How I got $14 million in capital from a Twitter investor

Private shopping network OzSale is one of the success stories for Australian online retailing. The invitation-only company began a few years ago and is turning over in excess of $70 million a year, with a key focus on fashion.

That success came to a head last year when the company managed to score a $14.5 million investment from Insight Venture Partners – the same company that invested tens of millions in social networking site Twitter.

Chief operating officer Carl Jackson says scoring such a large investment depends on branding strength and a strong management team.

How’s the business going?

We’re at 1.5 million registered members, and we expect to get in excess of two million by the end of June.

Can you describe the process of seeking investment?

We did it all ourselves, that was the first thing. We didn’t go out to the market, didn’t go through some process. We spent some time incidentally looking at the private equity houses in other markets and Europe. But the Australian private equity firms hadn’t got their head around it.

But the guys in Europe and the US were already investors, inside the business and had seen the phenomenal growth.

We took a very straightforward approach, contacted the equity firms and then worked through a process with them, and ultimately went with Insight Venture Partners. Meeting with them was an opportunity for us – they understand where we were at, and they understand the opportunity for future growth. It was a very comforting meeting.

Did you look at any other options?

There were a number of options, but with the scale, speed and funds we wanted to raise, private equity was the best fitting, and good for the stage of growth we were at. If it was even 18 months down the line, we couldn’t have accelerated the business as hard as we’ve done. It was a significant investment and allowed us to accelerate it.

Insight at the time we were really attracted because of the experience in this space.

There has been a little activity in the industry since then, with Amazon buying BuyVIP.

We completed the investment at the end of June last year, and then there were some trade sales in the industry. There have been a few others as well.

Did that give you an indication of who to work with?

Definitely. The potential partners for this business are those with experience. So businesses working with retailers, they have either media companies, members or businesses in that area and so on. It was a number of hits in that area.

What made your business an ideal candidate?

I think because we already had a strong established brand, we were good with consumers, had a good team. For me they were the three pieces that told us it was a good time to move.

What part of the process was most challenging?

The diligence bit was quite challenging. Because we’re a business in an early stage of growth, and have been spending available cash on growth on acquisitions, and so on. We have more pure money in that area, so inevitably that’s what we wanted the funding for.

Thankfully, it’s stuff they understood.

What did you want to do with the money?

Three specific things – membership acquisition, infrastructure and warehouse distribution. And then we want to move into new markets, so we’ve used a lump of the cash to set up our business in that way, and we’re looking to open more markets quite quickly in south-east Asia.

The whole space has gone crazy, and to remain a key player and continue to accelerate growth is a challenge. But we needed cash on the balance sheet to do that. It’s an inevitable restriction when you have private money.

It’s a matter of making a decision quite quickly in that regard.

There are a few similarities between private selling and group buying. Has that influenced you?

I think there are some differences there. There are clear winners in the top tier.

Would you ever get into that space?

Our model is around physical inventory, and in my mind the group buying space is more around services and experiences. We’re quite clear on where we go from the private sale model, and I think the time to get in on the group buying space has come and gone.

We don’t really have the space to bolt on a huge growth area, and we’ve already been and gone on that decision from over a year ago.

How has your board been affected?

The board consists of our private equity house, and local directors. They’ve really helped us out – they’ve brought us a lot of experience. They really help us crystallise our priorities and focus on things that have worked. We’re quite confident in the partnership.

For businesses looking at getting an investment, what do they need to get right?

I think you really need to get the fundamentals right. Get the brand strong, get the business plan robust, and get a good team around it. Those are the three components you really need. Everything else you can buy, like infrastructure, processes, and so on.

Be bold in what you want to do. There can be a degree of uncertainty, but with the right buyer it really creates shareholder value.