The elusive unicorn and how to get one

The reality (and fun) of venture capital investing is that you never quite know what the next big success story will be. But you know that a good team, a differentiated strategy and a large, accessible market is a good start. Plus a fair bit of luck, competitors asleep at the wheel and access to money. And a good way of analysing every opportunity.

In 1997, we had three young founders approach us looking for start-up capital for a company called Seek. They had big plans, presented well, ticked a lot of the right boxes but above all they stood out as a threesome with complementary skills. One was out of a major legal firm one was from a large international consulting firm, and one has a strong marketing background.

In addition, the market they were attacking was large and very profitable. The “Rivers of Gold”, the traditional mainstay advertising income of the newspapers: recruitment, car sales and real estate.

In Australia, the major newspaper group was Fairfax Holdings, a listed company with a long and proud history and a market cap of around A$2 billion dollars. Classifieds provided the vast majority of their profits. It was a true and tested business model, unchanged for decades.

The Seek founders original strategy was to attack all of their classified income streams at once. Our strategic corporate advice was to target one sector only to start with. We asked them to convince us which one of these three sectors they had the best business model for, and the greatest competitive advantage. They convinced us that their best model was for recruitment and we backed that sector for an initial capital raising.

(We further recommended that when they make this work successfully, they could tackle the other sectors later. That they never did is a lesson for another day – stick to what you are really good at!)

Seek wasn’t the first to take Fairfax on in the recruitment sector, “Monster.com” – a global company based out of New York – was already operating in Australia targeting the recruitment sector. They were in partnership with NineMSN, a joint venture between a National TV channel and Microsoft – a formidable competitor.

However, the Seek founders convinced us that their model was a superior model. They identified major weaknesses and problems with Monster.com’s approach.

We then sought empirical evidence to support our assessment that this was a good opportunity. We used the 10squared assessment tool and Seek scored well over 60% against the ideal score, whereas the vast majority of start-ups, at this stage of development, would score between 30 and 40%.

We helped them raise A$2 million on a pre money valuation of A$5.5 million from a group of private investors.

More importantly, we helped them find the right investors. Another important factor in the success of any new start-up is to bring in strategic advantage with your investors and your board.

We identified a potential investor who we thought would make great director and advisor for Seek. He had a background in related sectors. He had run a very major company that provided computerised outsourced Payroll Services and also a successful recruitment firm later acquired by Adecco. He became a director and later the chairman of Seek and provided valuable advice and mentoring to the Founders.

The company was growing rapidly in numbers of on-line job listings, and major companies were starting to use the service for their recruitment. It also commenced international expansion initially in New Zealand.

In 1999, additional growth capital was required and an approach came from Fairfax who at this time had started their own online recruitment business, “Mycareer”. They were interested in investing and taking a majority position in Seek. However, their view of valuation was dramatically different to ours, they offered A$20 million and we valued the company at A$80 million. The Fairfax boss laughed and said, “look if you think it’s worth A$80 million, we’ll spend A$20 million on mycareer.com and we’ll defeat you in the market.”

Instead, Seek raised a further A$5 million from private investors and the company continued to grow.

Some time later another approach came from Fairfax now suggesting that an AA$80m valuation was possible. We responded that the company was now worth A$150 million and the discussions did not proceed further.

In April 2000, a pre-IPO capital raising of A$9 million at a valuation of A$115.0 million was successfully executed. The plan was to list on the Australian Stock Exchange to raise more substantial capital and to provide a “liquidity event” for founders and investors.

The 2001 “Dot.com” crash delayed the IPO, but Seek continued to grow and diversified into education. It also continued with its international expansion. Finally, in April 2005, the company made its IPO on the ASX raising A$162 million with an initial market capitalisation of A$587 million.

At this point the business was still primarily in recruitment, although they had expanded in education. The other “Rivers of Gold” from car sales and real estate had been taken up by other entrepreneurs leading to two other very successful companies.

In the period between 2006 and 2011 there was further international expansion with investments in Zhaopin (China), Mexico and IDP and they also launched SEEK Commercial.

Seek also invested in THINK, JobsStreet.com, Catho/Manager, OCC and JobsDB. By 2013, the company was a respected growth stock with an EBIT of A$200 million and a market capitalisation of A$3.5 billion. Monster.com had exited the market in Australia and Seek was the dominant player.

By November 2020, Seek’s revenue has risen to A$6.5 billion and is now worth just under A$10 billion. Not bad for three bright young lads with an idea, a lot of stamina, good advisors and investors prepared to back a bold and well documented strategy.