Australian wine e-retailer Vinomofo was still in its early days and seeking to scale up fast when co-founders Justin Dry and Andre Eikmeier decided to sell 70% of the business to another e-commerce company.
But a year into the new structure they realised they’d made a big mistake.
It sounds like a predicament founders everywhere have nightmares about, the Vinomofo guys got lucky and were able to buy back the business.
Justin Dry recently recounted what happened during a screening of the new film about three Australian startups, The New Hustle.
It all started a bit of heavy-handedness by Vinomofo’s bigger rivals.
“Producers at that time were saying ‘The big guys are threatening to take our wines off the shelves’ and we needed to be able to say ‘Alright we’re going to buy as much or more’,” Dry recalls, adding the business had to either take money or join a bigger organisation.
“The first time Vinomofo ran into this predicament was in 2012 and we decided to sell part of the company to a giant online retailer at the time, Catch of the Day.
“They ended up with 70% of our company in 2012 — we launched in 2011.
“They wanted the whole thing and we refused because we didn’t want to stay on unless we had some pretty big upside.”
The early days were amazing
“The early days were f**king amazing with those guys. We’re like ‘Oh my god’. We took a little bit of money off the table… and then we got to be surrounded by a really successful company, which was amazing.
“In the first week, we set up a meeting with all the super smart leaders within the team and said ‘Help us. Let’s pick their brains’ so those types of things were amazing.
“However, you become a very small cog in a big wheel. We were tiny compared to Catch. I think at that stage we were like $4 million [in revenue], or something like that, and I think they were doing like $200 [million], so we were like completely nothing. But they saw our upside.
“Then when we realised there wasn’t as much crossover as we’d hoped with the customer bases.
“We’d always targeted this kind of premium to super premium wine buyer and we thought ‘Well fuck, they’ve got two million customers right? Even if we get like 10% that’s like 200,000’. That was going to change the game for us.
“What we realised was that wasn’t going to happen because it was a very different buyer and we didn’t get those kinds of customers.
“So here we are a year in, Catch is kind of putting their focus and attention in other places. We’re sitting on 30% of what we used to own 100% of and it’s not taking off like it was supposed to take off.
“We decided to build up the courage to talk to the founders and ask if we could buy it back.
“It was a really awkward conversation but thankfully it was Gabby that we had the conversation with. He came from the same background.”
Gabby Leibovich co-founded Catch of the Day in 2006 with five staff and a small warehouse.
The Catch Group now sells an item online every 2.8 seconds, and in November 2014, became one of the first warehouses in Australia to introduce robotic automated picking.
“He kind of understood it,” said Dry, “the fact that we were 30% and we felt like we were off to the side.
“We wanted to own it again, we wanted to have independence.
“When we had that conversation, when he got past the initial shock that we wanted to leave, it started to get kind of fun because it was like ‘Oh, shit that’s going to be expensive’.
“Then… it was very delicate conversations for a couple of months, and Andre and I would disappear into like, the medical room, the first aid room, to have these private conversations in case anyone could hear us.
“Eventually after about three or four months we managed to buy it back. I think, June 30, 2013.
“That was the most exciting thing ever but then we realised we had to pay for shit again.
“It was so funny we stayed up until midnight because the bank transferred over on July 1, 2013 and we were like ‘Okay, cool does it still f**king work?’ And we’re reloading the page because we’ve got no money we gave them all the money back. So we’re like reloading, reloading, and it’s like 12:01, nothing happened. At 12:02… it was like 230 dollars and we’re like celebrating like “We’re back, independence baby!” And then we realised we needed to sell another 20 thousand before we could afford the wages this week.
“Amazing journey, but yeah, challenged.”