The Bottom Liner (TBL) spoke to Stan Williams – Investor Relations Manager at Angels Den – about angel investment and how to raise cash in London…
TBL: Today I’ve got a really good friend of mine, Stan Williams, who works at Angels Den. Before we kick things off, I think I’ll throw things over to Stan and just tell me a little bit about Angels Den. What does Angels Den do? Stan, who are you and what do you do at Angels Den?
Stan: Angels Den is an online investment platform and what we do is we connect entrepreneurs with investors. So if you’re looking to raise anywhere between £50,000 and £1million for your early-stage or start-up business, that’s where we help. My role is that I work on the investor relations side. So I’m the person who speaks to investors every day, finds out what they’re interested in and actually connects them with the businesses that we’ve got. A bit about Angels Den, so we’ve been around for nearly 10 years now. Our model is predicated on finding lead investors for deals, so people who can actually really add value to the business and want to get involved before we open the funding out on our online platform. I’ve been doing this for a number of years and it’s great to be speaking to you guys today.
TBL: Great, Stan. Also, one of the areas that I thought we’d start with is raising funding in London is obviously notoriously difficult, let’s say. What I wanted to really cover is obviously for startups and people with ideas or people with relatively established businesses there are various different routes that people go down in terms of different funding mechanisms. Could you just maybe run us through both examples that Angels Den can offer but also outside of Angels Den what start-ups should look for?
Stan: Yes. So when you’ve first started your business and you’re thinking to yourself, ‘Right, I really need to expand this now but obviously we don’t have the money or the capital to do it ourselves,’ I think you’ve got, in my mind, about four key options at the moment in London. The first one is obviously to go out there and do it yourself. There’s a term ‘bootstrapping’ that really describes what that is. Basically, it usually involves you going out and getting maybe a credit card or some personal debt and really just trying to make a go of it yourself. Under that model, you really need to start selling things quickly because you’re going to need to start generating some cash off this business model in order to actually be able to fund it going forward.
So it’s a difficult way of doing things in the sense that the growth can be quite slow, and obviously, if you have a month where you don’t bring in any revenue that can kind of be the end of your cash, so it’s also quite risky. The obvious advantage of it is that you get to keep 100% ownership of your business. So if later on down the line, you do want to raise funding, or if you ever want to sell the business to someone, you have 100% of the pie and you have complete control.
TBL: Relating that to what we’re doing at Fat Lama, what the founders did initially was rather than taking out debt or credit cards or whatever it may be, we kind of tried to develop other revenue streams, and time-efficient revenue streams at that. We couldn’t be giving whole days at a time for something to basically fund the business. We wanted to find evenings and late at weekends to basically be able to fund this – whether you want to call it lifestyle or business, whatever. Does that come with some sort of credibility in terms of when businesses are approaching you guys?
Stan: Yes, absolutely. I think that’s probably the most awesome way of doing things. Either you can turn around to an angel investor and say, ‘The first £20,000 or £30,000 that went into the business was generated from us starting something else or doing something else to make money,’ then, even if you’re a young entrepreneur in London, they can see that you have got the credibility to go out and sell things and actually generate some revenue. So straight away their first questions when they meet you are thinking, ‘Can this entrepreneur actually execute? Can they actually follow through on the things that they’re talking about?’ The answer is obviously yes if you’ve already gone out and made some money before.
TBL: Being the expert, and I know that you get this question a lot, how do start-ups navigate this very up and coming but rogue industry of crowdfunding? What are the dos and don’ts?
Stan: Two models have emerged now, which just sit very closely together and sometimes you won’t be blamed for thinking they’re the same thing. There’s crowdfunding, which is these online platforms where investors can invest from as little as £10 and actually own a share in the business. So this has really opened up early stage funding to the masses and is a fantastic way for companies to get heard about and to get seen out there. The more traditional model is angel investing. This usually involves investors putting in slightly larger amounts, probably starting from £5,000, £10,000 upwards, but the angel investors, as opposed to the crowd, might get more involved in the business.
BrewDog would be a great example. So BrewDog did their own crowdfunding and they’re a crowdfunded company, and they’ve got lots of people who have a tiny share in BrewDog and when they go to their bars they get a discount on the quite expensive beer that they’re selling. Then, on the angel funding side, that’s probably about having more involvement. So it’s probably about having regular meetings with the company, you’ve got a larger stake in the company so suddenly you want to find out how they’re doing. You might help them with hiring, you might help them with some of the connections that you’ve got and really help to move that business forward. Angels Den as a brand, we have an online platform that acts like a crowdfunding platform and makes it easy to invest, but we really sit on more the angel funding side.
Our mantra, as it were, or our philosophy is that having an investor onboard is really what makes the difference between raising funding now and actually long-term success. So if you want to be around in five, ten years’ time and you want to still be a sustainable business we think having that mentorship and having that involvement is really the key thing. This is basically our experience from funding businesses for the last seven years and from what we’ve seen. As a result, over 90% of the deals that we have funded are still trading.
If you go into London, into any kind of bar and you talk about raising a start-up, most people say, ‘You’re crazy! Nine out of ten businesses fail,’ but obviously, the statistics that are coming out of Angels Den are really showing that isn’t the case once you get a good angel onboard and once you get some funding.
TBL: What is motivating these angel investors to invest? Someone said to me the other day, ‘On average, by the time you add up all the failures, you get a 15-20% return. Most hedge funds or private equity firms are offering that.’ Why are these guys or girls investing?
Stan: To answer that question you really need to delve a little bit into what an investor is and what an investor does. So, when you’ve got some capital and you’re sitting down to make some investments, you’re usually looking at building a diversified portfolio. That’s across a number of different asset classes. So it’s likely that you’ll have some stocks and shares on the stock market. It’s likely that you’ll have some property and that will make up a large amount of your portfolio. Then angel investing is really kind of a small part of that portfolio, but I think, as opposed to the other asset classes I mentioned earlier, it’s probably the most exciting and it’s probably the most fun to get involved in. When people talk about angel investing, they don’t normally talk about this that openly, but from Angels Den experience it’s probably the most important factor in why angels actually invest, and that’s to get involved in something exciting.
You buy another house and you start renting it out, probably not the most exciting thing you’ve ever done. Your wealth manager applies for you to get a couple more bonds and a couple more stocks. Maybe not that exciting. You meet a new start-up with a fantastic piece of technology and a really good idea and some really enthusiastic and passionate people, and you invest in them, you completely change their world, you open doors to things that they’ve never seen before, you use the business skills that you’ve built up over the years for good. Suddenly this becomes a much more interesting and exciting investment than you’ve ever made before. So people often say it’s the most rewarding thing and investment that they’ve ever done. So my takeaway is probably that’s the number one thing and that’s the number one reason why people get involved in angel investing.
TBL: I can absolutely agree with that. Three of our investors really spring to mind that have just gone above and beyond. The level that they’ve helped us, the hours that they’re putting in for us, it’s just astonishing, and these people are busy people, some of which run investment banks and so on. These guys are really short of time but some of which are giving us up to an hour a day, which is astonishing. It’s the years of experience combined with connections that just have the ability to take a business to the next level. So I absolutely agree with that. One of the things as well that I thought certainly for founders and even investors I’d like to run past you is you and Lois, who’s one of the co-founders at Angels Den, taught me very well about red flags. As a founder you don’t have a clue about this angel investment, so let’s say you go out and you do it yourself, you’re trying to raise £25-50k, let’s say. Is there anything you should be a little bit careful of?
Stan: Yes. When it comes to the investment process, one thing that you can be sure that any investor putting a sizeable amount of money into your business will do is something called due diligence. So they’ll look at your business, they’ll meet your team, they’ll look at your financials and they’ll look at your legals. I think my advice is to sometimes flip that due diligence process. So actually have a look at the investor, have a look at the person who’s putting this money into your business, because, as you absolutely spot on said, it’s about that partnership and about that relationship going forward. I bet if I asked you when you first started raising funding, ‘Were you looking for money or were you looking for mentorship?’ you would have just said, ‘I’m just looking for the money,’ but now actually it’s the mentorship that you value more on a daily basis.
So I think doing that due diligence on the investors is really key. So what does that look like? Obviously, it’s things from the basics like looking at their LinkedIn, looking at the businesses they’ve been involved in, in the past, how have they done? What roles have they played? To also looking at the deal that they’re presenting to you. So are they asking for a share hold agreement, which you should expect, and sets out all the terms really clearly and nicely? Are they asking for a crazy valuation? Are they saying, ‘Here’s £10,000 and I want half of your business’? You need to look at these things and see that sometimes those things are red flags.
I think probably one of the most effective ways of raising funding is to use one of these actually established platforms to raise the funding, who have got FDA regulation, who can steer you on what looks like a good deal and what doesn’t look like a good deal. Unfortunately, even in 2016 you’ve still got people out there who pretend to know investors but when you actually go to those events or meet their so-called investors, they’re not. So I think one of my main pieces of advice would be to use a proper platform and do due diligence yourself on the people investing in your business.
TBL: One of the things I learnt from you is investors are going to promise the world when they want something, nine times out of ten, they’re probably salesmen themselves or have been in their career and they’re fantastic at doing that. They will sell the world to you. They’ll sell connections. They’ll sell future funding. They’ll sell potential partnerships, access to office space, you name it, and they’re offering the money and they’ve knocked off 30% of your valuation and you’re like, ‘Great, let’s do this because look at all this upside.’ I’d recommend, from experience, that again you enforce with us, is get that in writing.
It’s not particularly difficult to pull those legals together. There are templates that are available. If you’re raising money and people are wanting a large chunk of your business to take half a day out of your time to get that stuff in writing to make sure that you’re taking the money for the right reasons because if you actually look at those reasons and you look at the money that they’re offering you, and you said, ‘Okay, they’re offering that money. None of those things are going to happen,’ you probably wouldn’t take the deal, right? So get them in writing.
Also, I think that from our experience investors actually like that. It comes with credibility. It shows that you’re on the ball. It shows that you’re not giving away your business for absolutely no reason. Moving on, the big question is there’s so many people of all ages, be that graduates, be that people who have been in a corporate environment, or any environment for five, ten, fifteen, twenty, sometimes thirty years, they’ve got an idea. You’ve got a business idea and you just want to roll with it. What are the first steps?
Stan: My key thing when you’re starting a business is to start small. Think big but start small. A lot of people do the big first, so they get the website and they start hiring people and they start trying to raise investment. They come to us asking for £100,000-200,000 but actually all they’ve got is an idea. The issue is that when you look at that from the investor’s point of view, that’s not much to invest in. That person could have a different idea tomorrow, they’re not really wedded to this business and there’s nothing really there of value that’s tangible. So I think start small, go out and see if you can validate what you have come up with, see if you can prove it, even if it’s just selling to a handful of people or doing a small piece of market research, just something to prove that people are willing to part with their hard-earned cash, whether that’s your product or your service.
Or if you’re a tech platform it might be slightly different, but even then you might want to go and create a beta site or a minimum viable product, just something that you can show people and start to test. Start small, get a handful of customers, impress them, wow them, they’ll probably be your most loyal customers, and then start to build the business out. Only when you get to something where you’ve got an established business with something of value and something that you can go and talk to investors about, whether that’s your first customers, whether that’s your first piece of technology and production, whether that’s a prototype. When you’re at that stage, I think that’s the point to come and speak to investors.
Obviously, one of the things that we have to deal with every day is just, unfortunately, saying to people, ‘Actually, you’re too early stage for us, and I think you’ll probably be better when you come back in three to four months once you’ve got that established business.’ So I think that’s probably my side of things. I suppose you probably know more than me actually the pain and some of the stresses of just starting out with an idea and turning that into a business. It would be good to hear from you. How was that process? That’s obviously my theory, but what’s it actually like when you put that into practice?
TBL: To be honest, I think you were spot on there, in terms of starting with something really small and testing a product before throwing the kitchen sink at it. Another thing that I hear a lot of the time, and we all do, is a lot of my friends and friends of friends and connections of connections, they want to do an idea, they want to do this, they want to do that, but they don’t have time because they’re in work. I think anyone that’s started this knows that that’s just not true. There is always time. Don’t sleep, quite frankly. Work at the weekend. Just don’t sleep. As simple as that. Stay awake for 48 hours. Try it. You don’t die. It might not be healthy but you’ll be absolutely fine. That’s the first thing.
The second thing is what we did was kind of like that. So ours was obviously a tech business. We needed a couple of things. First thing was probably credibility. It’s very difficult to go out and raise any money or partner with any companies or to get anyone to buy-in to us without credibility because we were young, effectively grads, with not really much experience behind us and that was kind of it. What we did there was we wanted to get advisors, so pro bono advisors onboard with credible names and lots of experience, relevant experience as well, on our pitch deck really. That’s exactly what we did. So we started going to networking events.
We started cold calling. We started speaking to people, and gradually we built up, across a number of verticals, say tech, legal, finance and so on, relevant experience, and we eventually had this idea, now backed by some of these amazing advisors that were giving us their time once a month, once a week, whatever it was, and suddenly our proposal became slightly more interesting and we had something to talk about. So that’s where we started and we really lived by the pitch deck. By the pitch deck, I say that the thing with your pitch deck is you’ve got to remember that’s your hook. So get that right. Invest in that. Nail that. Then see how you go from there.
A bit of a weird question, and I know that we’ve spoken about this in the past at various events and so on, but talking about the difference between Silicon Valley and London. What is the big difference here? Is it investors? Is it start-ups? What are we talking about in terms of the difference in landscape?
Stan: I think the attitudes from Silicon Valley to London are very different. Silicon Valley has obviously got many VCs looking to invest into companies. Their attitude is really that they are going to give you a large amount of money whether that’s 1million, 2million, 3 million and basically say to you, ‘Here’s some funding. Don’t worry about money for a while. Go off and make that business work and we’ll see how you get on.’
TBL: Very unlike London.
Stan: Yes. The difference in London and the British culture is to say, ‘Here’s a small amount of money. Go and prove that you can do something with that money. Go and show us some proof points. Go and show that people are actually willing to part with their money for this product and then we’ll give you some more money and we’ll start ramping it up.’ Not to get too technical here, but some of the tax reliefs that are on offer for investors also incentivise that. So there are limits on raising £150,000 and then raising more. So the tax relief system in the UK also supports that model.
TBL: My question there is why is it when we look at the broader landscape of start-ups we look at the unicorns, we look at the percentage of unicorns that are coming out of Silicon Valley and now Berlin and comparing that to London and Asia Pacific? Why is it such a small amount coming out of London?
Stan: I think one of the things that we’ve seen in the past is a tendency for companies in the UK to grow to a certain size and then feel that the right thing to do and the next step up, as it were, is to go to the US and to take on some US funding. In that sense, we kind of sell out to the US in a sense, rather than sticking with it in the UK and growing some really big UK businesses. Part of it is just about thinking bigger basically. There’s that classic line in the film The Social Network where he says, ‘I don’t want to be a million pound business. I want to be a billion pound business.’ It’s about encouraging more start-ups in the UK to think that way, to think bigger, to raise more money and not exit so early.
TBL: You’re right. A lot of it’s cultural, I think. Actually, a big part of it is the sort of investors we have in terms of you look at the majority of investing in London, I think people that have either exited in the hundreds of millions of billions are very few in comparison to say Silicon Valley. So what you have is the majority of let’s say London’s investor portfolio from a retail private perspective is former or current financial services people. They will automatically have a very different approach to investing. It’s, like, ‘Great, you’re valuing yourself at £2million. You’ve got an idea and a team. That’s not worth £2million.’
The real answer to that is, ‘Yes, we’re worth nothing. In fact, we’re worth less than nothing because we spent money with nothing.’ So that’s the mentality. We found that a lot, but it comes down to being aggressive, thinking big, staying big. You’re going to get knocked back. You’re going to get laughed out of the room. We’ve literally walked into VCs and they’ve actually started giggling at the table when we told them our valuation, which is part of the reason why it comes with the culture and doesn’t come with culture, you’ve just got to be careful where to position yourself, but stay true to your game, absolutely. So that’s my take. What I’d like to round things up with is for a business to approach a platform, what are the key things that they need to successfully raise money through either angel investment or crowdfunding?
Stan: When a business comes to Angels Den, the main thing that would be great for someone to put together is a pitch deck. You can find amazing programmes and templates online for this. I saw a great article the other day online which actually had the real pitch decks of some companies that have raised recently, the Ubers and AirBnbs of the world. So have a look at their pitch decks. Put something together that covers the main aspects that a business investor’s looking for, and then send that over to us. The other aspects of getting ready to raise investment, whether that’s a pitch video, the legal agreements and the due diligence, we provide those documents and we also walk you through it and handhold you through that process.
So don’t feel worried about coming to us if you haven’t got the complete package, but obviously just so we can assess and see that it’s something that’s right for our network, it’s great to have a pitch deck to start the conversation.
TBL: Awesome. We’ll leave it there for today, Stan. As usual, thanks so much for your words of wisdom. I can certainly speak for the whole of the Fat Lama crew that we just wouldn’t be where we are today without yourself and Angels Den. So thanks very much for that and we look forward to speaking to you soon.
Stan: Pleasure. Thank you