Beware of the Great White Shark
I was 6 months in from quitting my day job in architecture. My £12k bank loan and survival funds were quickly drying up.
It was clear that building a website and app for a year was one mountain to climb, the next would be to build a team, launch a company and start shouting about it. This required cash! Or what the industry calls: Angel Investment. I had spent the last 10 years in Architecture designing buildings and drawing pretty pictures– I had absolutely no clue about Angel Investment, nor did I know what an Angel Investor looked like or where they hung out.
I was fortunate that just 3 months into my sabbatical, miPic was invited to apply to a Virgin Startups competition called Pitch to Rich– now rebranded as VOOM. Read about my 90 seconds in front of Richard Branson – here.
As a result, we gained some good PR exposure and this validation gave miPic visibility. This in turn meant Angel Investors were keen to talk to me about investment and asking to see our business plan. What I quickly discovered was that for every Angel Investor in London there is a million brokers. These people can take you to the promised land and golden gates– for a small fee… Obviously.
Things got interesting.
I was introduced to various people involved in early stage seed investments funds. These investments ranged from anything of £20,000 up to £200,000. Bright eyed and bushy tailed, I was invited in to meet someone and present our plans for miPic. Armed with my investment deck and a huge shot of adrenalin (coffee), I rattled through like a 10 year old on sherbet feeling invincible.
The outcome of this meeting was yet another invite to a private investor evening where 10 companies would pitch to a room full of cash-oozing pockets– Angel Investors! Hallelujah. In order to attend this event and present my slide deck, I had to pay a discounted £200 fee for the privilege of standing on stage and begging for their money.
So I took my founding team of two developers along for moral support asking for an investment of £150,000 in the business. Thankfully my time in architecture had versed me, I have fond memories of being fresh from an all nighter in the studio standing in front of 100 other architects on zero sleep and presenting our project to 3 professors without collapsing. More often than not there were grillings, questions that made your veins pop out of your arms and piercing eyes thinking “what are you doing here boy”. Architecture served me well.
On this occasion the audience questions were almost flirtatious. One man stood up, half drunk from the free booze and shouted ‘If there’s anyone with any money in this room, they should give it to miPic’. As you’d expect for a first time founder, I walked off stage with a slight swagger.
Oh… They’re a different animal.
So the pitches had finished, we all hit the dance floor in what seemed like a river dance to everyone’s favourite Startup of the evening to talk numbers and exchange business cards. It’s hard enough remembering people’s names and what they do, so imagine after the adrenaline crash of a 15 minute pitch and having to tell everyone individually your story all over again.
Suddenly something grabbed my attention, I was presented by a big man and his sidekick standing in front of me. A well spoken chap making jokes about me being ‘Northern’. His first proper words were:
“How about a £1 million pound investment from a Middle Eastern investment fund”
My ears popped up like a Siberian husky, eyes focussed on this duo like I’d found my first love. He had our attention, as you’d expect, I swiped their business cards and agreed to follow up. On our way out that evening, I asked the event host and investment manager about these potential million pound investors – he looked at me sternly and said “talk to them, they’re a different animal.” Going home that evening as a startup founder was quite satisfying, i’d collected over a dozen cards and was excited to begin meetings with these Angels.
In the weeks following, I met with several smartly suited gentleman from the event with the reward of… more introductions. Some of these fellas may have been genuine, some of them were definitely full of shit. And some were just looking for jobs themselves as non-execs within startups. What was clear though, the Angel Investment game is one hell of a rat race.
Then the big fish got in touch.
We were asked to meet for coffee in Park Lane and talk business. It was clear to me that there was a different vibe to this, one of persistence and consistent business questioning. I checked them out on LinkedIn and searches online, both came from reputable backgrounds, all pretty cool and exciting- says the internet.
Discussions progressed and it was evident that the two front men I was dealing with weren’t the actual investors or the fund managers, again brokers. I was told that any investment offered would be include a broker fee of 5% cash to them which we thought was reasonable, seeing as £1m was on the table.
The Pitch
Following multiple canceled meetings and over 6 weeks talking to this team, alongside working on the actual business, finally we had a meeting with the Fund Manager. This time at a lawyers office in Mayfair. Our pitch meeting included the two chaps from the event – now overly friendly, a very pretty business analyst and the elusive fund manager. A guy who appeared to have just stepped off a plane from the mediterranean, dressed sharper than a butchers pencil, ice white shirt and a solid suntan.
I presented miPic to the room assisted by my developer and he liked what he saw. After a few questions he nodded to the others and said “I think this is a good one” then left. On our way out we said our goodbyes to their team and bumped into the original pitch event organiser who invited me to the evening. Somewhat abnormally, he didn’t say hello, just nodded and raised an eyebrow in reception.
We left that office and walked through Mayfair high-fiving each other that day, just 10 months after turning on the first beta version of our website v1.
The Offer
£2 million pounds in return for 25% of the business… F**k we were pumped!
We went from speaking to investors for £50-150k investment to £2m. How ridiculous does that sound.
I later received a couple of calls from the well tanned Fund Manager that week who said in order to proceed with the investment and to complete due diligence before sending over a Term Sheet from the investors, they had to carry out extensive background and CRB checks on myself and each of my team. This would cost approx £2000 per team member which miPic had to pay. Doesn’t that sound baffling!
I was told a £2,000,000 investment was within two weeks away and in order to complete the formalities before sending over a term sheet, they wanted– the founder of the cash strapped startup to send them a few grand. Hang on a minute! I may have been a rabbit in the headlights and new to the game but, do I look stupid! I wrote an email to the team that I was unwilling to send precious funds from our cash flow and politely declined.
Tactics
The chilled investment manager, a pleasure to meet in person and over the phone, quickly changed his tune over email with a bit of heated type and psychology.
I was quickly made to feel like an absolute moron and guilty that the amount of effort and time invested in me over 8 weeks was a huge leap of faith which the Middle Eastern family were willing to take. They were shocked I was unwilling to contribute to this exercise with payment of thousands, so they wished me luck building our product and left us dangling. My team went into meltdown, my web developer Ash, the most laid back dude I’ve ever met, lost it. “How could you turn this down and not pay them, are you mental!” We had a huge row, I was distraught asking my friends and advisors for advice whilst looking at my girlfriend in despair.
Now lots of people give sole founders a bad rep because the responsibility on our shoulders is enormous but one thing I believe helped me in this situation was exactly that. Myself and Ash could have seriously fallen out if we held equal shareholding. I didn’t want to send any money because we were almost broke and no matter how much the team asked me too, my ‘Liverpudlian’ gut said don’t do it.
We agreed on the diplomatic approach and attempted to continue the investment discussion and ask for proof of due diligence checks and proof of investment funds etc. But the response was the same, asking for payment up front to advance. Only this time the name at the top of my email wasn’t addressed to me, it was someone else’s name. How could he get my name wrong, was it a typo or was it a copy / paste job?
The Exit
I decided not to reply to his last email. I went silent, so did they. Strange. The two blokes that were so jovial and friendly for 8 weeks vanished off the face of the earth and didn’t email me again asking about my plans to follow up. The organiser of the event who originally encouraged me to pursue their funding, also went silent.
I spent 8 weeks speaking to these people. Consider my time as equally as valuable as theirs, from pitching at events, writing emails until 3am each night, to meeting investors in Mayfair all for a £2m quid investment which turned into a hoax. I should have billed them.
You’ll be surprised how much mental and emotional energy goes into these things. London is full of people trying to piggy back onto deals, make some cash or just f**k people over. For every truly good Angel Investor who genuinely wants to invest cash into great ideas and founders, there are 100 devils.
Like an episode from sitcom Silicon Valley, this post could be completely fictitious and exaggerated, but I strongly advise Founders to really do your own due diligence on Investors and sniff people out as early as possible.
A Positive outcome
This experience completely threw me from wanting to work with so called ‘Angels’ again, so I made some calls to Crowdcube and decided to quikcly launch a Crowdfunding campaign. After all, miPic is a marketplace for creativity were users can earn money from their pics, so why not offer them the opportunity to become shareholders.
Learnings
1. If it’s too good to be true, it is!
In my case I was told to explore these investment opportunities and trusted people. Although internally, we did wonder why there was a huge difference in investment size.
2. Do your Due Diligence on investors
Investors can often come sugar-coated as a helping hand, when in reality that may not always be the case.
3. Never send anyone money if you’re seeking investment from them!
This does sounds ludicrous, but it happens. I was offered genuine investment from an SEIS fund and their Due Diligence fees were outlined in the Term Sheet and deducted after completion. Never pay anything before a deal closes!