by Martin Swant – The Birmingham News
Title: managing director, Founders Investment Banking.
Education: Bachelor’s degree in business administration, Auburn University in Montgomery; master’s degree in organizational management from Southern Christian University.
Career: Since 2007, managing director and partner, Founders Investment Banking’s technology practice. Previously, vice president of business development at CTS Inc. and managing partner of Alliance Consulting LLC, a technology venture capital-model accelerator he founded in 2001.
Favorite Book: “Men & Marriage” by George Gilder.
What’s on his iPod: Chris Hodges, David Platt, Tim Keller
Family: Wife, Jamie; three daughters
About Founders Investment Banking: An independent investment banking firm that offers advice to businesses and business owners to help them enhance value, access capital and participate in transactions.
There are two sides to Founders Investment Banking, a Birmingham-based boutique firm. One is the traditional investment banking business, serving the traditional range of companies. The other side brokers multimillion-dollar deals involving Internet properties.
That’s the part of the business where Zane Tarence, a managing director at Founders, spends most of his time.
Since 2008, Founders has completed between 20 and 25 digital media deals, many of them small entities sold to much larger media or financial buyers. The firm recently orchestrated a deal for ConsumerismCommentary.com, a well-known personal finance blog, which was purchased by QuinStreet Inc., a company expanding its portfolio of personal finance media properties. It also arranged the sale of Vertical Alliance Group Inc.’s portfolio of online trucker recruiting web sites to Internet Brands Inc.
The market for valuable content is “white hot,” Tarence says. And while some might argue startup companies in this sector are overvalued, Tarence says there’s plenty of due diligence done to establish their true value.
“These are bought for tradition reasons, and that is return on investment,” he said.
Tarence says there are still opportunities out there. Anyone can be their own producer and publisher using simple content management systems like WordPress and Moveable Type, he said. That creates many chances for entrepreneurs, but also gives more clout to brands that are trusted. Either way, content is king, he said. Respectable sites can make substantial sums in online advertising revenue.
In an interview, Tarence talks about Founders, the Internet and the future of mobile applications.
Where do you see the Internet going?
Clearly the consumer is moving to the Internet to make purchase decisions. And when I say purchase, that’s for where you get your hair done, what doctor you go to, what financial adviser you use, to what lawyer you use to what house you buy. So clearly, the movement to the Internet — it’s game over, from a macro trend. It’s happening. Based on that … content is king.
Why do users come to the Internet? To get valuable data to help them make informed decisions. Or to get a date. To get married. To buy a lamp. I want data. I want content. And whoever is a trusted authority as a publisher on the Internet is who I’m going to vote for with my time and energy, and ultimately probably let that site make a recommendation of what I purchase. So all these large companies are trying to as quickly as possible build the capacity of digital media.
We see sites like Facebook getting extremely high values. Do you think these types of sites are being overvalued?
I don’t want to create an exuberance in this. These businesses that I’m selling are valued based on rational, traditional metrics. They’re being bought based on cash flow, based on the brand they’ve created, based on audiences that they’re communicating with — just like you’d have a Nielsen rating for TV, they have Nielsen ratings now for digital media.
So basically, these businesses are being bought for very rational reasons. I don’t see irrational valuations, like “Oh, this is going to be the new online pet store I’m going to give it a $100 million valuation.”
No. I don’t buy this early stage VC investing that’s almost irrational exuberance. It is very measured, it is very businesslike. There are ways to build absolute return, ROI — return on investment. We’ll selling companies based on proved statements.
How do you go out seeking companies?
We’ve been blessed because people talk about us on blogs. So the owners, these communities of owners of web sites, they talk across the world. They’re Internet entrepreneurs, so they’re on blogs and they say “Hey, who sold your website? What do I do?” and they give each other advice.
We have an average deal flow of 20 to 25 inbound calls to our little Birmingham office every month. Now these are emails, calls, where people have found us and about every deal we’ve gotten has been a referral. And also, a lot of investment banks are like, “We’re not going to go down to $15 million websites.” Well, goodie, because that’s a wonderful market for us.
What size companies do you look at?
I’m getting on average about 1 in 60, that just comes to us, where they’re making more than $2 million a year in profit. And that’s pretty much my benchmark now. I like sites where their profits are over $2 million. Now that’s interesting, because that’s a real business. Honestly, I want people calling me that are making more than $1 million, because they might be in a neat niche.
With the emergence of mobile apps taking away at least some attention from the Internet, where do you think all this is heading?
I think it’s a major move and more and more time is going to be in these proprietary environments (such as mobile apps). However, the ubiquitous interface that my grandmother and my eight-year-old can navigate is the web browser. The concept of hyperlinks and ability to click on this to connect to a web of data, consumers love it. I love it. I like the aspect of its freshness, of democracy — as in, it’s open.
I continue to believe there is a place for domains and for wonderful web properties that people will access. Do you have to consider (mobile apps) in the valuation of (websites)? Absolutely. It’s splintering the time of the Internet user. Just like cable TV splintered the market.
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