When two-year-old Envato received a firmly worded legal letter from tech juggernaut Adobe in 2009, the team thought their business was over. “We were terrified. It was just, oh my god our company is about to be demolished. Terrible things are going to happen and our world was rocked,” co-founder and business intelligence director Vahid Ta’eed told StartupSmart. Launched in August 2006 by four co-founders in Sydney, Envato was originally called Flash Den, after their first marketplace that connected buyers and sellers of Flash content. Despite registering a logo including the word “flash den” when they launched, they didn’t attempt to trademark the word until 2009. This is probably what triggered Adobe, which owns the trademark for “Flash”, to send the young company a sternly worded letter. “We got a concerning, and I would even say ugly, letter from Adobe’s lawyers. I still remember reading it, my heart was beating crazily and sweating,” Ta’eed says. According to Ta’eed, the letter informed Flash Den of a series of legal consequences if they didn’t change their company name, website and trademark swiftly. “They were a massive company. It felt like the Borg had come and we were about to be devoured,” he says. (For those who may not watch Star Trek, the Borg are an alien race that forces other races into their collective by turning them into cybernetic organisms.) Flash Den was managing four marketplaces with a team of 15 who had worked hard for two years to build their brand. “We worked through the panic. At first you’ve just got to get past the denial and anger, but then we realised we wanted to switch away from just selling Flash anyway, so maybe a forced branding change wasn’t such a bad thing,” Ta’eed says. They renamed that particular marketplace and their business from Flash Den to Active Den, which enabled them to include emerging technologies such as Microsoft’s Silverlight. They negotiated with Adobe to keep the Flash Den domain for a few months so they could redirect users to their new site. “We’d spent two years and didn’t want to just vanish,” says Ta’eed, adding the Adobe team were actually pretty good about the situation after their first exchange. The team decided to be transparent about the issue and communicated the brand change through a concerted PR effort that included stories in TechCrunch and the Washington Post. “We’d moved beyond just Flash, but we were still that brand, bolted onto that word. To move beyond it was challenging but as a start-up you do what you have to do,” Ta’eed says. The plan had always been to build a portfolio of marketplaces selling online content such as website templates and stock photography. Armed with a deeper understanding of trademarks and a more nimble approach to branding, the Flash Den team went on to explore new company brand names. They originally explored the possibility of rebranding to Eden but abandoned that plan due to the difficulty of trademarking a common word. In 2010, they bought Envato for about $1000 out of a catalogue of brands, complete with the brand, domain and first logo. “I remember when we picked it; I wasn’t convinced we seemed like an Envato. But now it feels like we’ve always been this,” Ta’eed says. Armed with a new brand, they went on to launch four new marketplaces. The team never took any external funding. “Being entirely self-funded is pretty cool. You get to make your own decisions and your own mistakes, which you learn from and live with,” Ta’eed says. Envato now employs over 100 people in Melbourne, with another 100 scattered around the world. In seven years, they have paid out over $140 million in payments to the marketplace “authors” or content creators.
This week’s session of the Next start-up development program was focused on investment, with Adventure Capital co-founder and partner Darcy Naunton presenting to 27 start-ups about investment strategies and business development. Naunton told StartupSmart he was impressed all of the start-ups were tackling genuine problems, and therefore had real potential if they focused their idea on one target market. “The focus in my answers last night was on the need to target and hone in on one market. It’s much easier to test by defining your best market and going after them,” Naunton says. “It also means the number of players and stakeholders you need to get onside are much lower.” Naunton says once an idea is proven, you can approach angel or venture capital investors, and begin expanding across verticals. “Having traction within a single vertical is enough to approach any investor for funding, provided you understand the similarities and differences of the verticals that are next on your list. This is pretty important, because each market has its own dynamics and culture of doing things,” Naunton says. The presentation also explored the changes that are required once a start-up founder takes on investment, adding they are considerable. “You need to be ready for the obligations and cultural change that come when you take on investment and become responsible for someone else’s money. From then on, as director of a company your single goal becomes to maximise shareholder value, even if that’s a detriment to your own goals and lifestyle,” Naunton says, adding most investors expect to be able to exit within five years. Naunton says for new founders with limited track records, it helps to get in touch early to start building relationships before approaching for funding. “Investment is a people game, and getting comfortable with your investors should be your top priority. Get in early and set some goals, and then achieve those milestones and communicate it back before approaching for funds,” Naunton says. He adds it was great to see the start-ups were approaching possible investment pragmatically. “I was refreshed to see they weren’t all indoctrinated into the Silicon Valley mentality, and the idea that a good idea has the right to investment and enough persistence will make it happen sooner or later,” Naunton says. According to Naunton, online marketplaces are one of the most common ideas emerging across all levels of the start-up ecosystem, from start-up weekends to accelerator s to funding pitches, but many misunderstand how complicated these are to scale. “Because it’s quite an easy to understand business model, we keep seeing a lot of marketplace ideas. But they’re really hard to build and scale, and very few successful ones have emerged from Australia,” Naunton says, adding 99designs was the stand out in this space. Naunton added Adventure Capital saw a lot of value in business to business ideas, especially those that focused on delivering and using data such as business intelligence softwares. “Another really interesting area is ideas that follow on from the Amazon web services model and carve out particular aspects of the business process, refine it and turn it into a business of its own,” Naunton says.
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