Drop out, start up, make millions

ANDREW WAHL

Jesse Rasch may be Canada's most successful unsung Internet hero. The self-assured 24-year-old McGill University dropout has no formal business education, beyond two poorly attended years in the commerce department. But three years ago, he started a Web site hosting company in his Montreal apartment with classmate Michael Apted, using only his savings and credit cards. Without a single copper of outside financing, the pair built InQuent Technologies Inc., a firm that now boasts revenue in the tens of millions and customers-- including a dozen major telco, cable and Internet service providers--in 147 countries. Last month, business got a lot better--with a deal that will fuel InQuent's growth and leave CEO Rasch, well, pretty flush. On July 24, Texas-based telco giant SBC Communications Inc.--ranked No. 12 on the Fortune 500--paid $171 million in cash for 51% of the Toronto-based company.

It's a familiar story--a young dot-com entrepreneur getting bought out for millions--but the deal that Rasch negotiated with SBC over three months this spring is particularly sweet. Usually, dot- coms have to sell a huge equity stake or rush a public offering to raise capital. Not Rasch: he retained complete control of InQuent until the right deal came along, without giving anything away to banks or venture capitalists. "I had turned down venture capitalists five times a week and potential acquirers twice a week," he says. "I've had venture capitalists sneak in on staff barbecues on our deck and say, '$20 million in your bank tomorrow.'"

Ten days after the deal, you'd be hard-pressed to find signs of a financial coup in Rasch's weary face. At mid-morning, he is pale and red-eyed from only four hours' sleep, and a take-out breakfast lies next to him, untouched. Although he appears less than triumphant, sitting in his small, frigid boardroom, make no mistake: his wits are about him. "I like to work in the cold," he explains. "Even in the winter, I have the air conditioning on. I find that when I'm speaking with people, it keeps them more alert." It's no wonder he's tired: for the past two years, Rasch has been putting in regular 18-hour days, which he now says are largely behind him. "I used to rally the troops and tell them that they could go on less sleep and more coffee. While the passion is there, the physical ability to do it falls away."

The passion, though, has served Rasch well so far. "He's very goal-focused," says Apted, InQuent's 22-year-old cofounder and vice-president of technical strategy. Rasch was born to a middle-class architect father and real estate agent mother, and raised in the Toronto suburb of North York. He started his first business at 16, erecting A-frame signs for house developers. He attended university to appease his mother, but lived on the money he had earned. "I remember going to class only the first six months of my first year," he says. "I did anything to avoid going to McGill."

Rasch began day trading equity options and futures, but a Web design company he founded with Apted was more productive. After clients started to ask them to host Web sites as well, the new business proved so profitable that they dropped design. The breakthrough came when they created browser-based software that allows clients to easily and remotely manage their own Internet service. Without having to phone in for tech support, clients could manage their own e- mail accounts and secure e-commerce storefronts and password-protected homepages. Orders started drifting in from around the globe--and finishing a degree at McGill became a nonissue.

Via word-of-mouth, the partners' customer list grew until their business ranked among the top Web hosting services. Two sides of the business emerged--branded and private label. The branded side, WebHosting.com, sells its services directly to organizations such as the University of Miami or Lockheed Martin Corp. for up to US$10,000 a month. Their URL, WebHosting.com, reportedly generates 150,000 visitors a month, often from people directly typing the URL into their browsers--looking for the service, not the firm.

The private-label side, meanwhile, sells its technology to firms that want to run their own hosting services; InQuent gets a share of their revenue. That part of the business emerged in late 1998, when telcos, cable companies and ISPs started to knock on Rasch's door saying they loved his platform and service but wanted to brand it as their own. "The writing was on the wall," he says. "Either we partner with these guys, or they partner with our competitors and put us out of business." In the end, the private-label operation--which forced a name change to InQuent Technologies (WebHosting.com was retained for branded work)--is what attracted SBC. "They were our top pick," says Abha Divine, SBC's vice-president of corporate strategy, who scouted acquisitions and alliances for a portfolio of e-business services. "Their strength is in the platform and its ability to scale and be managed remotely even as the complexity of sites grows."

When SBC approached him, Rasch was in the process of negotiating financing from VCs and investment bankers. What clinched the deal was not just money, but also the autonomy it gives Rasch to build InQuent further. And SBC can attract customers. Its US subsidiaries include Ameritech Corp. and Southwestern Bell, and it holds minority stakes in other telcos in 21 countries, including 20% of Bell Canada. "Capital to me is a commodity, but the SBC capital was strategic. What I see in SBC is an enormous distribution channel," says Rasch. "Yes, we needed some money to grow our business, but at the same time the opportunity to touch several million businesses is just enormous."

The new cash will fuel InQuent's sales and marketing expansion and add to its roster of 150-odd employees. Rasch remains a major shareholder, but he is on the lookout for a CEO who will replace him prior to a possible IPO; he will remain chairman. After that, Rasch will have more time for what he does best--starting companies. He plans to pour some of his newfound liquidity into two Toronto-based start-ups he's already discreetly supporting, one of which has 18 employees. "They have the same characteristics as InQuent in that they're all profitable," says Rasch, "and they haven't required [outside] capital injections." Those are, of course, longer-term plans that can wait--perhaps 'til after breakfast. And then? "I don't have a crystal ball. I can't even tell where we're going to be two years from now. It's hard to make predictions. But it's a good ride."