How a start-up company found corporate partners to provide expertise and support.
When David Mathus left his job as a New York City lawyer to launch a business, in 1989, he half expected big-time investors to line up with their checkbooks. His idea -- a fee-based service through which people could receive information about cultural and sporting events anywhere in the country -- seemed timely. And the fact that his old law firm, Chadbourne & Parke, was well connected with the money crowd, he thought, wouldn't hurt.
Ironically, though, what's held Mathus's company, American Events, in New York City, together for nearly four years hasn't been money from venture capitalists; it's been the "soft" dollars from other businesses that have a direct interest in American Events' success.
Originally, Mathus, 34, envisioned building a business the old-fashioned way -- by having everything done in-house. But the people he talked to about investing weren't willing to support that approach. So, after 18 months of pounding the pavement, Mathus changed his tune. To demonstrate that American Events' concept could work, he abandoned what he calls the "gold-plated version" (based on "hard" dollars) and began searching for corporate partners that could provide expertise and support. Here's how the "soft-money" format came together:
Building the database. The one area that Mathus felt he needed to control above all others was the design of the service. If its information wasn't wide-ranging and easy to tap, he knew American Events would have trouble attracting both customers and future investors. To date, Mathus has raised more than $500,000 from former colleagues, friends, and corporations.
Setting up information systems. Buying computers and phones and employing a staff of operators were out of the question, notes Mathus. "To get started," he figures, "would have required over $1 million." Fortunately, the company got the capability it needed without depleting cash, by cutting a deal with a Boston-area business that specializes in this kind of phone and data service. In exchange for a minority share of American Events' equity (a lot less than a venture capitalist would have wanted, says Mathus), American Events gets to use the vendor's phone and data center and its trained personnel.
Marketing the service. "Our product had obvious synergies with the travel and credit-card industries," Mathus says. In the past couple of years, the American Events service (800-FOR-EVENTS) has been promoted in selective customer mailings by both Visa and the Marriott hotel. "It enabled us to test the service for almost nothing," he notes.
Soft money hasn't been a complete financing solution for American Events, he says. But the business would have failed long ago without it. Currently, Mathus says, he's trying to raise $500,000 to $1 million of equity for product improvements.