Each week, the Financial Post revisits CBC's previous week's episode of Dragons' Den. We capture what the cameras didn't and in the process provide a case study for readers, zeroing in on what pitchers and dragons were thinking and what the challenges for the deal are going forward.
The pitch: VantageWire.comwas launched in March 2008 as an offshoot of traditional investor relations firm, Vantage Communications Ltd. "We created the website because we realized we wanted to continually have a hook for investors," says cofounder and president Mark Chadwick. That hook is free, real-time stock quotes. Unlike other firms that offer real-time stock quotes for a subscription fee, Vancouver-based VantageWire was built around a Facebook/ Google style advertising model. "Real-time stock data is very expensive for investors and it's expensive for us, too. We are eating the cost of that," Mr. Chadwick says.
"In return, however, you have a captive audience of happy investors who use our website for free and our clients have a great audience of investors that know what they are looking for.
"Other companies offer real time quotes but you have to pay $60 to $100 a month," he adds. "We are saving the investor a lot of money for the same end product."
The approach has proven to be a winning recipe. "We were profitable in our first year in the worst stock market ever -- a nice claim to fame," says Neil Currie, vice-president, corporate development.
"We use the viewers as leverage to make the sales. This year is even better. We are on a continuous growth pattern, increasing revenue month by month. We learned a lot through the market crash, streamlined operations, cut expenses, boosted revenue and strategically positioned ourselves for growth, " he says.
The service gives investors access to 1,000 free real-time Level I queries a month. Level II quotes are available at a cost.
VantageWire does not profit from providing the services. "Advertising is the revenue driver," Mr. Chadwick says. "We want to make money off the eyeballs on the site ."
Messrs. Chadwick and Currie approached the dragons with a very specific goal: to bring Kevin O'Leary on board. "We wanted his financial celebrity and his pull as a billionaire to drive credibility and awareness to our brand," Mr. Currie says.
"We thought it was a natural fit since we watch TV shows with Kevin O'Leary in our office all day long and most of the people in our industry do as well. To have someone with that kind of pull attached to our business would be a wonderful thing and it already has been." The deal: The pair went in offering Mr. O'Leary, who manages his own mutual fund, a 20% stake for $150,000; they offered the other dragons just 15% for $150,000. This, along with the two Toronto Argonaut cheerleaders they brought for their pitch did not impress some of the dragons, but Mr. O'Leary did bite and offered $150,000 for a 50% stake with the caveat he would rebrand the service under the O'Leary brand.
The parties met recently and are working out the structure of a potential deal. "We are talking," Mr. Chadwick says. "There is interest on both sides. Our valuation has grown substantially since the show was taped in June. We have to make sure the synergies are right." While the question of control can be a touchy one for entrepreneurs, Mr. Chadwick sees a terrific opportunity to grow with Mr. O'Leary.
"His fund has gone from an opening IPO fund worth virtually nothing to billions of dollars in a short period of time. He said it himself, 'My
name is gold in this business. The commitment he gave us on the show was impressive. We wouldn't lose the brand entirely. It would be O'Leary's VantageWire or something to that effect." Still, both sides say it's early days.
What the dragon has to say:
"VantageWire has been quite successful at what it does which is report junior mining stocks but this is not the bulk of what O'Leary Funds does, so we are trying to figure out how to modify the platform to address the fact my investors are looking for long-term, stable yields," Mr. O'Leary says. "They would never buy mining stocks."
At the same time, he says, "We think our customers would appreciate the live posts on multiple exchanges that VantageWire offers. It has to be re-branded but I don't want them to lose their franchise either."
There is also an intangible at play with this deal: "Our teams like each other," Mr. O'Leary says. "I like what they've done, the success, the energy, the intuitiveness. They are young guys who have built something out of nothing. They remind me of myself 20 years ago."
What the expert thinks:
Chris Van Staveren, a partner in transaction service at KPMG Enterprise Services, sees some challenges ahead. "Advertising and the Internet has been a question mark for a lot of companies. They have $800,000 in revenue but what kind of margin are they making on that? They talked about it being an excellent return when you hit $2.4-million in sales, what about now?"
What's more, he says, the barriers to entry are low. Will VantageWire be able to maintain advertising by keeping traffic to the site growing if other players enter the game? "Anyone charging a fee for this information now could copy this model, in which case it becomes difficult to maximize advertising revenue."
