Unicorn in the Making: Avi Steinlauf, CEO of Edmunds.com (Part 5)

Sramana Mitra: The Internet business model that you were settling on was CPA lead generation or was it just straight up advertising?

Avi Steinlauf: CPA lead generation would be a fair description using Internet lingo. That was just the beginning because we were also being approached during the later part of the ’90s by a number of the automotive manufacturers as well as their ad agencies. They said, “You’ve got this audience of several million people on your site monthly. We’d like to put our advertising messages in front of that audience. We’ll pay you for the ability to do that.” Candidly, in the early days, we weren’t comfortable with that. Advertising has not really evolved where we felt it was reputable or legitimate. For many years, we deferred.

By around 1999 and into 2000, we realized that the Internet had evolved. Consumer sophistication with the Internet has evolved to the point where people understood what was the content and what was the editorial that was being provided by top notch publications whether it was in New York Times or Wall Street Journal. So we began to take advertising on the site primarily from the automotive manufacturers and their agencies in 1999 and 2000.

Over the last 17 years, we built up a fairly robust advertising offering in addition to what you’d refer to as the CPA side of lead generation for our business. There was really two prongs to the model from an Internet perspective that really helped to generate a tremendous amount of growth for the business over the last 17 to 20 years. It has allowed us to evolve to the point where in 2005, we stopped publishing the print guides and are now exclusively online, including mobile. In our minds, we consider ourselves to be medium agnostic as long as people are able to get access to the information, which primarily happens through computers and mobile devices.

Sramana Mitra: I have a number of strategic sections that I’d like to pursue as part of the entrepreneur’s journey. Let’s start with financing. Is this all self-financed or did you ever go out to raise financing? What has been the thinking about that?

Avi Steinlauf: We’re a little bit non-traditional in where we’ve arrived. I will tell you in the early days, it was all self-financed and partner-financed where in the earliest days, we leaned on some of our partners and vendors to provide financing to allow us to build the business. In 1999, we took on a round of outside financing where we raised money by selling equity in the business. It was a minority equity stake. We raised money from some big financial players.

The reason that I stressed the fact that we raised a minority amount of the equity is the family has always maintained well over 50% of the ownership. Over time, some of the equity partners wanted to cash out. We bought back shares from them but it is our desire, which is different from many companies in the Internet space, to remain a privately-held business. We’d like to grow for the long-run and potentially, multi-generationally. While understanding that the timeframe of some of the outside investors may be shorter than the family’s, we think that at the right time, we will provide a generous return to those equity holders if and when they decide that they want to get out and sell their ownership stake in the business.

Sramana Mitra: Currently, do you have other equity holders besides the family?

Avi Steinlauf: Yes.

Sramana Mitra: Let me understand the decision making here. You wanted to maintain controlling interest in the company. So when you went out to raise equity, what kinds of investors did you got to? Obviously, venture capitalists don’t think or operate that way.

When we look at our audience, the vast majority of entrepreneurs are thinking of venture capital as the only way of financing. Of course, that’s not true. There are lots of other kinds of investors out there but when people think about the technology entrepreneurship world, they automatically think of venture capital. If you could help our audience understand a bit of your thinking and the investors thinking and how you navigated that world, that would be great.

Avi Steinlauf: What’s important to understand is that the environment that existed in 1999 and in early 2000 prior to the exploding of first Internet bubble was a very frothy environment. I don’t want to overstate it. Anybody who had a fancy PowerPoint presentation was able to raise money from investors back then. We were certainly a legitimate business and continue to be a legitimate business but the environment was so frothy that it’s not like in today’s day and age that the investors had the opportunity to be choosy. Back then, people were trying to deploy capital no matter what was going on.

So we were fortunate to find some large pension funds and some strategic players who were aligned and wanted to get involved in our business. We raised money on very favorable terms from them. It’s not like it is today. It’s not like it has been for many many years where a venture capitalist would come in and start dictating the terms and would have all sorts of provisions and rights. It didn’t occur at that time that we brought money in. Had that been the case, we likely would not have raised outside funding the way we had.

This segment is part 5 in the series : Unicorn in the Making: Avi Steinlauf, CEO of Edmunds.com
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