BOOK EXTRACT: Heart to Start by Derek Handley

These days, Derek Handley is best known for The Hyperfactory - the mobile advertising company he co-founded then sold for millions to US media giant Meridith Corporation - and his latest venture in the same space, Snakk Media.

In this extract from his just-released biography Heart to Start (Random House, $39.99) the entrepreneur recounts the story of Feverpitch, an online betting site he created at the age of 22.

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Chapter 6: Feverpitch

Feverpitch. That’s what we decided to call the betting business. I entered a phase where I was more obsessed than anything I have been obsessed with before. It became my life.

From everything I’d read about starting a start-up, the first thing to do once you had a vision was to come up with a plan; once you had a plan you had to create a story; once you had a story you had to use it to raise money to make it a reality. Once you have some money, you really begin.

I put together my story, a collection of pieces strung together for about 15 minutes to convince somebody to give me money they had worked very hard to earn in exchange for a small piece of my company. The story starts with either the market or the idea, then goes on to the plan and the team. I put mine together in a PowerPoint presentation with a light grey background and crimson font.

I gave my first presentation to John, a potential investor who also happened to be Maya’s dad. He was involved in a drug company start-up that had just listed publicly on the NASDAQ stock exchange in New York.

We sat at his dining-room table and I put the laptop on the tablecloth. My story opened with, ‘P2P is the New Network — Feverpitch is Napster meets Ebay meets the TAB’. It was rubbish. The presentation was full of jargon and utterly meaningless. I was still in an echo chamber of my own thoughts and imaginary friends I’d met through the magazines, websites and stories I was reading. I had forgotten how to speak and write English. John’s blank face was a wake-up call. I regrouped, translated myself back into English and went back on the roadshow again to pitch for dough. I loved it. This was a chance to pitch an impossible dream and convince people to come along for the ride. I hadn’t quite appreciated just how much of a stretch Feverpitch was for people to latch on to — the concept of online betting was hard enough for most people to grasp, let alone the idea of shaking up the industry through a model where people would bet against each other through an online exchange.

FAST FORWARD to March 6, 2013: Derek Handley toasts mentor Richard Branson, who made an appearance by video at an event to mark Snakk Media's listing on the NZAX.

Dad gave us introduction after introduction to people who had money and were willing to take a punt on crazy schemes. A few of them became believers and came aboard, either because they got it, or because they were scared that if they didn’t get it, they’d miss out on the next big thing. The more you tell the story, the better you get at it. The more people ask questions, the more you bake the answers into the story so that next time by the end of the 15 minutes there are very few questions left to answer. This was the selling I loved: selling the vision of a company and an idea that didn’t exist. And it worked. By early January, through knocking down as many doors as possible and telling them the story, I was up to about $250,000, which was exactly what I had budgeted to take us through the first year of expenses. Boom. Off to the races.

I thought investors should get a third of the company. I had nothing to go on and nobody to ask, but from what I’d read that seemed about right at this early stage. I split the rest of the shares. Geoffrey had not yet committed to joining full time and so he got 15 per cent, my father got 10 per cent for helping us set it all up, Hubert (a friend who had helped research ideas from England) got 5 per cent and I got the rest — about 40 per cent. It wasn’t lost on me was that if the investors’ $250,000 was worth 30 per cent of the company, then my 40 per cent must have been notionally worth at least a bit more than that.

Every week we had a meal at Gina’s. A small, cheap and chic Italian restaurant on Symonds Street not far from the office, Gina’s had an open kitchen down the entire length of the room filled with loud young Italians with white T-shirts and bandanas singing through the service area. With my friends, I was deliberately reserved and vague about my plans — not because I had fear of people stealing the idea, but because I was very reluctant to set up expectations of something without being able to deliver. I passionately disliked it when people spoke about their latest incredible adventure or idea and then just a few months later they were onto a new thing as if the previous one had never existed. In those early weeks I just said I was starting an internet company and I hoped to be able to explain it better soon. I am not a fan of unnecessary mystery but some people might call me aloof. It’s not aloofness for the sake of being stand-offish; it’s more to do with not being willing to share something I am working on until I am confident that it will indeed happen and has a reasonable chance of success.

Many meals would pass at Gina’s where people would have no real clue as to what I was working so hard on that I could barely stay awake at the dinner table. One night, I do remember thinking about how I went from almost being bankrupt a few months ago to being worth $300,000 (on paper at least) in a company that didn’t yet exist, and wanting desperately to talk about the ridiculousness of the idea. I wanted to ask, ‘Why don’t they teach you this magic at school?’

Things were on a roll. With some money in my bag, I now needed some people. Geoffrey was not going to be ready for a few months so I thought of one of my university friends who might be just mad enough to see this as a journey he wanted to take. I called him up — he was still in Wellington where we’d been studying — and unloaded a stream of consciousness on him.

‘Hey Pete, how’s it going? What are you up to? Are you a lawyer yet? Got a job yet? No, don’t do that. That’ll be boring.

‘I’m starting this business and it’s in online gambling — er, yeah, but I’m going to create an exchange on the internet — yeah, kind of like eBay but not quite — and people will go on, and one person will say, I think the Hurricanes are going to lose so I’ll bet against them and I want odds of 2–1 and I’ll wait for somebody else to come along and bet against them.

‘What?

‘No I don’t know how to build it — that’s not why I’m calling you — yeah, so they’ll come on, they’ll bet against each other and then we’ll get a cut.

‘Do we have a licence? No, of course not. The TAB has the only licence. But look, this is the internet and there are no rules on the internet, we make the rules, and maybe it’s not even gambling. We are just facilitating betting between the two parties. We are a facilitator, maybe we’re not even an operator?

‘We’ll figure out all of that later. I’ve got some Indian partners to develop it. So what I’m saying is, do you want to come up as I have a job for somebody to help set this up. Somebody to build this community and help create the markets for these rugby bets. I want it to be up and running for the start of the Super 12 season in February 2001.

‘Next week? Yes, come up next week. Right. See you.’

I’d picked the right guy. Someone spontaneous enough to just get on a plane, move city and join a journey with no idea where it might start or end. We put ourselves on salaries of about $35,000 and began. It was January, and the rugby season started in February. I thought we’d build this entire online exchange in two months. I thought Feverpitch would be a success and I’d be out of there within two or three years, a millionaire many times over. I had no idea.

I hunted around for the cheapest place to get an office, somewhere close to my apartment because I expected lengthy late nights. Within a few weeks I found one just down the road at 80-something Anzac Avenue. It was the top floor of a very old and poorly kept building — to find it, I just walked into building after building and wandered around to see if there was anything available. I took the lift to the fourth floor, walked up two flights of stairs to what looked like an abandoned level and poked around. There were several small, unlocked offices but nobody there. I asked around for the landlord’s phone number, paid a $5000 deposit and we had a room for a year at around $200 a week that could fit about six of us, eight at a stretch. The torn carpet was a faded blue. The air conditioner didn’t work and it was unbearably hot with the sun shining down on the roof. We split the room into two areas, one for all the workstations and the other for a meeting table. I gave Keiji $250 to build us a table, some shelves and some storage cupboards. This was our new home.

Relentless and possessed. There aren’t two better words in the English language to describe how we operated. I could not focus on anything else for more than a few minutes — my mind was nowhere but on the business and the things that needed to be done that day, week and month. If there was a meal to be had, there was no longer any social element to it — it was merely to refuel my energy to get back to the work of building this company, designing this software and launching to the market. If there was a conversation going on, it was simply white noise to rest my mind as an interlude before going back into battle. I was physically present but mentally absent to my family and friends. Just let me work hard, finish this company, and I’ll rejoin the real world when I’m done. I promise.

Every night we would work until our eyes were red, dry and begging us to shut them. In those early days we would rarely head home before 10 or 11 at night, only to reunite at seven or eight in the morning, and for the first year or two it was almost always seven days a week. My understanding was that it took commitment like this to succeed.

With the money we had, we got to work. I knew nothing about software other than what I’d learned in the preceding months, I’d never even met a software developer and I’d never built a product for the internet. We started anyway. My brother knew of an Indian outfit that had just set up shop in Auckland and before we knew it we had a team of about 10 technologists in Visakhapatnam, Andhra Pradesh in southern India on our payroll that we communicated with every day and night via internet chat and emails.

Every evening, as our exhaustion tilted towards collapse, we pulled out two blank CDs for our last ritual of the evening and put them in the disk drive of our Hewlett Packard home PC that we’d bought on hire-purchase for $30 a week. We began to copy the entire contents of our files from the computer onto the disks. This process would take a while, and we watched as all the file names transferred over, the disk drive whirred, stuttered and spun and eventually stopped. Either Peter or I pulled out the disk, scrawled ‘Back up’, and the date and time on it with a red marker and ran off home with it so that if the office burned down or got broken into, all was not lost. The disks from this well-thought-through plan to ensure continuity should disaster strike piled up over the months. It took us a long time to realise that we had never backed up a single thing — all that we had done was the first step. When the disk stopped whirring at the end of those cold dark nights, it had merely written the file structure and was waiting for us to click the ‘Burn’ button to actually copy the files. Who knew? Not us, we knew nothing about software and computers.

We dedicated every waking hour in a race to exist, to launch and to take our fascinating idea to the world. Convinced that competition was bearing down on us from unknown quarters we were in a race against the clock with what little money we had raised. We were burning cash and always needed more — we couldn’t afford to do anything right but kept pushing ahead anyway. We built the product, rebuilt it, and even built a version that could be used to make bets, check your account and deposit money through the internet on your mobile phone.

While Peter focused on preparing the systems and processes for the betting markets, I focused on the development of the product and preparing for future capital raising. Within a year the company was ready to list on what was basically a new ventures board of the New Zealand Stock Exchange for small high-growth companies, and by February 2002 the ticker FVR was trading. All of a sudden we were in the media and open for public scrutiny as the youngest kids to sell shares to the public on the stock exchange. We had a bit more money but it wasn’t enough. It was never enough.

My personal reputation — not that I had one, and not that I minded that much what it might be, given the years of life left in me to repair any damage — was now at risk, exposed to the whims of ignorant or doting media. Now that we were in the public eye, we were being watched as we either rose with the challenges or fell with them. One of the sad things about people is that no matter what journey you are trying to make, you can be sure to find those who want to take you down. I had read about this before — in New Zealand we call it the tall poppy syndrome — the depressing thing is that many poppies aren’t even that tall yet before people start cutting them down. The true tall poppies have grown a thick skin. It was the early days of internet chatrooms, and I’d log on to see vicious attacks on me. These attacks on a young kid barely out of university were always hidden behind pseudonyms and anonymous online usernames. I learned to roll with the punches and have rolled with them since, as the attacks and put-downs might slow, but they never seem to stop.

It is unbelievable to think things could happen this fast. When you put your mind to something so intently, you convince everybody around you that if there was any way at all for your dream to come true, it will. Sometimes it feels as if everything in the universe conspires to help push you along. Some people call this ‘the zone’ or ‘flow’ and we were in it for about a year. While you hope it lasts forever, I can tell you it doesn’t and it didn’t.

After having decided on America as our target market, the US government started taking significant steps to outlaw all forms of online betting; we shifted our strategy to Australia and not long after started getting letters from the federal government proposing fines of $10,000 a day if we persisted; I spent a lot of time in Las Vegas and Costa Rica trying to sell our software to wise guys and ex-mafia bookmakers all fleeing the US to set up shop in ‘legit’ offshore locations like Curacao and Antigua.

I met a colourful collection of characters — as I was blazing a trail, with one of the very few software platforms in the world that enabled people to bet against each other on anything, anybody would take a meeting with me to have a look at it. I remember most clearly going to visit an Englishman in an eight-storey building in San José, Costa Rica, filled with hundreds of his staff. He had spent his life on the legitimate side of the track, moving up through the ranks of the British betting legend Ladbrokes, the largest bookmaker in England, and had eventually risen to the top as the CEO of BetonSports, Costa Rica, which he built to a billion-dollar company and listed on the London Stock Exchange. He fought hard, and dangerously above the parapet, for legalising the industry, pushing for the government to regulate and tax it, for licences that would enable what was currently below the radar to be public and accountable. Governments sometimes have no clue and would sooner apply prohibition-era thinking than common sense to contemporary widespread human behaviour. This chap ended up in jail when the United States decided it was illegal to accept online bets from its citizens from an offshore jurisdiction.

The sector was one of the fastest-growing in the online world and enormous public companies were being floated on the London Stock Exchange throughout those early years. Unfortunately, as fast as it may have been growing and welcomed in the UK, it was getting banned and attacked by governments around the world even faster. At 24 I was starting to get uncomfortable with how the legitimate side of sports betting (which existed in New Zealand, Australia and the United Kingdom) was overlapping with the shady side (which was largely fuelled by the United States government’s abolitionist policy).

The months wore on and the impossible idea — Feverpitch — was, well, proving to be just that. Everywhere we turned, turned on us; our increasing experience was exposing our inexperience; our limited network was reaching its limits and in an industry that to all intents and purposes was essentially run by gangsters, replays of The Godfather were only getting us so far. All the while we continued to bleed cash.

We failed to raise the millions of dollars we needed. We tried to find it in every market from Hong Kong to London but every market was cracking down on the industry before our plane had even touched down. Whatever we did, there just never ever seemed to be enough cash to do it properly.

To compound the money woes, the product we’d built, well it wasn’t cutting it. I mean, it was a product, it worked — but to be frank, it was shit. It was always playing catch-up. And our team? Marginally better than the product. We just weren’t of the calibre needed to navigate one of the most complex and treacherous industries in the world at a time of tumultuous change and with an idea of such potential disruption — oh, and by the way, build a company from scratch at the same time. In hindsight, I couldn’t have picked a more volatile, dangerous and difficult adventure as my first attempt at creating the future.

Starting Feverpitch was always going to open us up to ridicule. On paper, it was an entirely ridiculous notion that we could achieve what we were setting out to achieve. That’s why we started it. Maybe Feverpitch was more about the fact that it would be so damned difficult to succeed.

It didn’t matter. By late 2002, barely making it to its second birthday, Feverpitch was as dead as a dodo. As soon as it had begun, it was the beginning of the end.

Feverpitch did give me something — the validation that I really could spot patterns. As a vision, as an idea, it wasn’t dumb. The problem was its execution and timing. When we began there were two competitors globally — each had raised tens of millions of dollars — one bought the other and went on to become one of the most successful online businesses in the world, worth billions and billions of dollars.

So we went out to bat based on the right insights and the right forecasts. The journey was built on the right foundations — it was the rest that faltered and failed. As I closed the books on Feverpitch I thought to myself, ‘Next time the idea may not be as strong, but I’m going to execute the heck out of it so even I can’t fault myself on that front.’

Did I have it in me? I would find out soon enough.