James Spenceley co-founded wholesale telecommunications provider Vocus in 2007, and since then the company has exceeded his expectations, turning over profit every year, with 2008-09 revenue of $5.2 million. The company was listed on last year’s SmartCompany Start Up Awards.
But the biggest improvement occurred only this year, when investment firm Investec bought the company for $20 million, and listed it on the ASX as Vocus Communications. Spenceley says the company is now able to pursue a number of expansion projects overseas that it couldn’t have done before.
The key, he says, is finding a good investor. Spenceley believes small businesses looking for investment should analyse themselves constantly and look for ways to make themselves attractive to larger, cashed-up companies.
Are you happy with the ASX listing this month?
Absolutely. We knew we had prepared, we thought the offer was reasonably priced, it was great to see such a good result from day one. We think it started off very, very strongly.
When did you first start looking for investment?
We always knew we wanted to have a big investor. One of the things I’ve noticed is that once you get a big investor, it adds a lot of value to the business. One of the things we were missing in our business was someone with a lot of financial markets expertise, and we think that’s one of the areas Investec is great in. As we grew the company we knew we were lacking in that area.
Did you require the cash, or was it more that you wanted to look at new projects?
We laid the initial money for the company when we started, and our goal was to not lay any more cash until we were in a position to decide on our investor. Often companies have to raise money to do this, but Vocus performed well enough that we’d never had to do that. By not raising money, we could wait for the right opportunity and this’ll help us grow.
I think that’s key in any deal. When you need money you tend to try and take the first few that are available without considering the future, and that’s something we’ve avoided with this deal.
How did the conversation with Investec start?
We were introduced by a third party. It went very positively. We just explained what our business was and what it did, and the Investec representative talked with us for awhile. They were looking for a telco, and we were looking for a serious partner so it was a good match.
Did you have any non-negotiable terms you wanted included, like full control?
That was one of the things we really wanted. I suppose we didn’t know them that well, and so you’re obviously a bit suspicious of anyone new straight away. But we wanted to get control, if the partnership wasn’t working well we didn’t want terms dictated to us. Any deal we considered we wanted to include our core focus, which was growing the company quickly and not having anyone really interfere with that.
How did the decision to add former OzEmail chief executive David Spence to the board come about?
David didn’t come with the Investec people, that was an approach we made separately, but it was a good decision. He’s someone we’ve known for years, he is incredibly well-connected with the technical side of the business and it was the right time to bring someone on, now that we’ve made this deal. We needed someone with more financial expertise.
So identifying weaknesses was a big part of your decision-making process?
That’s one of the things we really looked at when deciding this. We know where we aren’t strong, and the financial side of the business is not something we were great at. I take the helicopter approach – think about your board meetings from a downwards view – who is interacting with you? Who’s talking with you?
That was where David was a key decision for us, because he understands the financial world very well, he understands our industry. So rather than just having two sides of the table, opposed and talking across to each other, we have someone who knows both sides very well.
What advice do you have for small businesses looking for investment?
I think you’ve always got to have a plan. Think about where you need to be to get that investment, and then take as many steps early on to put you in that position. For us, it was making sure our financials were sound. We did an audit when we turned over just $150,000, but that audit showed others we were serious.
It’s really important to take as many steps as you can. Do as many things as you can early on to get you into a position where you can present yourself for investment.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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