Below is a guest post by Max Walsh, our newest contributing writer. He’s a senior at Tulane studying finance. Follow along to read his next post about venture capitalists, funding, and other finance news.
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Over the past few years Scott Wolfe has managed to find something every entrepreneur seeks, a market inefficiency that can be readily solved by his skill set. Working as a construction attorney in 2008 Scott noticed that many of his clients where asking him to file construction liens on their behalf. Realizing that the lien process could be automated, Scott founded Zlien. The company wrote software to make filing a lien faster and simpler for both client and company. Zlien persisted as a side business largely run by Scott’s sister, Jennifer, until the company saw its revenue double between 2010 and 2011. Transitioning from working at his law firm full time, Scott saw a need for more capital to truly transform Zlien, beginning a capital search in July of 2011.
One of the first firms he came upon was the New Orleans Startup Fund, a non-profit fund that seeks to grow businesses in the New Orleans area. Zlien worked successfully with the New Orleans Startup Fund, raising roughly 15% of its capital through them and the other 85% through for profit funds and investors that New Orleans Startup Fund connected them with.
In speaking with Scott, he had several useful pieces of advice for other companies going through this process. When Zlien first began its captal search Scott sat down with Jen Medbery, CEO of Kickboard, who advised him that any business undergoing a capital raise should be prepared fro the process to take a long time. A company must have cash to stay afloat during this process and must be able to continue operating without its primary owner. Zlien was in fact incredibly well positioned for this as Jennifer had been handling the day to day operations and Scott only became involved with Zlien full time in January of 2012, hallway through the capital process.
Furthermore, entrepreneurs must have a plan for every dollar they seek to raise and be able to justify why that is the amount they need. Scott said, “If you say I need 500,000 dollars then the investor is going to say why do you need that much and why do you need that little?” Zlien laid out plan to investors focusing on two primary capital usages, marketing to scale the business up, and infrastructure to support that growth. Scott described this issue as a “chicken or the egg” conundrum. Firms market themselves heavily to produce exponential growth, but most have existing infrastructure to support that exponential growth, which is capital intensive.
Zlien already operates a specialized and targeted marketing campaign, a necessity due to the pinpoint nature of the services it provides. The company advertises on internet search engines and within specific trades and a large potion of the $500,000 they raised will go towards ramping up these efforts. The other sizeable portion of capital will go to ensure that Zlien can smoothly and efficiently handle this increased order volume. At this time Scott says he is content with the current amount of capital Zlien has raised, but future opportunities may change that.