Joanna Track's closet used to contain exactly one set of "going-out" clothes. "I had literally one stylish outfit, and any time I had to go to an event, that's what I put on," she says. It was 2004, and the self-professed shopaholic had just launched Sweetspot.ca, a Toronto-based website that roots out all things cool and spreads the word to savvy shoppers through daily e-mail newsletters. But even though Track spent her days trend-spotting the sexiest threads, sassiest beauty products and edgiest spas and restaurants, her financial straits made these searches largely a spectator sport. "Here I was, supposedly on top of everything that was cool, and I couldn't buy any of the stuff or go to any of the places," she says.
Then came the phone call. In early 2006, Louise Clements, vice-president of digital properties for Rogers Media, approached Track about cross-promotional opportunities between Sweetspot and Rogers's digital publications. The conversation soon turned to the prospect of Rogers taking a minority stake in Sweetspot, and although Track was skeptical at first, she was also flattered. "The fact that a company of Rogers's stature took interest in a company I started in my apartment was huge validation," she says.
It's a good day for any small business when a corporate giant takes notice and wants to buy in—but you never get something for nothing. "If I invest in your business as a corporate investor, obviously I'll want to have a say," says Rob Assal, a lawyer with Stikeman Elliot's corporate group in Toronto. And that's a scary proposition for a small operator: How do you maintain control over what you've created, often at great personal cost, while keeping the investor satisfied?
Letting a massive corporation in on what she'd built (at a cost of $70,000 in personal debt) would be a huge adjustment for Track, who'd given up a roomy office and a six-figure salary as an account manager at ad agency Ogilvy & Mather to become her own boss. The potential upside was huge—Rogers's money and marketing muscle could amp up her company's growth. But the risks, Track learned, were also enormous.
Minimizing such risks involves, first and foremost, making sure you pick the right partner. "If one company is interested, there may be more," says Dr. Becky Reuber, professor of entrepreneurship at University of Toronto's Rotman School of Management. "And the investment can preclude other corporations from buying in." An entrepreneur needs to thoroughly research potential investors, making sure their objectives and control expectations are a good match.
If they are, a corporate investor can be a huge boon to a start-up, notes Toronto venture capitalist and business author Sean Wise, because such investors are, by definition, looking for a strategic fit rather than solely a financial windfall. "The founder will often get better terms with this type of investor," he says. More importantly, the entrepreneur can gain access to valuable business expertise and support—a large sales force or extensive financial and logistical help in tapping new markets.
For all these reasons, Track was intrigued. "If you're talking about media in Canada, Rogers is at the top of the heap," she says. After all, Rogers Media owns more than 70 magazines and 51 radio stations as well as the Shopping Channel, and made six outright acquisitions last year. Also, the strategic goals of Sweetspot and Rogers were well aligned: Track specialized in a medium—newsletters—that wasn't core to Rogers, and the conglomerate was keen to expand its digital holdings. "Sweetspot is relevant, but it's not what we do," says Louise Clements.
Still, when Track got the call, her initial reaction was apprehension. That's because she'd been down this road before with two other potential investors, and the experiences had left her disillusioned. "Their stories kept changing," says the 37-year-old. "One day my company was worth X amount of money, and then suddenly the next day it was worth less." But she was heartened by Clements's underlying message. "One of the first things they said to me was, 'We like what you've built and we don't want to mess with that.' I needed to hear that."
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