Seeking investment advice

[JamesSmith]

Been away from his forum lately, but I'll rejoin the discussions with a rather long winded post:

I have been running my business, UH Hosting Ltd, since May 2002. The business started off as a sole trader, incorporated as a Limited Company Nov 03 and registered for VAT at the same time.

What we do:

In short we provide web services. The kind used to host web sites. Web hosting (Shared and Reseller) and domain names. We also reach into the other more specialized (Becoming less so, due to decreasing costs for doing so) services. These include co-location, dedicated servers (managed and un-managed), SSL certificates and secure SSL hosting.

We utilize a DC in London known as Telehouse Docklands, most of you have probably never heard of it, the more tech orientated of you may have - It appeared in an episode of Little Britain once, series 1 I believe.

The equipment is owned by us, the racks, servers, switches etc. Like many smaller providers we resell certain things. These include domain names, SSL certificates and at present Windows Web Hosting.

The company as a whole is quite well established, considering I started the business on £50 with a reseller account I think it’s achieved a great deal, our turnover has increased year on year and I am able to pay myself a wage from the company. We have a sizable client base, generally recognized in web hosting quarters as an honest and reliable company.

Right, that’s the blurb out of the way.

I am considering taking things further. We have up to this point not needed to commit to serious advertising. Word of mouth has served, and continues to serve as well. But I understand there is only so much growth to be had relying on word of mouth. We need more public awareness of what we do. Like every entrepreneur, I think what we provide rocks and everyone should have it :P

To take things further we would need considerable investment. I am reluctant to go for a bank loan, simply because the risk to the company would be great. If it goes pear shaped the company would be put into solvency and closed down if the loan is not re-paid. But other options are available. VCs, Business Angels, certain Government trusts, local trusts, Princes Trust and so on. From my research over the last few weeks on the subject, trying to gain backing from a business angel sounds to me like one of the best options, primarily because the risk to myself and the company are minimal. That is of course if the trust of the investor is won over and he / she / they invest.

Being a currently trading and profitable business with existing clients I hope gaining any kind of funding would be considerably easier than a start-up with no records or current clients. Be it from a bank, investor or elsewhere.

I have sought advice from my local business link, two meetings with a very experienced man in business. I am seeking a business mentor through a contact my Mum works with, this I am viewing as a very positive step forward. I’ll make sure my questions are answered Re: best method to gain investment, business plan advice and so on.

I suppose your wondering what my question is by now – Basically, is there anyone here who has attempted and succeeded in gaining investment either from a VC or business angel? Or am I barking up the wrong tree in seeking investment?

[Brian Turner]

Hi James, and nice to see you back - and doing well.

I'm afraid I can't offer any experience to go on for VC purposes - but it would be interesting to get an idea of what sort of marketing/expansion you're talking about. I presume you're talking about a fairly sizable expansion of the company. In which case, do you have any form of rough plans drawn up, including what you think you need to buy, how much you think it'll cost, and how you would plan to repat investors?

[kundalini]

VC or business angel is likely to want to see very rapid growth so they can get their return and get out.

To my mind that doesn't quite sound like your business.

Business angels come in all shapes and sizes so there is a chance you might find someone. As for VC I think you would be wasting your time. Unless you have plans for world domination in which case they might be interested.

How much cash do you want?

Sometimes the banks are far happier lending £1million then they are lending £40k

In fact it is the smaller sums (under £100k) that tend to cause the most difficulties.

Go for grants. That seems the most likely option. You will need detailed advice to see if you are eligible. If you stumble across an angel great. But it is easy to spend ages trying to get funds when you might have been better off spending this time on your business.

Have you investigated all the different marketing approaches that you could adopt?

Partnerships with webdesigners? Internet marketing firms? Business links? Sometimes marketing can be done for minimal investment.

I selected my host through word of mouth. No idea how others choose theirs.

[kundalini]

The mentor was a good idea.

I meant to get one but never got round to it.

Don't expect them to know everything. You will get some good advice and some bad. You just have to know which is which.

[JamesSmith]

The overall plan is to improve two areas:

Infrastructure
Awareness

Improve our network, servers etc, along with improvements to the web site, order system, support system, make things more integrated and efficient. This will be an on-going affair, but parts will need to be done first before we embark on any kind of intense marketing.

We have a pretty good idea of what is required, initally not much additional hardware.

Once we're happy with the infrastructure, the marketing will begin in earnest. We have a good service (Like every entrepreneur says :P), but not enough people know who we are and what we can do. Depending on how much investment can be secured depends on the size of the campaign. The direction of the company at this point is still very much open to debate. We have a following of personal and both "business" clients. There’s no doubt targeting business clients equals bigger returns, but it also means a higher standard is required. New services will hopefully be launched at both personal and business.

The return to any potential investor could come from one of two options:

1) Dividend after x amount of time, if things go very well indeed, a return of some kind could happen within a year.

2) The sale of the company or parts of the company or just a sale of clients.

Floating the company on say, AIM, I believe is out of the question. We may go down a different route, one that sees an opportunity to do so.

Very much at the planning stage in attempting to gain finance. I’m eager to get something presented to potentials. One of the meetings with a guy from business link was very encouraging; he felt we had a very good business.

[peterjhale]

James

I see you purchased one of our business plans and I hope this has helped you

You'll really need to a) tot up how much investment you need and b) decide who your target market is (eg:small business owners, resellers etc)

Because, you may find that the market is bigger or smaller than you require to get your sales through

Are you doing more of the same business or diving off into different areas (normally it is best to stick with what you know best and develop it further)

On marketing there are plenty of marketing you can undertake which wont cost you a lot (see the guide ) - you certainly have a lot of happy punters (me included) so you could easily run a "member get member" - each gets (say) 1 month free hosting

For example , I have a mailing list of 10,000 small business owners - this is a quick way to get your company in front - you can either purchase space in the newsletter or pay for affiliation

There is so much you can do that is not going to cost you and arm and a leg

So, do you really need all that cash ?

How many sales do you want ?

[Brian Turner]

Peter is definitely on the ball.

I'd also suggest that forums like this could be a could place to sound out some marketing ideas - ie, what direction you would like to go in, and which methods may be most suitable to your requirements.

Webhosting is so damn competitive on the internet itself that it's basically turning itself into an industry for the loss leaders.

So for webhosting services promotion I would always see the local market and offline marketing as an area of best potential - especially for any sized investment that seeks decent short to mid-term profits.

Obivously, though, as Peter points out -where is your target market? Which are your target services? What is the direction you are trying to specifically move into for sales generation purposes?

[kundalini]

Regarding VC funding you might want to send a quick email to this person:

Neil at http://www.ondemand-network.com/

He's a great guy, got funding during the boom years so knows his way around the VC market, possibly angels too.

At worst he doesn't reply. At best he might point you in the right direction.

If you are a member of ecademy there are a few people who have contacts in the VC area.

Anyway,

good luck.

[JamesSmith]

Trying to compute as much data on the topic of business plans Peter, either free information or inexpensive information

By far at present our top selling service is web hosting. Particularly reseller hosting. We have been undercut and out played when it comes to co-location, our larger co-location clients are outgrowing us and going elsewhere to someone larger for a service. We don’t have the ability to compete when it comes to connectivity costs. Our only hope in that area is the customer service and network stability. Every client that comes our way for such a service is treated like the Queen

Perhaps moving into the local arena or small business. Helping local / small business move from no web presence to a web presence. But not stopping at hosting, going further and helping with the web site creation.

We could try and chase Government contracts. Usually local Government will go for the local small businesses, benefits them in the long run.

I'd quite like to see us with an increased Dedicated Server following. This wont happen until we can achieve the following:

Same day setup of systems (I.e. machines in stock, available, not lead times of 5-7 working days)
Quick restore function in the event of a server crash

We could then sell value added services to those clients. Domain names through a custom API (Something I'd like developed with any investment received), backup space, management etc.

In the past we have been seen as providing everything, web hosting to co-location. Almost a full range of Internet services. Whereas other providers are focusing on offering everything under one roof, others are not. We need to be seen to be offering something unique rather than everything the same. Web hosting would be the natural market to attempt to dominate for us, especially as recently sales have been very positive with very little brand awareness.