How I saved my business when an investor left me high and dry

Ian Gardiner and Ron McCulloch caught on to the internet-video trend early and started webcasting service Viocorp in 2002. The company now has contracts with corporates and governments in several different countries and turns over nearly $6.5 million a year.

But a few years ago the company was forced to embark on a strict cost-cutting scheme and restructure some business after an investor promising $1 million dropped out.

Gardiner says the company learned a valuable lesson – don’t count on an investor’s money until it’s in your bank account.

How have things gone for Viocorp this year?

In terms of this year, the big change was being able to bolt-on an additional division, when you think about divisions its around revenue. We’ve always made revenue from selling to corporate and government, but this year we’ve sold to broadcast owners.

We’re selling in addition to people who don’t and do need to make money from their content, the one big one was for Malaysia’s biggest broadcaster. That project entailed us doubling our staff.

How did you decide you needed investment?

In the first two years of the business, we were essentially a video-mail for corporates business. We had a bit of software that fired up a webcam, recorded a message, and it was moved to a server. It wasn’t a bad idea but was very challenging in a range of different technical matters. So we moved the business really in order to stay alive into a full-service webcaster.

So how did you respond?

The clients liked that early product, but they didn’t like the process, so we took it all on for them. We produced it, edited the video, and so on. And around 2006 we had our first customer, and then the next year, we started picking up a couple more customers.

I said to my co-founder Ron McCulloch, this is a business. But we wanted to focus on the software. So we hired a pretty senior guy, and started working away. But we just couldn’t keep up with the level of technical demands, so we needed to think about raising some money.

Was it for R&D purposes, or was your spending more strategic?

We knew what we needed to invent. We had the pipeline, we had everything organised, but in order to do it we had to have access to funds that were more than just our monthly cashflow. We had a list of things to do, mostly around the core engineering.

Who was your first investor?

I had come to know Peter Holmes A Court, and we occasionally cycled together. He asked me about what we were doing, and loved it. He really became the cornerstone investor. And then soon, we found another individual of similar stature who got on well with Peter, and he was put up for the second million.

And the second investor dropped out?

Yeah, he said he was going to off to Tasmania with his yacht, and said that he had a lot of money and wanted to do something with it and be active. So it wasn’t necessarily a bad reason, he didn’t say we were a bunch of idiots or anything, it was for personal reasons.

But it left us short. We went back to Peter and said that we thought we could pull off this work with just his money. To his credit, he did ask us to demonstrate our plan fully. But at the time, it was the sixth of January. It’s the worst time for something like that to happen because no sales come through in January.

How big of a hit was it?

We were fully expecting that money to come through. We were in final talks, we had committed some of the spending, and I feel that at the time we were running out of cash. We were a few weeks away from running out.

What was involved in the recovery?

We acted extremely quickly. We found out Sunday, and by Monday morning we unfortunately had to sack a couple of people.

I did nothing for four weeks, except sell. At one point I had 14 meetings in one week at one point, and we accelerated a product launch that was set to be released a little later. We were very focused and wanted to make sure that we were going to be okay.

What other cost cutting measures did you use?

I started cycling to all my meetings. For one meeting I cycled an hour to Manly Football Club. It was 14 degrees and blowing a gale, and I cycled there, put on some nicer clothes and then went into a meeting. And then they said they didn’t have any money. I also cycled to the airport once. But these little things, they add up.

What advice would you give to other businesses that might have an investor drop out?

Always have a back-up plan. Never assume that the deal is done until the money is in your bank account and I can’t say that clearly enough. Just focus on what you’ve got to focus on. Make sure you keep selling and keep promoting the business.