Lee Odden

Session: Build Investment Interest in Your SEO/SEM Firm

Pat Hall Anne Kennedy

How to Build Investment Interest in Your SEO/SEM with an introduction by Anne Kennedy and a presentation by Patricia Hall, Investment Banker, Hallmark Capital. If you own and/or are running a fast growing search marketing agency and want to gain more insight into making your firm more valuable for acquisition/investment, then this session is for you.

Pat Hall

What Wall Street looks at.

  • Client list is important. Keep in mind, if you have big name clients now, what will you need to do to keep them.
  • Nature of revenues. Are they one time projects or are they retainer based? One time projects can be good if you specialize and can go to all the other players in a category.
  • Technology strategy. For example, if you’ve created a software application to mine keyword data, that is valuable.

You don’t have to develop your own software. You can take a best of breed approach and bring to clients whatever the best solution is for your clients.It’s an interplay of these factors that interact within your own company that determines how valuable they are.

  • Scalability. If you’re able on a dime to scale up, that is seen as valuable. Brings up Healthcare industry as an example.
  • Management/owner and leadership. There’s no one best answer, it depends on who is looking at investing in you. An ad agency will look at different attributes than someone who is new to your industry.

There isn’t necessarily one right answer – it’s the interplay that determines value. Value is in the eye of the beholder. In the end, you’re valuable to the person looking at you. Some companies are percieved as valuable even without revenue, depending on what the acquiring company sees as the compliment the acquisition would bring.

Three key factors that investors look for:

  • Sustainable revenue generation. Can you generate revenues today, tomorrow and in the future. What is the nature of those revenues and can they be maintained? Retainer or high volume of one-offs – it doesn’t matter. The gap between generatig revenue now compared to the future is a risk to be evaluated.
  • Visionary leadership. Whether you are the sole leader or part of a team. The investor will want to be confident the leader knows they market, knows their goals and how to get there. The ability to articulate and communicate that vision is very important to the investor market.
  • Competitive positioning. There are many companies in the SEO/SEM industry. You should understan d who the competitors are. Who are you running up against when trying to win business. Think of it in terms of a graph to illustrate the competitive landscape, where you company is within that landscape and be able to articulate how you’re different.

What a SEO/SEM firm can do today to enhance their attractiveness to the investment market.

  • Reputation. Do what you do well. What clients and the industry say about you. Why? You’re selling a very specialized service to a market that doesn’t know very much about it. Reputation is built up over time and it’s cumulative. Take care of your clients.
  • Innovate – Stay ahead of the curve. The SEO industry is rapidly changing so you have to constantly be thinking about how to competitively deliver your services. Search engine optimization used to be about adding keywords to web pages and now it’s no longer that simple. Now it’s all about content, blogs and social media.

Because things change so quickly in the SEO/SEM industry, 3 months is like a year in the rest of the world. Focus on how you’re going to innovate.

  • Diversify revenue and business risk. Diversification doesn’t necessarily mean you need to start offering a whole range of services – trying to offer everything to everybody. Serve clients large and small. To diversify, you can partner with other firms or collaborate with peers in the industry.
  • Identify – tailor to strategic acquirer. Who are likely candidates to acquire your company? Find out what’s appealing to them and play that up. Think of 5-6 companies or individuals that would be good candidates to invest in your company and play to the things that are important to them.

Challenges to the SEO/SEM industry as it related to investment

  • There is a tendency towards commodization. When that happens, it becomes a pricing and customer service game. (isn;t that what happens when you based your consulting business on software??)

The main way to fight commodization is by measurement, accountability and make sure your company keeps its services offerings current.

Examples of commodity businesses that make themselves not seem like a commodity is the online jewelry business. Can do this through fresh content.

  • Saturation – too many firms. Confusing to established investment firms. Focus on how you tell your story, how do you stand out from the crowd. Focus on doing what you do best.
  • Keeping a sustainable technology edge. What worked last year or last quarter, may not work next quarter or next year. Stay focused on having an edge in your services offered. Develop knowledge in a related field.
  • Communication with ultimate buyers. Too many companies look at the surface information about a service and don’t really understand the needs of the real buyers of services Connect with those ultimate buyers (your customers’ customers) and you can lead your clients to better communications with their own buyers.

The days of internet marketing and web 2.0 are here and a fact of life. Companies will ultimately forced to get on board. Tremendous industry growth opportunity in the next 5 years. Be aware of the universe of potential buyers for you company whether it’s an agency or even one of the companies on your client roster.

One consideration for SEO firms is to use their skills to build a web site business and then use it as a showcase for prospective clients or sell it off.

Create a compelling story about what your company does, why it’s different and how it stands apart from the crowd.

Since value is in the eye of the beholder, that means you can create your own value by telling a great story.

Paths to liquidity – how do you get money out of your business.

  • Selling to outside entities. It doesn’t necessarily mean selling 100%. Sometimes you can get more value when you don’t sell your whole business. Example: Sell 60% and then have an earn out on the rest of it. Gave example where a company sold 85% up front and then were able to sell the last 15% for the same amount as the initial 85%.
  • Go public. Not just an IPO, also can do a direct offering yourself. Differs by state. It’s a way to raise a few million for a small percentage of your company. A reverse merger where you buy a public company shell. A company is public that is already registered and you buy it, therefore becoming public yourself. Why be public? If your private company value is X, your public company value is 5X.

Why? There are huge pools of investment capital and most if not all have a requirement to only invest in public companies.

Gives example of a 2m company, growing 100% a year but breaking even. They loaned 1.5 million to buy a public shell. Then raised 6.5 million. They only gave away 30% of the company. Alternative of staying private and raising only 2 million and giving away 80% of the company.

The big benefit of a reverse merger is that you can raise substantial capital without giving away a majority of the company.

– Sell your company to insiders. ie, employees. Get a valuation of your company and then sell to employees over time. Another option is a management buyout.

– Recapitalization. ie, you have your cake and eat it too – keep your company and gain partial liquidity. Monetize pieces of your company as you go along.

Audience: Is there a reason for mentioning revenues vs profits?
Hall: In this industry people are raising capital on no revenues. She gets paid on the pereption of value and has little incentive to draw attention to profits since so many companies in this industry do not have substantial profits.

Strongly encourages the development of your own web properties. Keeps the agency fresh on tactics but also provides a monetization opportunity unrelated to the main business.

Be sure to visit TopRank’s Flickr set for SES New York Photos, updated every few hours.

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Lee Odden About Lee Odden

@LeeOdden is the CEO of TopRank Marketing and editor of Online Marketing Blog. Cited for his expertise by The Economist, Forbes and the Wall Street Journal, he's the author of the book Optimize and presents internationally on B2B marketing topics including content, search, social media and influencer marketing. When not at conferences, consulting, or working with his talented team, he's likely running, traveling or cooking up something new.


  1. Great post but over here we are seeing some HTML codes at the top of the post. Just wanted to let you know!

  2. Great coverage Lee on a complex subject. I really like this one “Sell your company to insiders. ie, employees”. When employees feel like a part of the company they look at everything differently. May not be feasible for a lot of companies but could work well in the right situation.

  3. Lee, I love how you optimize your conference coverage for the organic SERPs 🙂

  4. Ah yes Marty, but if I don’t do it, who will?

    @David I agree.

  5. 6-12x pretax income….wow! Can you speculate on any sales that are examples of these kind of numbers? If I had to guess I would have though 3-6x but I’m no expert. Any insights as far as sales prices?