SEOmoz's Venture Capital Process | Hacker News Reader

SEOmoz's Venture Capital Process

seomoz.org

29 pointsprakash6 comments

If I were a VC, I might be suspicious. This is a company whose clients pay them up to $1000/hr for consulting (http://news.ycombinator.com/item?id=677799), and presumably they pay their own consultants less than that. So they have a cash flow-positive business that scales more or less automatically (get a new long-term client -> hire a new person; get a short-term project -> add freelancers).

So they could fund expansion themselves, but they're looking for outside capital. One way to look at this is that they want to grow as fast as possible. But another way to look at it is that they're abandoning a profitable, easy-to-understand service business in order to pursue a potential product business. Those 80% margins are for the successful companies, not for everyone.

Which is kind of a weird paradox. SEOMoz is a better, weirder story than a VC might expect. Rand could have more luck if he disguised himself as an SEOMoz employee who was quitting to do his own (product) thing, and looking for funding. That way, the risk/reward would make a lot more sense.

He said in the part about why VC's declined that several VCs said they didn't want to fund a consulting company, and he answered that 80% of their revenue for the last few years has come from their self-service SaaS product, not consulting.

Hey byrneseyeview - it's funny you mention this, because we found that the "branding" of SEOmoz as a consulting business from 2003-2006 really hurts us in the product/software marketplace. We transitioned revenue streams in 2007, and had more than 50% of $ that year from product - those numbers have gone upwards of 80% in 2009. Yet, we still fight against the stereotyping that we're a consulting company.

We're making some moves (and changes to our site) that should help with that in the next few weeks, but it's interesting to see that even after reading the post (where I explained the above in-depth and showed a chart with product vs. consulting revenue), the "branding" is still so strong.

That's surprising! Do you think it was the "Consulting" versus, e.g. "Design and Development"? I wonder if 37signals had this issue, too--the impression I get is that they were kind of dragged away from being a service company, because their product got so popular.

You might have that branding because people are more willing to admit that they hired you as a consultant ("We needed SEO for our site,") than that they bought software ("We needed SEO help to... do SEO.")

And your biggest customers are presumably on the consulting side. I can't imagine a single organization spending $10K on SEOMoz products, but I read somewhere that that's your minimum for consulting.

Anyway, it's definitely interesting to see how other SEO companies evolve.

Well - we certainly have many times more Fortune 500s who are subscribers to the software than we ever served with consulting. And I'd say that getting testimonials and word-of-mouth comes much more with software users than consulting clients (who often like to keep things very quiet).

This is mandatory reading if you're thinking about raising VC funding. The most interesting takeaway, in my opinion, is the almost-always-neglected cost of going down this road:

"However, I do regret the decision to seek funding - it cost our team countless days and weeks of productivity, took our eyes off our primary goal of delighting our members and customers and, in the end, was a learning experience with a shockingly high cost."

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