone like that. And make no mistake, once you’ve earned a bad reputation, it sticks. You’ll never get away from it. I can honestly say that I could have made a lot more money being unethical in the past couple of years but that’s not what it’s about. Doing unethical business is cheating, and you might make millions but you can’t call yourself a businessman. How you build your wealth and how you make your money is what’s important, not how much you make.
People often ask how they can get in touch with investors, and for me it came down to personal networks. I add everyone I meet to one of my social networks, either Facebook or LinkedIn and I’m in those networks every day. I am very ‘out there’ media-wise and I try to maintain a good media presence, although until fairly recently I didn’t have a PR agency. I blog and I also attend lots of networking events. My philosophy is that if I only meet one worthwhile person at an event, it makes that event worthwhile. I also try to be personal with people because I believe personal relationships make all the difference. And I genuinely like people so that helps as well. But ultimately the key to successful networking is to stay in touch with people, and to offer them something valuable rather than to look for what they can give you. So I don’t look for opportunities – I look for the opportunity to build relationships. I think it also helps to learn as much about your subject as you can so that people can rely on you as an expert. This means they will use you as a valuable resource and this in turn will raise your profile and help build your network further. When you spread yourself too thin and you try to be the ‘go to’ person for everything, you make a mistake. Add value, give back, be genuine, interested and interesting. That’s what I tell people when they ask about how to build the kind of network that’s really valuable.
Ultimately, though, the funding journey comes down to persistence. And persistence pays off. Many people look at me and say, “He’s so lucky to have landed such a big investment in his company” but honestly, it has nothing to do with luck. It’s purely about hard work. Success may look like it happened overnight but that’s very rarely the case in reality. You have to be prepared to put in long hours, take risks and make personal sacrifices. And ideally, the best time to make them is when you’re young, which is why I encourage young entrepreneurs to go for it. Understand that it’s tough out there, be prepared to be patient but keep chipping away at your dream. You’ll get there eventually.
Been There, Done It
Vinny Lingham is not new to the challenge of starting a business and raising funding. In fact, he’s something of an old hand. To get his previous Internet search marketing company, incuBeta, off the ground, he had to overcome the fact that potential investors simply didn’t understand the business or how it would make money. It’s a common challenge for start-ups in the IT sector, particularly those that are pioneering new models and ways of doing business. Banks wanted to “see stock” before they’d invest. “It was clear that they just didn’t understand what Internet Search Marketing was and how it could make money,” he said.
But resourcefulness and a willingness to take big personal risks are part of Lingham’s DNA. He sold his house in order to fund incuBeta. “I thought if I lost the house and the business failed then I’d just get a job and rent accommodation for the rest of my life. To me the thought of not owning my own business was worse than the thought of losing my house and never being able to buy another one,” he says. To the R125 000 from the sale of his house he added a further R75 000 funded from his credit cards.
As with Yola, taking a personal risk paid off. incuBeta made a profit almost immediately and attracted a R700 000 sum from an angel investor who took 13% equity in the business. In finding funding for Yola, Lingham might have been talking bigger figures to bigger players, but his philosophy has remained the same: before you expect someone else to fund your business idea, invest your own money in it and create something worth investing in.