Allen Lau and Ivan Yven bootstrapped their online storytelling company, Wattpad, for just over three years before raising the $500,000 in seed money in early 2010. It was another year and a half before they raised $3.5 million in a Series A round, and then higher levels of financing continued to roll in.
Lau wanted to validate the Wattpad platform first, “using my own money, basically, my sweat equity,” before bringing in outside investors.
It turned out to be a wise move. In 2007, after a year in business, Wattpad had about 1,000 users—which was a few zeros less than they had projected at the time.
“A year later, I got a $2 cheque from Google,” for advertising, Lau said. Their hosting cost was a mere $5 that year, given that traffic was so low.
“I told my co-founder Ivan, ‘we are $3 from break even, so let’s not give up,’” Lau said with a laugh, while recounting the story this week at the #BCTech Summit.
A fellow panelist made a quip about optimistic enterpreneurs. “This is the quality you must have an as entrepreneur,” Lau replied.
It wasn’t until Wattpad reached a million users three years later, in 2009, that they started to look for, and were able to lure, venture capital financing.
The Wattpad story serves as advice, inspiration and a few lessons for other entrepreneurs trying to figure out how to best finance their startups.
For Wattpad, Lau said venture capital was the only choice, given the high sums of money they needed to scale, and the long road ahead before they expected to turn a profit. The business model was similar to Twitter when it started.
“In our case, we didn’t really start to monetize until year seven in our journey. The first six years our revenue was very minimal,” Lau said, recognizing that no bank would have lent them money at the time.
“For this type of company, venture capital would be the most obvious and in many cases the only choice. Friends and family wouldn’t be able to loan you millions of dollars to fund the company for years. But venture capital, some of them, if they are into consumer Internet businesses, would understand that it could take years before you can turn on the revenue.”
Today, Wattpad is a highly successful, multi-platform global entertainment company. Every month, 45 million people spend over 15 billion minutes on Wattpad, according to the Toronto-based company’s website.
Wattpad recently announced a partnership with Hachette Book Group to produce audiobooks based on Wattpad stories. Hachette Audiobooks: Powered by Wattpad will be available starting this summer. It’s just one of a growing number of platforms Wattpad is working on as part of its plan to revolutionize the entertainment industry.
Lau told the #BCTech Summit crowd that the best advice he received from an investor, as the CEO of Wattpad, was to focus on three key areas: always making sure there’s enough cash in the bank, setting a strategy and vision for the company, and hiring the best people to make it happen.
“Those three principles are fundamental to any CEO at any stage of the company,” Lau said.
If he had to start this latest entrepreneurial journey over again, Lau said he might have started raising money sooner. Otherwise, “for the most part, I think I got it right—by luck.”