JULIAN CULHANE, Finance director, lastminute.com plc
Business: retailer providing last minute offers of goods and services on the internet
Annual results (to 30 September 2000): revenue – Pounds 3.3m; loss – Pounds 35.7m
52-week high/low: 562.50p/65.00p
Market capitalisation: Pounds 111m
A year ago there was a phenomenon whereby people just spent millions and millions of pounds on questionable marketing. There were occasions where companies spent that amount even though it was questionable whether money would ever be made. A few of the companies that are out there today certainly didn’t enter into these discussions. So I say: control marketing, control costs and make sure that you have a product or service that appeals to the consumer.
For a dotcom company to succeed it needs a strong brand and a product or service that people can relate to and that’s obviously in demand. Otherwise, even if you have the best technology in the world, if you don’t have a product or service that people want, then there’s no point in having it.
So you need the service, you need the technology that delivers on that product, and you need the back-end that helps make sure the product reaches the customers.
In terms of financial controls, I’d say we have controlled costs and you can see this in the results – they continue to be ahead of the plan and ahead of analysts’ expectations. Financial controls were upgraded shortly after the float and then during the projections in, I think, the July trading period.
I believe there’s no difference between what people describe as the old economy and the new. The value of a company is its future cash-flows – and I think that should be the valuation tool for the investors.
JOHN WINFIELD, Finance director, Cube8 plc
Business: start-up and early-stage venture capital for tech, media and telecoms companies
Investments: Pounds 7m invested in 16 companies: technology 35%; B2B services 34%; content providers 25%; e-tail 6%
Listed: Alternative Investment Market
52-week high/low: 31.50p/2.25p
Market capitalisation: Pounds 9m
NAV: Pounds 11.6m (June 2000)
Last year dotcoms spent far too much time concentrating on the internet.
What we are going to see this year is a lot of dotcoms moving onto the high street. One complements the other. It’s a pretty harsh environment out there and it doesn’t look like it’s going to improve this year.
When we look at a company we are going to back we look for quality management. Last year, many investors backed companies that were fashionable. I would like to think we didn’t go with fashion (broadband seems to be the latest fashion). We look at financial controls and cash, and we also like to spend a lot of time talking to the management.
MARK HARFORD, Chief financial officer, Brainspark plc
Business: incubator for internet and technology-related start-ups
Investments: Pounds 11m invested in 17 companies: B2B services 47%; B2B marketplace 27%; e-tail 20%; wireless 6%
Listed: Alternative Investment Market
52-week high/low: 133.50p/50.50p
Market capitalisation: Pounds 75m
NAV: Pounds 28.7m (June 2000)
When we invest in a company, we look for three things. Most important is an experienced management team. Secondly, we look for a strong basic idea, which, in other words, means that we believe there is a potential market for whatever products or services the start-up is offering. The third thing is that the profit model makes sense. We need to believe that enough customers are willing to pay for what’s on offer.
It’s all right for a start-up to make losses at the outset, but it has to show us how it will make a profit. We still see a lot of companies that, when we ask how they are going to charge customers for their products and services, realise they haven’t worked it out.
We’re being more selective with our investments. For every new company we invest in, we spend time going through its business models, and its guidelines on financial management. We take a seat on the board and we require monthly financial and operational reports. Also, in this incubator we are never more than three flights of stairs away from the company’s operation.
PAUL OWENS, Finance director, NetBenefit plc
Business: supplies name registration, web-site hosting, e-mail, e-commerce products and related services
Annual results (to 30 June 2000): revenue – Pounds 7.5m; net loss – Pounds 4.6m
52-week high/low: 2,400.00p/102.50p
Market capitalisation: Pounds 20m
I’m not sure that it was the dotcoms that did things wrong. I think the people that were prepared to finance them in the first place made the mistakes. The fact is that investors were prepared to back almost anything, so long as it had a dotcom attached to it. This led to a rush of people coming up with ill-conceived and unrealistic business models and plans, simply because it was very easy to raise the finance to start them up.
What makes a good business plan is a well constructed, well thought out and achievable model; a great idea that’s backed by good management. A lot of the dotcoms actually had good ideas, but then they didn’t necessarily have the experienced people on board to turn them into a reality.
We have upgraded our financial controls. The company moved very quickly from being private to fully listed. I came on board after it had been listed for six months and throughout my time we have really improved and enhanced our financial controls. They reflect the level of financial control you expect today in a listed company. The upgrade was driven by the board and myself as finance director. We recognised that we need tight controls to make sure that things are carried out properly.
You have to combine the best of the new economy with the principles in the old economy. I mean, the old economy has been there for more than a hundred years. It is developed; it’s not that bad. Now you can take the best of the old and the new and develop them. If you look at what the old economy was like 60 years ago, it was infinitely different to the old economy today.
I think the principle that is most established in the old economy is the one that says you should eventually make a return on your investment. I think people lost sight of that in the initial dotcom rush.
PAUL VICKERY, Investment director of e-business, 3i Group plc
Business: venture capital firm investing in start-ups, expansions, management buy-outs and buy-ins, and pre-IPO financings. World-wide in a wide range of companies
Investments: Pounds 11,400m invested in 593 UK companies (to March 2000)
52-week high/low: 1,770p/987p
Market capitalisation: Pounds 7,507m
NAV: Pounds 8,277m (November 2000)
There are many dotcom businesses that, somehow, because they’re dotcom businesses, simply failed to follow good business practice. So we’ve seen some major failures at companies such as boo, which didn’t have regular board meetings, didn’t have a proper chairman, didn’t have a proper finance director. In a number of these businesses basic corporate governance seems to have been suspended. The shakeout in the market has reiterated the need for basic business practice and basic business governance and has proved that, just because it’s a dotcom business, it doesn’t mean it can be run any differently from any other business.
I think there’s also a middle crowd of dotcom businesses where there is a good management team, good clients and you’re up against an awful lot of competition. The features of a dotcom that are different are the speed of market development and that includes the rapid rise of competition.
So management teams are having to deal with a sector that is undergoing the most rapid kind of change imaginable. And that’s a real test; some management teams are coping with that, a lot of management teams are managing to keep up. And that’s why you’re having a lot of consolidation in different sectors in the internet market.
We’re looking for outstanding management teams with business ideas that have a genuine uniqueness. When it comes to pure dotcom businesses we’re looking for large corporates to endorse the business model.
Normally, a good business plan will describe people in the management team that understand the business sector they’re targeting and the internet.
It’s quite a difficult combination to get, but that should jump out of the business plan. If they are trying to develop the B2B market, then they should also be able to demonstrate their corporate connections. That should also jump out of the business plan.
Typically, the management teams we back include a seasoned operator, and, obviously, they’re going to produce monthly management accounts and properly thought-out forecasts. We’re not in the business of teaching management teams how to produce financial information. If they don’t understand that, they can forget it.
RICHARD CLAPSON, Finance director, Holiday Focus
Business: internet tour operator, which sells its own holidays on-line
Launch date: 31 December 2000
Listed: Not yet
I think most dotcoms went to market too early, but there are a number of reasons many failed. Some had difficulties getting the product through, some clearly hadn’t thought the distribution through. We’re waiting until we have established ourselves as a reliable tour operator before we float.
I think the most important thing that a dotcom should have is financial control. You want to sell at a margin, so you’ve got to be able to monitor the progress of sales margins, overheads, and all the other conventional measurements that accountants have used for hundreds of years.
Dotcoms should model themselves on the old economy and I don’t know why some haven’t. A business is a business, and I can’t see why the dotcoms departed from the traditional planning and measurement. We model ourselves as a tour operator and we see the web as a communications device. We refuse to see ourselves as a dotcom.
Our interpretation is that the internet is just about to become widely accepted as a purchasing medium. People will soon decide that it as a device they can use to buy their holiday through, and they’ll accept that they can safely use their credit card to pay.
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