Studying the Hardwarezone deal

HWZ was one of the early pioneers of the internet business. They got some funding and were bunch of NUS undergraduates who decided to make their over-clocking hobby site into the CNET or ZDNET of asia. For those of us who have such long memories, HWZ came up in the same timing as firms like AsiaStockWatch, LycosAsia, MyScissors, ejazz, MPHonline etc... crazy stuff in a crazy time. HWZ main leader is Jackie Lee who now runs ClickTrue. Total business guy. Another founder/shareholder is Eugene who is now Snr mgmt in SPH magazines.

So here is what i can see. As usual, best effort basis and do not guarantee accuracy of data.

Business Model : Advertising in niche area of technology media
Platforms : Magazines, HWZ portal + super popular forum
USP : Bundled sales approach, so one stop for media buyers/marketing depts. Cleverly used Forum to boost overall traffic numbers.
Amount Funded : S$2.751M for 1.763M shares
Shareholders : Jackie - 25.9%, Eugene - 8.7% + 2 more even smaller individuals <5%, Angels & VCs - the rest or about 50%+.

Acquisition : Sold to SPH Magazines in 2006 in what was the first M&A of a profitable internet company after the dot com bust and the subsequent cold shoulder the world gave internet companies from 2001 to 2005! The firm was valued at 7.1M in cash up front with i am sure an earnout for subsequent 2-3 year performance. So maybe 10-12M in total? That is about 10 times profit which is what SPH will offer back then. Notice how they have changed tack for sgCarMart deals. really teaches us that timing matters a lot! But cash in pocket is cash in pocket.

2005 P&L is revenue of 5.9M with net profit 1.25M or about 21% net margins. Very good numbers considering it was back then in 2005! They were an obvious first mover and did so well. By then, their forum was already #1 in SG for all topics. I have met a few HWZ people over the years, the original team all good! So why did they not continue to grow the business overseas and scale further? Here is what i think happened - pure conjecture and could be totally wrong.

1)Market size they were reaching market potential in SG and cannot see themselves scaling up much further. HWZ was branching out in Golfing mags and other mags. The comment i have on this is that frequently such mgmt assessments are not too accurate and if we have an innovative and motivated team, there is always new areas to expand into. Also, going regional would also be a good decision since their platform is scalable, they have decent core SG revenues and profit to do so.

2)Founders tired. This one quite likely since i too faced such a situation 7-8 years into business. And perhaps their key mgmt shareholding did not motivate them enough since Angel/VC over 50% stake. A bit like the sgcarmart guys too who had a big passive shareholder. At 12M, Jackie took home 3.1M, not bad for 2006. If he bought a house, it would be worth 6M today. Anyway, whatever their reasons, i always maintain that selling is never wrong since the founders obviously were fine to sell and it is their company. Only they know all the details and situation so my advice is to never second guess yourself once you make a decision.

Fast forward to 2008 which is 2 years later and the HWZ revenue is now 9.3M so revenue growth of 57% over 2.5 years. Many of the HWZ people either have left or are integrated within the SPH Mag family. Eugene himself is now Deputy MD i believe. Jackie is more entrepreneurial so he has cleverly got SPH to own a minority in clicktrue and is out running it as the main founder/shareholder. All in all a good success story for all of us to learn from.

Those good old memories... read this if you want to understand the old 2000 dot com thinking.

This is cute. So i am looking back at an article i wrote. And in that article i was looking back another 5 years. The major difference between now and then is that today, the startups are having to make a lot more sense before we can raise money. In addition, the business models are a lot more developed and targeted and definitely there is a lot more talent available in the market compared to 2000. Interestingly, the idea of doing side software or service projects to make ends meet still applies esp for more bootstrapped outfits.

And even better, some names still exist! Catcha is now back in the game as the originator of iProperty, dealmates, icarasia... Kudos to Patrick and team from Malaysia. Job portals still strong as ever and i believe we are still the most profitable of internet plays. Hardwarezone and Shareinvestor both sold to SPH already. I will analyze those sales in another posting. ================================================================================================ (Article first published in sgentrepreneurs back in 2006)

Sharing my own experience on the topic written before as it got me thinking a fair bit more. JobsFactory was started as a job portal back in 1999. During that time, there were lots of start ups in Singapore which were in dot com. It was our own dot com boom. Companies like Interauct, Commontown, Wizoffice, eJazz, Nececity, Myscissors, asiastockwatch, catcha, zingasia, earth9, surfgold etc etc all raised lots of money and were advertising like crazy in mass media just to get “eyeballs”. The idea was that we got lots of traffic first and IPO. We can figure out the revenue side later. It was really a fun period as there was a strong buzz and young fellas under 30 were sitting in board rooms making contra deals that inflated each others revenues while adding no actual cash flow. Its damn funny now looking back.

We attended quite a few parties and opening ceremonies and they spent so much money on the marketing and image and yet spent so little resource thinking about sales and business model. A typical consequence of cheap money. My list above is for pure dot coms, i am not including players who closed like MPHonline, asiaone.com etc. These have parentage and roots in profitable businesses. Fast forward to 2001 in the aftermath of the dot com crash. Funding all dried up and very quickly those without a revenue stream crashed and closed down. The survivors tended to be those who :

1) Moved into corporate market by tweaking their C2C or B2C software into a purely software vendor for large firms in specialized fields. Example :

a) Surfgold – from online currency type consumer model to loyalty and CRM software vendor for large MNCs. Doing very well now if I may add.
b) Earth9 – from some community C2C site to a CRM software provider for Starhub and others. Doing quite okay too. This company cute, their CEO used to be called DNA.
c) Commontown – Still around. They were some C2C community too and now are software providers for web sites which revolve around community. But i think this one not doing that well.
 d) Of course, you got the suppliers of software like Adroit Innovations, managed to list but also died as nobody wanted to build expensive web sites after 2000. Can’t think of others. That is how few survivors there were.

The other category that survived and doing quite well are those that were in B2C or C2C and went deep into media area within their area of expertise. This group all making $2M – $10M range.
1) Hardwarezone – From just a site, to magazines and events and regional.

2) Catcha – From a yahoo wannabe, gave up online, moved to Malaysia too and now a decent sized publisher of magazines. Juice, Stuff, etc.
3) Shareinvestor – from community of investors to community + investor relations software provider + magazine publisher (new one).
 4) Jobsdb, Jobstreet, JobsFactory – Job portal is a proven business model. So still job portal but branched into running events, magazines etc. So if I do some projection.

Fast forward to 2008, I believe the 2 models will still be there. One as specialist software vendors, the other as media companies who are rooted in online mediums but who also cross synergize with events and print and maybe even TV production (I know catcha is doing this). In a sense group 2 are doing web 2.0, cuz they will be forced to be ever more interactive in their chosen channels.

For my side, job portals which increasing allow users to feedback and interact among themselves about companies and jobs? Or to allow them to search for referrals (ala social networking sites) ? These are all possibilities. One thing for sure, all the surviving companies listed above are profitable already. Sharing my experience. Make your own conclusions