For startups, venture capital isn't a must

ArkNet Media chief Ryan Alovis, foreground, with his

ArkNet Media chief Ryan Alovis, foreground, with his core employees, from left: Justin Tamburro, Jason Reese, Shaquana Lee, Adam Alovis, Robert Reynolds and Marie Carter, at the company's soon-to-be new headquarters in Garden City. (April 26, 2013) (Credit: Heather Walsh)

In famous tech startup stories like Facebook and Tumblr, venture investors have leading roles. Long Island entrepreneur Ryan Alovis, however, is using a different script.

The 30-year-old founder and CEO of ArkNet Media started his company with a magazine subscription website at the end of 2006. Since then he has added four other businesses under his company's banner, including a contact lens e-commerce website, an online party-booking business and a site selling home security systems.

The company is growing: ArkNet Media plans to almost double its staff of 15 and move from its cramped Valley Stream space into larger, modern offices near the train station in Garden City.


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All of this, Alovis said, has been accomplished with no outside investors.

"There's this awful misconception now that in order to be successful online you need to raise money" from investors, Alovis said. "These young entrepreneurs are blinded by the excitement and are almost naive about the consequences, especially if you are taking on a partner who isn't as passionate about your business as you are."

The fast rise of 26-year-old David Karp, and the fortune earned by early investors in his blogging site Tumblr, made headlines this week when Yahoo purchased the company for $1.1 billion. But the reality for most tech entrepreneurs is different, experts said.

Venture capital can be hard to obtain. Long Island companies received $32 million in such investments in 2012 -- a sharp drop from $46 million in 2011, according to a report compiled by the National Venture Capital Association and PricewaterhouseCoopers, and company reports.

Investors are increasingly selective and skeptical, said Richard Hayes, a Hofstra University associate professor of management and entrepreneurship. "It might be great to have the latest, greatest, flashiest application, but can you monetize it?"

While early financing can be critical for startups like biotech ventures, whose products require significant money and time to launch, e-commerce companies are often much more straightforward, said Mark Lesko, executive director of Accelerate Long Island, an organization aiming to promote the growth of technology-based startups. For these companies, Accelerate preaches a lean, bootstrap business model: Grow the startup's revenues and use them to finance itself, he said.

"Seed funds, angel funds and venture capital funds gain a lot of publicity, but the absolute best way to fund and grow a company through an entrepreneur's standpoint is by booking sales and plowing the profits back into the company," Lesko said. "If you can grow the company without having to take external capital, you control the company and you don't have to give away ownership."

 

Financing own growth

Entrepreneurs who can do this will be in a better position when they do decide to court investors, said Andrew Hazen, founder and CEO of Angel Dough Ventures, a Hicksville company with more than a dozen portfolio companies and investments.

"It's extremely important to get early traction because obviously you will have more valuation as it grows," said Hazen, also co-founder of LaunchPad Long Island, a 12,000-square-foot "co-working" space and accelerator in Mineola.

By getting his companies to finance their own growth -- and by sharing employees among his various ventures -- Alovis, a native of Woodmere now living in Manhattan, has built ArkNet Media into its own startup incubator. Long Island politicians and business leaders have long pushed to attract entrepreneurs like Alovis and ventures like his to the area, in the hopes of creating a high-tech hub and generating jobs to reinvigorate the local economy.

In 2006, Alovis was making a good living promoting nightclubs and events in New York City, a career he started as a sophomore in high school and continued through college. But he was frustrated with the lifestyle and looking for a new challenge, he said.

The opportunity arose when his father and uncle introduced him to a frequent client of their optical chain who was an executive at SynapseConnect, a Stamford, Conn., company that sells magazine subscriptions.

At their suggestion, he pitched an online site selling print subscriptions -- called Magazine Discount Center -- that would partner with SynapseConnect. Synapse gave Alovis a shot.

 

A grueling schedule

The burden was on Alovis. He had no experience building an online storefront, and he funded the operation with his own savings and earnings from his nightclub work. Alovis kept a grueling schedule promoting nightclubs and events in the evenings and early morning hours, then calling Web developers in India at 3 a.m.

"If I had to do it again, I don't know if I would have made it," Alovis said. "It was that hard."

As the business struggled to get off the ground, Alovis said, he knew he needed to invest in talent even if he couldn't really afford it. In 2008 he hired a contractor with experience in the magazine industry. The company improved its Internet marketing strategy and relaunched itself, making it easier to buy subscriptions, he said. Alovis saw results.

In 2008, sales for December, typically a strong month for magazine subscription sales -- hit $195,000, up from $4,500 for the same month a year before.

In 2011 he hired a vice president with more than a decade of Internet marketing experience. December sales exploded again, this time reaching $800,000. Sales for 2012 totaled $5.3 million, Alovis said.

"They have stepped on the accelerator," said Eli Chalfin, president of SynapseConnect. "He invested more in media buying and paid search, driving more traffic to the site and selling more magazines. They are now a significant player."

As Magazine Discount Center began to take off in 2009, Alovis stepped into two other very different e-commerce ventures: Birthday Party Booker and Lens Direct.

Tapping his event and nightclub networks, Alovis created Birthday Party Booker as a free online service finding New York City party venues for customers. The venues pay the company a fee for each person attending the event.

Birthday Party Booker was immediately profitable, Alovis said. The company is planning to debut its services in Chicago and is developing sites for specific events such as reunions, graduations and corporate parties.

In 2009, Alovis also bought a majority stake -- he holds about 80 percent -- in Lens Direct, an online contact lens retailer. His uncle and father had once owned Lens Direct long ago but had sold it. When Alovis bought the company it was losing money, he said.

Through trial and error, Alovis learned how to improve his operations, reducing the number of distributors the company uses and negotiating better payment terms.

 

Boosting visibility

His experienced staff -- which focuses 70 percent of its time on one venture and spends the rest working across the company's operations -- also boosted the site's visibility on the various Internet search engines. Lens Direct's annual sales rose 120 percent from 2009 to 2012, Alovis said.

ArkNet now plans to expand the site to offer prescription glasses and optical products. ArkNet has recently added online selling sites for home security systems and newspaper subscriptions, which include packages for Newsday, the New York Daily News and other papers.

Although obtaining credit was difficult in ArkNet's early days, the company now uses a revolving line of credit in the "high six-figure range," Alovis said.

When he started he never entertained the idea of venture investors, he said, because he was young and didn't quite grasp that it was an option. In addition, selling print magazine subscriptions "was not at the top of any VC's to-do list," he said.

After taking on Lens Direct, Alovis said, he has considered the idea of finding an investor or a strategic partner with a similar customer base.

"For now, I'm very happy and proud of the current growth of all the different businesses sans outside money and influence," he said. "The smartest thing I can do right now is reinvest in the core ArkNet portfolio."

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