BUSINESS PLANS

HedgeStop Wants to be the MySpace of the Financial Community

Now it needs $2.5 million.
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The Pitch: "We're trying to sex up business news by creating an online community for young people interested in finance, from casual investors to business professionals. HedgeStop incorporates the most popular aspects of successful social networking sites such as Facebook and MySpace. Our users can send internal e-mails through our site, track their friends' investing patterns, and play a fantasy stock market game. The site, which offers free membership, also includes links to business news, along with original content such as blogs and profiles on recording artists. Five years down the line, we'd like to be the destination for three million young people, with $5 million in sponsorships and advertising revenue each year."


Company: HedgeStop

Owners: Daniel Carroll, 25, and Christopher Carlevato, 24

Location: Chicago

Employees: None

Founded: 2005

2006 Revenue: $48,000

Needed: $2.5 million to $3 million to hire three marketing people, an outside public relations firm, and one or two software engineers to enhance the site with features like streaming video.

Customers: Advertisers such as the EFX Group, an online foreign exchange, and StubHub, an online ticket seller

Audience: The site has about 2,200 members and adds an average of 400 new users a week.

Recent Buzz: Profiles in the Chicago Daily Herald and on local radio shows, blog mentions on technology site CNET


Investors React

Partners needed

The idea of creating a community for people just entering the working world is interesting, but HedgeStop's advertising-based business model is unclear and untested. The founders need a clear product-development road map, a detailed marketing plan, and a credible management team. Even then, it will be much more difficult to build an online community today than it would have been five years ago. HedgeStop should partner with sites that already have well-defined communities and content, such as Yahoo (NASDAQ:YHOO) or Facebook. If it develops a series of channel partnerships with those sites and raises its modest $5 million revenue projection, it may be able to raise capital.

Jonathan Silver
Founder, Core Capital Partners
Washington, D.C.

Bootstrap for now

I'm not sure HedgeStop needs to raise money yet. Classic Web 2.0 sites like this can go a long way without drumming up much capital. In fact, compelling online communities usually grow fast in the beginning without much financing. Carroll and Carlevato should wait until their site is a proven success, with at least one million members, to spend much on marketing. As for the pitch, I like the Animal-House-meets-Wall-Street concept, but I'm concerned about the target audience. Advertisers are interested in building relationships with young consumers, but they become a lot more interesting when they mature into professionals. I wonder if HedgeStop's members will still be interested in the site as they get real jobs.

Thomas Rosch
General Partner, InterWest Partners
Menlo Park, California

Build the brand

By focusing on finance, HedgeStop runs the risk of alienating the people who are most active in social networks: teenagers. Investors are looking for Web 2.0 companies that are highly scalable, and HedgeStop's audience growth rate of 20 percent a week is far too low. If you project that over two years, the site still would not have as many visitors as some of its competitors, such as Young Money, which has about 1.2 million users. If Carroll and Carlevato can get this site to the point where traffic is doubling each week, they may be able to attract investors. To spur that kind of growth, they should reenvision HedgeStop as a lifestyle brand by adding financial tutorials and other value-added services.

David Rose
Chairman of the Board, New York Angels
New York City

Last updated: Feb 1, 2007




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