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Sunday, September 1, 2013

Case Study on deal that did not work - SHOWNEARBY


For every success, there will be at least 10 failures alongside. I remember when we first started a job portal, there were easily 20 others in the market. Names like RecruitAsia, JobPilot, FutureStep, JobCulture, Jobhunter etc. All gone by 2004/05.

So i thought it will be fun to read about a company that was founded in 2007, got a lot of publicity and got a nice cash injection of S$3.5M from a listed company no less in 2010 but failed and was sold away by the same listco early 2013 for just $1. I say failed because site looks like no activity since 2011 and founder clearly moved on already.

So here is the story from outside. I like this type of forensic work and i hope that readers will do their own and learn from these numbers and experiences.

1) Founder - Shownearby founded by Douglas Gan whom i met once and only impression i have is that he is energetic and enjoys the whole entrepreneurship thing.  Don't know him well enough to comment more. Maybe readers can add comments. You can read what i excerpted from GYP 2011 annual report :

"Douglas is an entrepreneur with over 10 years of dot-com experience across South East Asia. He is currently Chief Executive Officer of ShowNearby, a location-based services company incorporated in November 2007. Douglas started his dot-com journey when he was 16, expanding his first web hosting business across South East Asia and Europe. Five years later, he sold the business to Skydio which was acquired by Webvisions Group. In 2002, Douglas started a popular online youth community, OhGenki.com, which spanned Singapore, Malaysia, Thailand, Indonesia, Philippines, China, Taiwan and Hong Kong. OhGenki.com was sold to StreetDirectory in 2007. Douglas was also a consultant for dot-com businesses such as GARENA, PropertyGuru, HungryGoWhere, Skydio and StreetDirectory. Douglas graduated from Ngee Ann Polytechnic with a Diploma in IT."

So if someone wants to work with him, should ask Steve, Forrest or Dennis from the various companies he mentioned what he actually did for them. All are good success stories.  I am not sure about skydio, they are a smallish acquisition for webvisions. I am also sure GYP will not have much to say too since shownearby failed for them.


2)  Business model - Location based directory. Wanted to cover everything. That is how i met Douglas, he wanted to have our jobs as part of his data pool. I guess idea is to monetize the resultant traffic from being a central point of discovery and search.

Can visit their web site and see the milestones as declared by them.

http://www.shownearby.com/press/milestones/

I have long learned to always read such milestones and what many entrepreneurs say with a lot of skepticism. There are entrepreneurs who believe in bullshitting their way to success (there is some article running around saying that now), i personally subscribe to the low key and let your profits and revenue do the talking model. Keeps me a lot more grounded especially when I realize just how big other businesses are in the non-internet space. There is a very thin line between required promotion and confidence and outright bullshit for the sake of personal ego and looking good. But that is another story which I will definitely write about.

Does model make sense? Location based obviously has some merit but I think trying to be the discovery starting point is a lot harder and the position is kind of dominated by streetdirectory and google maps. But even these two, I tend not to use them for discovery as opposed to directions and location search.

3) July 2010, managed to get  Global Yellow Pages to invest 3.5M for 53.15% stake valuing them at 6.6M or so. It was subscription for new shares and so Douglas did not actually exit in any meaningful way. But valuation was good for SNB. In 2011, SNB only contributed 204K in revenue for 9 months and contributed to a loss of 600K! Valuation easily 20+ times sales but of course it is an investment valuation and not an exit. I wonder what GYP was thinking when they invested.... granted they became controlling shareholder and maybe can make sure the money is spent properly. They must have really believed in the team and potential market.

Readers need to really understand the difference between new share subscription and vendor sale. The former is investment for company to grow, the latter is exit. Latter only happens when your company has realized value or your story really damn fantastic.

Investment in your company is just that, it is investing cash to help you realize the 3 or 5 year P&L plan that you projected to investors. It can be subscription of new shares, it can be convertible loan, all achieve the same effect. So see it as just start of your startup journey and not the end ! It is definitely not an exit and not time to any spend or take your eye off the ball.

Why did GYP do it? Obvious for them, they are a business under siege for years as their directory services dwindle to nothingness thanks to the internet. Amazingly it takes so long! So they have been wanting to enter online spaces to replace those revenues. But strangely almost none of their online products work.... that is another story by itself i am sure. But to their credit, they did buy eFusion solution which at least is profitable and now have gone into F&B and Tours...


4) Anyway back to main story. fast forward to 2012,  just a short 2 years later, SNB has flopped. Douglas is no longer listed in the annual reports as management. What happened? We can only guess or if we can grab Stanley who is a seasoned media magazine entrepreneur who now owns a large stake in GYP, he will tell us. My guess? Grossly mismatched expectations. To enter at valuation 6.6M, GYP expected a lot which clearly was not realized. 3.5M is a lot of money to manage and the vision and team must be strong to execute it well.

Douglas is now running a beautybox site i believe. Best of luck to him. At least he is truly quite a committed entrepreneur - never gives up!

Side note : GYP recently had a share placement to raise $7+M. So that 3.5M is really not small change to them. it mattered and perhaps was quite wasted. I would love to buy Stanley a lunch though and figure out what happened not just for SNB but their entire internet strategy. Maybe I can help... Who knows..




5 comments:

  1. I heard the acquisition price by GYP wasn't injected in immediately, but was tranched into SNB, which actually isn't as great as straight cash injected into the company. I also heard there was a mismatch in opinions on the direction that SNB should take between GYP and SNB towards the end of the relationship.

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  2. Yes, tranches would make sense to safeguard investor cash. I have used tranches tied to KPIs myself and it makes sense so long as implemented both ways. Expectations definitely always forms a major part of the issue. That is why it is very important both sides are clear what is going to happen the next 1 year after injection and both sides take time and effort to build a relationship.

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  3. I have been digging around for the story of SNB about 2 years ago. The high valuation at a very early stage caught my attention. However, it seems hard to find information close to truth on the internet. It is insightful of your blog which provides info closer to the truth. Bookmarked :)

    ReplyDelete
  4. thanks for reading. I am writing to just log my thoughts and to help make things a bit more transparent in our space.

    ReplyDelete
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