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Bootstrapping to $20 Million with Intelligent Financial Engineering: Tim Hentschel, CEO of (Part 6)

Posted on Monday, May 18th 2015

Sramana Mitra: What do you want to do? Is this something that you are going to accelerate by taking outside capital or do you want to remain an employee-owned organization?

Tim Hentschel: Debt is so cheap. It’s 3% to 4%. People get excited about the private equity money out there. I agree that it has got some merit, but equity investment is expensive money. Whenever you go to pitch to an equity investor, you’re always going to tell them your strategy for using the money. If you really believe it and you know you can do it, then you’re better off getting debt because you can just pay that back with the kind of growth an equity investor would be interested in. You could easily pay back that loan two times faster than you’re supposed to.

Whereas when you got an equity investor, you get an equity investor for life. Finding agreeable terms for a buyout, especially if you’re a private company, can be difficult. You’re going to be constantly pressured to do a lot of things with that money and for those investors. It’s not something that you can take lightly. It’s one of the hardest things you can do.

That being said, if you’re doing your fiduciary duty, you constantly have to be looking at both ways of funding a business. You have to look at equity and debt. We’re always interested in talking to equity investors at any point to see what their thoughts are. They have a lot of knowledge—especially the investors that are specifically in the tech travel space. Respecting them and talking to them is essential to make sure that your business stays competitive.

Sramana Mitra: There are various ways of building businesses. I think the path that you are taking is a perfectly reasonable approach. You have built a good solid cash flow business and you have a good balance sheet. You were able to attract debt at reasonable terms and finance your growth internally. You’ve done some interesting financial engineering already to buy out your early investors. I see a ton of different case studies. What you’re describing is a perfectly valid path of building a company.

Tim Hentschel: Thank you. I think it actually helped in those early years with the acquisition of our real estate. We have had relationships with banks. That’s a path I don’t think a lot of tech entrepreneurs tread mainly because banks aren’t friendly to them. They just look at you as an un-collateralized business.

Sramana Mitra: The moves that you’ve made of putting some of your money into real estate actually gave you the currency with which to work with banks. Normally, tech companies don’t get to work with banks until they have a balance sheet. By the way, there’s a very good process of getting an equity investor to put in some money. Some of these investors have relationships with banks who would lend against that equity.

The combination of debt and equity is a combination that some banks will work with. Basically, the banks then will use the equity investors to provide the due diligence and the guarantees. How many people are you now?

Tim Hentschel: We’re 120 employees.

Sramana Mitra: Global headquarters is in London?

Tim Hentschel: No, European headquarters is in London. Our North American headquarters is in Palm Beach.

Sramana Mitra: So Florida is the global headquarters?

Tim Hentschel: Right. For the majority of employees, we’re regionalized for the most part.

Sramana Mitra: These bank deals that you have done, where are those banks?

Tim Hentschel: PNC is our main bank right now.

Sramana Mitra: Where is that?

Tim Hentschel: Pittsburgh is their headquarters but they bought National City Bank in Florida. They’ve got a very big presence in Florida.

Sramana Mitra: How big is the market that you are in? Of course, your competitors that were heavily venture-funded have gone out of business and you have all the big contracts. How big a business can you build out of this business model that you’re executing on?

Tim Hentschel: It’s a $45 billion industry. We’ve really only scratched the surface. We’ve obviously made some really great partnerships with major online travel companies. But it takes a lot more to educate the consumer that there is an option out there for group travel that also has a great free service for them to utilize. We’re getting out there. We’ve got pro sports sponsorships. We have over five million unique visitors a month go to and we also have

People are getting to our site and seeing that there is this service out there. With the demographic switching to the millennials with more buying power, the market is shifting more towards services like our company. For something that’s traditionally done offline, it’s moving online because people love to use their smartphones and tablets. Our apps are top-rated and the only company out there that has hotel booking distribution system that’s mobile-friendly.

This segment is part 6 in the series : Bootstrapping to $20 Million with Intelligent Financial Engineering: Tim Hentschel, CEO of
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