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Wild Apricot is a young technology company out of Toronto, Canada. We provide Software-as-as-Service for associations, clubs, and non-profit organizations. This is our story of an investment round that fell through due to economic conditions.
Our clients are primarily based in US and Canada, as well as other English-speaking countries around the world: UK, Australia, New Zealand, Singapore, etc. (software is currently only offered in English). As of now (November 2008) we already have over 12,000 organizations signed up for our membership website software, which we think is not bad for a barely 2-year-old startup.
Originally financed by our founders, the company wanted to grow faster and in December 2007 decided to seek additional financing from outside investors. Things progressed quickly, and by February 2008 we shook hands on a deal with a new investor: a very entrepreneurial investment company out of UK. Closing was planned for April 2008.
Of course, things never go as planned (and this is one of the lessons many startups learn the painful way). First, due diligence protracted much longer than expected. This was partially due to the fact that our Canadian-based company has a subsidiary office in Moscow, Russia, where the bulk of software development work takes place. The investor was keen to ensure that the intellectual property was properly protected, and it required changes to the legal setup of the Russian subsidiary, new employment contracts for all employees, and a bunch of other changes.
Then the MBAs and lawyers got their hands on the deal, and it quickly deteriorated from a relatively simple original term sheet to a thick stack of very complicated contracts.
This was to be the first Canadian deal for the investment company, and the deal stalled for a while as the investor’s lawyers struggled to reconcile the terms sheet with their standard templates and the wording of UK contractual law with the Canadian legal system and its way of doing things. (That’s another lesson for start-ups: making a deal outside of your home base frequently takes much more time and energy.)
The shareholder agreement, articles of association, board by-laws, and all the other fun documents multiplied in versions like rabbits.
Everybody got exhausted, and the deal almost derailed a few times and was only saved thanks to the open dialog between our company and the majority shareholder of the investment company.
Dmitry Buterin, the Chief Apricot (aka President of Wild Apricot), got the final documents on the morning of October 9th, 2008. He was visiting the Moscow office at the time and went to work having the documents signed and faxed between Moscow and Toronto.
Alas, it was not to be. At 4:00 pm, he got a call from the investor. “We are not going to close the deal after all. Our shareholders are panicking and withdrawing their money. We cannot do any new deals now.” The financial crisis finally hit home.
After seven months of due diligence, many thousands of dollars spent on accountants and lawyers, and countless hours invested by the management team, Wild Apricot had to write it all off.
It was even more disappointing because our company was delivering on its promises. Back in January 2008, we provided a detailed financial projection, and at the last check-in with the investor team we were proud to show the September and year-to-date numbers were right on the projections.
As the saying goes, in every crisis there is opportunity. So, the Wild Apricot team went searching hard for those opportunities.
The story is still being written because the crisis is still unfolding, but here is what we have achieved so far:
- We asked nicely, and the investor agreed to reimburse part of Wild Apricot’s legal expenses, even though there was no legal obligation on the investor’s part.
- We contacted local media right away to capitalize on all of the hoopla about the crisis and ended up on Canada’s CBC television.
- The founders put together another round of their own money, and while they had to scale back some growth ambitions, we feel comfortable about riding out the current storm and bridging this and the next investment round. (we knew that any deal had a risk of falling through, so we had backup financing arranged in advance, and it came in very handy.)
Wal-Mart has been reporting record growth as of late and McDonalds is stealing market share from Starbucks. So we think Wild Apricot might do even better in these tough times. Non-profits are hurting and have to trim their budgets (just search Google News).
To tell you more about our software: the basic premise is that for a simple, flat monthly fee of $25 to $200, Wild Apricot replaces up to seven separate pieces of software: the content management system for your website, a members database, a secure private website for members and the board, an event registration system, online payments processing, software to send bulk emails and newsletters, and online community facilities, such as blogs and discussion forums. Technical support and updates are free.
For a small association or club, this set-up saves thousands of dollars in software, countless hours of volunteer time usually wasted on copying and pasting and reconciling the data between a dozen Excel files, and paying through the nose for IT services.
Wild Apricot delivers a custom-built website project that would cost the equivalent of $20,000 or more (not to mention hefty ongoing maintenance and support fees).
October 2008 has been our best month in terms of absolute financial growth (meaning our monthly revenue has increased by the biggest amount ever). Percentage-wise, our revenue grew by 11.3% in a single month! And November so far is shaping up to be an even better month for us.
We we are very confident in our ability to keep growing by staying agile on our feet!
And here is the silver lining:
The US dollar is shooting up against most other currencies. Wild Apricot software is priced in US dollars, while its expenditures are largely in Canadian dollars and Russian rubles. This adds a healthy boost to its bottom line.
What are your war stories? How are you navigating these waters, and what new opportunities are opening up for other technology startups?
If you’re curious to know more about this ‘gritty startup’, please click through to Wild Apricot’s website and support a RWW sponsor!
