“This is very old-fashioned of you”, he says picking up the phone. “Why?” “Because you are on time. That is old school…you’ll never be successful!”
It was an unexpected start to our conversation. He, Bill Morrow, is the Founder and Chairman of Angels Den, “a digital platform which looks to preserve the wealth of its investors,” defined by Fortune as the real Dragons’ Den.
They see more than 110 business plans a day “but all of them ask for the wrong thing”, he states. “Growth business owners always ask for money. They do not need just money. What they really need is mentorship, business experience, business contacts, and then they need the money.”
You should allow yourself 40 microseconds of joy when you got your money on board but that’s not the end of the game. It’s just the start. – Bill Morrow
“Angels do not believe your numbers and I think most entrepreneurs have to accept that their numbers are BS. If you think that you know what your cash flow is going to be in three years time, you are deluded, and will probably fail.”
“Angels firstly look for sales as well as at some protectable unique selling points, for instance, a trademark, first mover or some intellectual advantage. But, you have to be really passionate about what you are doing and it is this factor that attracts them.”
In fact, few of the angels on the platform “invest primarily to make money.”
“If you think that your best chance to make money is investing in a 29-year-old with few sales, not much infrastructure, in an illiquid marketplace with no secondary market you will be disappointed. Just rationalize it: if you want ‘just’ to make money just invest in property.”
This is the reason why angels “tell us that the major reason to invest is that they need something to get out of the bed in the morning for!” In other words, the magic formula to raise money passes through passion. They buy into passion but you do have to have sales, otherwise it is just a passionately pursued idea.
However, there are other two reasons for an angel to invest. “The second one is they want to give something back. Making money comes at number three.”
Rationalise it: if you ‘just’ want to make money just invest in property. – Bill Morrow
OLIVER*: What do you think of equity crowdfunding?
BILL MORROW: If I think about equity crowdfunding platforms they need to learn this lesson. I cannot see it as a sustainable model as they miss the fundamentals of the market. They are delivering one aspect of what the market needs. They are giving the money to overpriced businesses treating companies as a transaction. They miss the whole point.
O*: What do you mean?
BM: 627 people giving an average of £493 each, is almost by default, not going to help the business. 80% of startups fails while 92.6% of all the businesses we have funded are still growing. Surely the only true measure of the success of funding is to look at the sustainability of the ecosystem.
The more retail investors they get on-boarded, the more disappointed those investors are going to be if they do not see any return. But more important the ecosystem itself is going to be really disappointed when they see the lack of success.
O*: At least, platforms allow the democratization of finance and entrepreneurship…
BM: Democratization does not necessarily mean that it will work. Look at Brexit: although it is part of a democratic process, it doesn’t necessarily mean it will work.
O*: So the risk is that industry is going to implode…
BM: Unless they change very rapidly and radically.
O*: FinTech is helping in this respect, isn’t it?
BM: All these new technologies like blockchain, for instance, are lowering the costs related to transactions and in this respect they are helping drive the bottom line. But these technologies are not addressing the fundamental problem. You can have all the blockchain you want but if your systems, controls and processes are not driving towards a sustainable ecosystem, you are going to fail.
O*: What’s the impact of the current political turmoil on these dynamics? Say Brexit, for example.
BM: Investors do not like uncertainty but nonetheless we have witnessed a big uplift in investors going for the better deals. In general, the devaluation of the Pound means if you are a Swiss, German or French investor then you are attracted by a 12% discount on the UK deal.
In such uncertainty sales volumes at equity crowdfunding platforms are down but also because of the lack of due diligence and transparency. Equity crowdfunding platforms need to start showing reasonable valuations, especially given their desire to target retail investors. These are more systemic issues not just global economic problems.
O*: What are your plans in the medium term?
BM: We are looking for expanding our international network and at institutional investors who want to play a part of what we have built. Our ‘old-fashioned’ sustainability rates produce great bottom line returns.
O*: In summary, what’s your advice to owners of growth businesses?
BM: I’d say:
- If you are not passionate about what you do, give up now and get a job at an accountants.
- If you think this is going to be an easy ride, you do not understand the game.
- Without the humility to understand that you do not know it all, you will suffer a slow and painful death.
- Do not spend months on your business plan, few will read it. Spend your time instead on getting sales.
- Try to grow without funding.
- What kills every start-up is what they don’t even know, they don’t even know… This is where a few successful business people really add value, beyond their capital.
- If you think that 1,000 people giving you a few hundred quid is going to deliver the mentorship, experience, and contacts you need, by all means give it a go, and then come back to us, when you understand that clever money is always going to win.