The next wave: Chairlift ride to e-venture

An entrepreneur traces his internet initiative back to a skiing trip, writes KARYN SCHERER

It's a stunning Canterbury afternoon and even though it's a Sunday, Matthew Darby is hunkered down at his desk.

Not that the 35-year-old entrepreneur resents having to slave over a hot keyboard. Just a few hours earlier, he was swooshing down the snowy slopes of Mt Hutt, filling his lungs with air so fresh it almost hurt. This, he explains, is the reason he has not joined so many of his friends on the tech-sector treadmill in London, Dublin or Seattle.

"New Zealand is just such a great place," he enthuses. "Ideally, I would like to spend my entire life here. I don't know what the future will hold but my aim is to try and stay in New Zealand and be a New Zealander, despite our lacklustre stockmarket."

In fact, skiing is the reason Darby ended up founding a company called CDStar two years ago. He was sharing a chairlift with a friend who was a software developer, and the two got talking about their plans. The friend, Stuart Clark, is now a key staff member in a business that employs just eight people, but has ambitious plans.

A former newspaper advertising salesman, Darby founded CDStar with $300,000 of his own money.

The son of a Christchurch advertising identity, he accumulated the nest-egg after setting up his own advertising agency, Media Partners. He sold the agency in 1997 to American-based recruitment advertiser TMP Worldwide, which hired him to oversee its local operations.

It was while working for TMP that he decided he wanted to have a go at developing his own online business. Inspired by the growth of American e-tailers such as Amazon and CDNow, he concluded that the music industry, with its tightly controlled supply chain, was the best bet for his own e-venture.

CDStar became a subsidiary of EstarOnline in August last year, and the company successfully raised $1 million to fund CDStar's expansion into Australia. But in April, it abandoned its plans to raise a further $10 million in a public float, after the Nasdaq went into a tailspin. It was extraordinarily bad timing, and he can't help wondering what might have happened had he been a little more pushy about getting the float organised to his original February deadline.

Nevertheless, he believes the move won him the respect of brokers. "I would have to say it's the toughest decision I've ever had to make in my working life but I still stand by it. Morally and ethically, it was the only decision."

Cancelling the float ended CDStar's plans to expand into Canada, where Darby's older brother is based. However, he remains confident that its New Zealand and Australian websites will soon be making money.

What makes CDStar different from some other e-tailers, he believes, is its tight control of costs, and its cautious business planning. Excellent communication between himself and the board also means the company can move fast when necessary.

"It was a disappointment because I believe we have got the right formula. I don't wish to sound arrogant, but I do truly believe we have worked out how to make money on the internet."

It is now exploring joint venture opportunities and he hints that an announcement might not be too far away. But he also concedes e-tailing is no longer where the smart money is.

Fortunately, the company had the foresight to develop its own software, which is now central to its plans. It already has nine projects on the go, with several more at the can't-quite-talk-about-it-yet stage.

Two of the contracts are based in Europe, including a deal to build a UK-based music memorabilia site for Fleetwood Owen, a company set up by music industry identities Mick Fleetwood and Ted Owen. The contract is a good example of why New Zealand should be able to bring in valuable foreign exchange through its technological expertise, he believes.

"We're developing these sites in Europe but we're able to do it all from here. And we don't just build them and move on. We license them out so it generates on-going revenue for us."

The weak New Zealand dollar, of course, does not hurt. But being based in Christchurch is also a bonus, he believes.

"It has definitely helped us get up and running at a much lower cost. There are people down here, especially in the developer world, who live here for lifestyle reasons. It wouldn't matter what money or options you gave them, they wouldn't move out of Christchurch. So that's been a tremendous help for us."

He is excited about several other projects, including a deal with what he will only describe as "a large New Zealand company" to do joint e-commerce developments. And while he is not ruling out the possibility of having another go at a Stock Exchange listing, he is not getting anyone's hopes up either.

He was a little annoyed that venture capitalist Jenny Morel declined to invest in EstarOnline, and despairs that the Government is not stepping in to help young innovators.

"It's all very well giving $80 million to the arts, but you have to wonder what they will get back. Whereas if you put $80 million into new technologies in New Zealand, you would see some fantastic developments ... "

While he is frustrated by the conservative attitude of some investors, he admits to a certain conservatism himself. EstarOnline seriously considered taking a 55 per cent stake in Christchurch-based company I.agri Ltd, which has developed award-winning software for the farming sector, but decided not to go ahead with the deal because it disagreed with I.agri's business plan.

"Revenue is our mantra these days - everything we look at has to have revenue attached to it," he stresses.

It is this caution that has persuaded most of EstarOnline's shareholders to stick with the company. Its shares were five times oversubscribed when they were issued on the unlisted market in November last year at 33c each.

Darby hopes that within 10 years he will have stepped back from the chief executive's role, perhaps graduating to executive chairman.

But in this industry, there is no such thing as a five-year plan because the technology is developing so rapidly.

In the meantime, he is looking forward to his first real holiday in 13 years. He is off to South America in October, for his honeymoon.

"I've always worked - I've never taken holidays. But I couldn't get away with not taking one this time," he chuckles.

THE JUICE

EstarOnline, Christchurch

Founded in: October 1998

Founded by: Matthew Darby

Initial capital: $300,000

Current market cap: f$4.4 million

Business: e-commerce

Number of staff: 8

10-year plan: To be a leading NZ-based software developer and e-commerce investor

Worst moment so far: Cancelling a $10 million public float

Best moment: Successfully listing on the secondary board of the stock exchange

Biggest wish: That the Government would get serious about the knowledge economy