Full transcript: Jeff Lynn on London Real
1:03 The program dedicated to the people of the London technology startup scene. My guest today is Jeff Lynn, who is the co-founder and CEO of Seedrs, one of the world’s leading equity crowdfunding platforms that allows investors to invest as little or as much as they like in businesses they believe in and share in their success, all through a simple online process. You’ve recently raised your own 10 million pound round, including 25 million pound piece through your own platform, and you’re now off to conquer the United States.
1:34 Jeff, welcome back to London Real. Thank you very much for having me back, Brian. Great to be here. Great to have you back. It’s been two years.
1:41 So much to talk about. You know, for people that don’t know this space as well as maybe I know it or you know it, I was wonder if we could just talk a little bit about what you do, and I wanted to kick that off with a statement you made, and it was quote, “early stage investment used to be a clubby, opaque world of self-styled angels and connected entrepreneurs, which result in the wrong businesses getting funded and the wrong investors funding them.” Can you explain what that means?
2:06 Absolutely. So, you know, a lot of us, a lot of people in the tech scene sort of have grown up thinking about tech investment as being something that’s hugely different from other types of investment. People always think about, you know, lots of people invest in the stock market, lots of people invest in all these other asset classes, property, whatever, but suddenly you get to early stage businesses, and this aura, the sort of myth, evolved around it that said, “Oh no, no, this is for the special, the chosen people.”
2:32 There are a few people who are angels, and that gives them the right to invest in these businesses, and then VCs. And what we realize is this is just one part of the capital market, and the truth is that the tendency of the capital markets, and the tendency of finance over the last 100-plus years has been to become more transparent, to become more open, to reduce information asymmetries, and by and large there was a time a hundred years ago when only the very rich, when only a small elite, would have invested in the market, in the stock market, would have owned property, etc. Those walls keep coming down.
3:04 It keeps becoming something available to ordinary people, but somehow startup investment, early stage investment, kept being sort of walled off from all of that, and we wanted to break down those walls. We’ve got nothing against people who, as a hobby or as a living, are angel investors. A lot of them do great things. A lot of venture capitalists do great things, but we don’t think it should be exclusive. We think that if you’re an ordinary everyday person earning some money, bright, understand the risks involved, you should have the opportunity to invest in this asset class.
3:31 There are huge rewards from doing so, along with huge risk, and our job is to open up the field and make it available to those folks, and that’s really what Seedrs has always been about. Right? And just to clarify that. People that are listening, if I took, and this is just out of the top of my head, Facebook for example, you know, when it went public a few years ago, it had been a private company for seven years, and then the public was allowed to buy shares, and you heard these stories about all these early investors that were now making tens, hundreds of millions of dollars because they were the angels.
4:00 And for people that aren’t in the know, they’re, you’re always thinking, like, how did that guy know that guy, to know that guy, and it was kind of these club of people that were probably in San Francisco at the time. Exactly, exactly. And you know, that’s a very good point. I mean, people, you know, think about the public markets, and I talk about the public markets, but that tends to reflect the very sort of late stages of a business’s capital raising, for years and years before it’s raised money from all these private individuals and private funds, and yeah, as you say, it’s a bunch of people who kind of knew each other over dinner, you know, made deal, did deals on the golf course, whatever it may be.
4:36 I’m not a conspiracy theorist. I don’t think there’s anything wrong with that. It’s not that those are evil people, but that shut out a lot of opportunity, and crowdfunding allows you. Equity crowdfunding, the way we do it, allows that opportunity to be spread much more widely. Right.
4:50 Couple basics here, nuts and bolts before we get into the good stuff. A lot of people are familiar with crowdfunding. Okay, it’s been talked about for the last couple years. We know about Kickstarter, Indiegogo. I had Anastasia here so people know about that.
5:02 Some people don’t understand the difference between equity crowdfunding and, I’m sure you guys asked this a lot, but could you explain it really quickly, and then talk about maybe why it hasn’t happened yet in the US? Absolutely. So crowdfunding is kind of an awful term. Like we never really wanted to use the term crowdfunding for what we do, and it’s not that there’s anything bad about it inherently. It’s just not very descriptive.
5:24 All it really means is a bunch of people putting money into something, and you can use that to describe all sorts of things. The original use, a lot of people forget this now, but the real original use of the term crowdfunding, at least in the modern sense, was President Obama’s first presidential campaign, when he was taking lots of, like, 25 and $50 donations online, as opposed to going out after the really big guys. That was kind of called crowdfunding, so it’s this really, really broad term that can mean a whole lot of different things.
5:51 It kind of has wound up breaking down into sort of three broad areas. There’s what’s called rewards-based crowdfunding, which is what Kickstarter does, what Indiegogo does, and basically means that you’re putting money into something in exchange for a non-monetary reward. It may just be like a token, like a t-shirt or a thank you. It may be a product, a watch, or a headset, but what it ultimately comes down to is you’re not invested in the business. There’s no financial return.
6:17 You’re just giving money to something you care about and then getting some little token of some sort of return. Great, fantastic for a variety of different types of cultural, artistic projects and product-type businesses. Then you’ve got debt crowdfunding, which is also often known as peer-to-peer lending. You’re lending money to a business. You lend them £1,000, they are required to pay you back interest.
6:36 In principle, it tends to be for very steady-state, late-stage businesses, or sometimes for individuals. Equity crowdfunding is the third prong of it, and that’s what we do, and that means you’re actually buying shares in these businesses. It’s, you know, you like Kickstarter or like the peer-to-peer lending platforms, it is using the internet, using a simple online platform, to purchase as much or as little as you like, but what you’re buying here is not a product.
7:02 It’s not a debt instrument. It shares in the company. That means that if company succeeds, you actually have a share of that success, and that’s why we talk a lot about buying into businesses you believe in and sharing in their success. So that’s fundamentally where we sit within the equity, within the crowdfunding world. And in terms of why it hasn’t occurred in the US, it’s a heavily regulated space.
7:23 So, and it should be. I mean, investing in these high-risk businesses is something that that’s one of the reasons that regulation exists, is to make sure that you don’t have sort of proverbial widows and orphans putting their life savings into things where nine and 10 or 8 and 10 fail, which we all know startups do. So the whole idea is, in any developed country, most countries around the world, there are all sorts of rules around how you do that, what kind of people are able to invest, and under what circumstances.
7:54 What’s really interesting in the US is that it’s significantly behind Europe in terms of adapting those rules to the digital age. So Britain in particular, but most of Europe, has now really embraced this idea that with the right protections and the right types of platforms and the kinds of structures that businesses like Seedrs use, there is a sensible, straightforward way to allow a wide group of investors to participate in these deals. The US is getting there.
8:18 A law was actually passed about three and a half years ago, technically that allows for equity crowdfunding. We did, I think we did that right and it still isn’t implemented. It’s still waiting, going through the regulatory process, and also Congress and regulation takes a lot of time. Well, amazingly, this isn’t Congress. Congress got its act together.
8:40 Like, this was one of those cases where hugely bipartisan movement. Congress did it. President signed it. A lot of problems with the bill, I mean, it’s not a perfect piece of legislation, but it’s been sitting with the SEC, with financial regulators in the US for about three and a half years down. And you know, that has meant that those of us, I mean, I’m American, you’re American, but we’re British now, and those of us who are sitting here in Britain building businesses here have had a huge advantage over those who want to do it in America, but at the same time it’s a shame for the space, and we’re very hopeful that the rules will change soon.
9:11 Good. And just to make it clear, so in that Facebook analogy now, if someone can know started off with a Seedrs investment, when Facebook goes public someday or makes becomes worth, you know, 50 or 100 billion dollars, then you get percentages of that as a return, as opposed to the T-shirt or the product. That exactly. And just to one sort of real-life example, Oculus Rift, who make the great virtual reality headsets. They raised money on Kickstarter, which is the reward space platform, and if you put in $300, the reward you got was one of their headsets.
9:42 We ran some numbers, and so, you know, you did it. They did a successful campaign. They raised some money. They then went on and raised a little bit of venture capital, and then they sold their business to Facebook for about $2 billion a few years after their Kickstarter campaign. And we did some math, and what we figured out was that had they done an equity campaign rather than a Kickstarter campaign, for that $300, instead of getting a headset, you would have gotten between $30 and $50,000 back.
10:06 Now, that’s obviously an outlier, but that’s what investing in this asset class is about is the chance to make 100x, 500x type returns for the really successful businesses. Right. When I heard about that deal, I figured you guys would run those numbers right away. We did, indeed. I’m glad you did run them, because you know a lot of people don’t know about that piece where you said you like you invested to get the headset, they were bought by Facebook for a large valuation, but those people, you know, they weren’t equity investors.
10:31 It’s just that simple. Exactly. And to be clear, you know, we don’t, I mean, there were some people who sort of complained, or felt, that Kickstarter had done something wrong. Kickstarter did nothing wrong. I mean, those were the terms that everybody put their money in.
10:42 They knew what they were getting. I just think it’s a shame that there wasn’t the opportunity for investors to actually buy shares in the business, and that’s what we try to do. Okay. It’s been two years since we sat down. You’ve expanded to a lot of employees.
10:56 I get your newsletters every month, and I must say, impressed. Thank you. You know, when you came in here two years ago, everything looked as right it looked like you had the potential to succeed, but as we know in tech, you just never know. You never know who’s going to execute. But now, you’ve brought on real dream team to be associated with you.
11:15 You’ve got board members, you know, the CEO, founder of Lyft and one of the creators of the Facebook platform. I think one of your advisers or investors is Andy Murray, the Wimbledon champion. Is this your vision to get this kind of a dream team on board, and how do you do that and build a company at the same time? Well, it’s a key part of building a company. You know, I mean, I think that one of the realities of standing out in what’s a crowded market, not just within crowdfunding but within tech and the startup world generally, is being able to bring on board certain points of validation and certain points of recognition, and you know, early on in particular, we were focused on building out our early adopters.
11:58 We really marketed to the sort of small tech community, people who really were at the cutting edge of this whole space. But as we’ve grown, we’re now looking to try to become more of a mass-market play. We’re looking to become more of an international play, and part of doing that, you know, tends to involve getting people who can both support us and help us think about how to do that and help us on at a substantive level, but also help create a level of name recognition.
12:24 So in the case of, you know, Logan Green, who is the CEO and co-founder of Lyft, which is just an amazing ride-sharing business out of California. Dave Morin, who founded Path, who was one of the creators of Facebook Connect. I mean, these are guys who we’ve gotten to know, or our team’s gotten to know, over the years, very supportive of what we’re doing. They’ve been great. I mean, they, you know, when I’m in California, I see them.
12:45 We sit down and talk. Dave, I mean, you know, Dave Morin is a really, really sort of product-focused guy, and we just sit down and put up on the screen the product, and he comes up with, you know, anything he can about he RI your platform and said, you shouldn’t do this, you shouldn’t do that. You know, it’s really interesting. I think he’s been impressed with what we built, but he also tells us, you know, the gazillion things we could do better. And it’s gold.
13:06 I mean, you know, it’s amazing to have that. And Logan’s thoughts about competing in a competitive environment. I mean, this is a guy who’s in the same space as Uber and doing an amazing job, so you know, you get huge amounts of support from that. Andy Murray’s pro is a slightly different case. I don’t think we ever would have gone out looking for a sports star to be our sort of ambassador like that.
13:30 That wasn’t something that was part of our strategy, but part of what you do in a business like this is keep an eye open for opportunities, and we learned that he had developed a real interest in crowdfunding totally independently of us, totally independent of everything. He, this was something he got psyched about. He’s interested in business, he’s interested in investing, and he liked the sort of democratic, modern aspect of crowdfunding, and we really liked him.
13:54 You know, he a lot. There’s so much about him. You know, for any of your viewers who don’t know him, he’s an unusual tennis star. He’s not like Federer and Nadal, who are sort of flashy and have this real sort of public persona. A spiritual guy, right?
14:08 Yoga, meditates. He is. He’s also, you know, what else? He’s just a tough gritty guy. He doesn’t say the right things in front of the camera.
14:16 Sometimes, you know, he makes fun of the fact that he doesn’t smile enough, you know, but he has gotten to where he’s gotten through just sheer determination, hard work and a whole lot of talent. Scottish. Yeah, it’s exactly. He’s Scottish, and there’s a real sort of, you know, slightly D but, you know, really genuine and wholesome aspect to the way that he goes about his career. And, you know, we’re big believers, and when we started talking with him and with his team, we started to really think about, you know, this, really this is a great representation of what entrepreneurship is meant to be.
14:51 It’s not the flashy stuff. All due respect to the other players out there, you know, it’s not about, you know, just having a name and having some loss. It’s about that day-in, day-out hard work that you put in and what better representative than Andy? So we got to know him. He really got to like the platform.
15:07 He’s really interested in the investment side. He did some investment, sort of privately, to see how he liked it. And then we started talking with him and his team and said, you know, maybe we could do a real partnership here. It’s a great sort of, you know, it’s great publicity, it’s great profile for us, it’s a great way for him to get involved in the space. There’s a lot of stuff we can do together, and so that kind of, it, you know, I’d love to say it was a grand plan that we had.
15:28 It wasn’t, but we’re thrilled with it, and it’s been amazing working with him. That’s a great story. And he recently invested in three of your companies publicly, right on the platform? He, yeah, so so part of his, part of the goal with him is to be investing, and part of, you know, part of him coming on board onto our advisory board is that he’s going to be investing regularly in deals. What we do, it’s really very simple.
15:49 You know, we, you know, we and his team talk fairly regularly. They’re always looking at what’s on the platform. Whenever they see a deal that they think he might be interested in, they put it in front of him. And he gets really into it. Like, they’re not, you know, this isn’t just like, oh, sign here.
16:06 Like Andy looks at all the materials, decides whether he likes, asks questions, and if he’s into it, he invests. So we had he made his first three, you know, since we announced our partnership. He made his first three investments a couple weeks ago, and we’ll be, he’ll be doing many more, we hope. Yeah. When I saw that announcement, I was like, hm, that’s strange, and then I was like, wow, are they really reaching out to a star?
16:26 And then when I saw you made three investments on the platform, I was like, wait a second, he’s obviously invested, he’s obviously interested in your platform. So, well, that’s great to see. Do you think in tech sometimes we focus too much on tech, as in the tech world pitches the tech world first on their products? You know, I look at your description, and you know you’re not trying to talk about tech startups. You’re like a platform for companies, and do you think that, like, you know, Twitter pitches to tech people first, and do we do that too much?
16:52 I think so. I think there’s a real sort of echo chamber issue, I think, and actually I think that the place that the most guilty of it is Silicon Valley, and you know, you hear, I heard a great story about a company there, startup, that was building up, and they were doing an enterprise software solution, but they only built for Mac OS initially, because everybody they knew, and everybody they thought they were working with, has a Mac, who the hell has a PC these days, but the particular industry and particular vertical that they were selling to was out all across America, many of whom still work PCs, and they couldn’t get it into their head that actually not everybody uses a Mac, and it’s a silly example, but I think you see it time and time again.
17:34 It’s very easy to get very focused on the community, you know, and I think we were guilty of that to some degree at first. I think that, you know, we very consciously changed our language in the last few years from, you know, startups to businesses and part of that’s about stage, but part of that’s also about the fact that many of the companies that come to us, they’re great, interesting growth companies, but they don’t think of themselves as sort of tech city startups. They just think of themselves as small businesses that are trying to become big businesses and trying to widen out and trying to reach out as far and wide as possible.
18:05 I think is a key part for any business as it tries to scale. There’s only so far you can get in our little bubble that is the tech world. Yeah, it’s funny when you’re in the tech, you assume the whole world is tech. Somebody said something the other day that, like, if you look at the Forbes 100, that, like, most of that is not tech. It’s food, it’s all these big businesses that are still these great high growth opportunities, and it’s just the media.
18:28 But it’s true. And the other thing that I see more and more. I mean, as every year goes by, I see more of this, is the blend between the two. I mean, the number of people who are starting businesses today and making money in a business where there’s no technology involved, where it’s literally just like a push cart down the street and selling on, you, that’s dwindling. I mean, that you don’t see that as much anymore, but what you do see a lot more are businesses where the entrepreneur doesn’t think of themselves as a techie.
18:54 They don’t sort of socially or emotionally connect with the tech community, but what they’re fundamentally doing is taking a really good piece of technology that they’ve developed or bought in or brought in, applying it to a more traditional business sector and sort of sitting on the line somewhere between tech and non-tech. And I think that there’s a tendency in the tech community to forget about those people. You’re either tech and you’re sort of super into the code and super into, you know, everything that goes with it, or you’re some random lifestyle business that doesn’t matter, and that’s, yeah, or bricks and mortar.
19:24 Exactly, and that’s a very dangerous, I think, and very mistaken way of looking at things and the number of great entrepreneurs I see who really don’t connect, you know, don’t self-identify with the tech community but are fundamentally building what look like technology-heavy businesses to me is very interesting. Okay, you mentioned Silicon Valley. I just spent a week in San Francisco. I would guess, I want to get your impressions, but I’m guessing that for product they’re probably some of the best in the world of knowing what works, what great, you know, they have great product development people over there.
19:56 What are you learning from them? You’ve got two people now in the US. Will they be East Coast will be the West Coast? You know, we’re both American, but we’ve been away for so long. Yeah, I’m sure you’ve been asked this a million times, but I’m going to ask you again.
20:09 What’s going on in the valley? Well, it’s a great, it’s a fantastic question, because I take up the whole interview on just that. I guess two points. One is, I totally agree about product. I think that, and this is something I, you know, hands in the air.
20:21 We have not been nearly as focused on our technology, the quality of our codebase, the robustness of the platform, and remember, we’re handling payments. We’re handling a lot of money every day, is second to none. We’re just unbelievably good at that. Seedrs at least done, but I think generally there’s great tech, you know, and great coding over here. I think in terms of product, and in terms of really understanding what users want, in terms of understand, you know, figuring out how to blend both data with sort of qualitative feedback and building out the best user experience.
20:51 Europe generally sits a bit behind, and certainly Seedrs, we see that. We have a very long way to go. We’re actually just getting ready to build out a dedicated product team in a way that we’ve never had before. So, totally agree with you on that. I think more generally, the valley is great at building and shipping product, and I think that in certain areas, you know, still to this day, in areas that are fundamentally, you know, for the tech world.
21:20 I mean, fundamentally, you know, where the software is the real value, the valley still does some amazing stuff. I also think it’s a bit disconnected from the real world, and I think that increasingly, as we get these types of businesses that I’m talking about, where it’s technology being used to apply to some other sector, you know, the valley loses out, and you know, the world that Seedrs sits in, which is fintech, is a great example. I mean, all, you know, fintech is taking technology at varying different levels of complexity and applying it to the financial services world.
21:54 You know, simple as that. And you know, there’s the old joke in America that, you know, the problem with trying to do fintech in the States is that on the West Coast they don’t understand finance, and on the East Coast they don’t understand tech. And one of the advantages London has is that I think actually we’re really good at both and part of the reason that there has been such a fintech boom in London is that the technology is really, really good here.
22:18 I think better in many ways, and that attitude, much better than say in New York or Boston. But there’s also much more of a financial mindset and a market-based mindset than there is in California. So I think that’s one example of where perhaps things certainly aren’t as strong as they could be in the valley and probably aren’t as strong as they could be in the US generally. I think there are probably many others I mean, I see great, you know, you see the sort of the fashion tech businesses coming out of Paris, out of ban, out of London as well.
22:48 You see so many other spaces, a lot of great adtech coming out of Europe, out of, and out of New York, of Israel. I mean, there’s a lot to be said for the valley, but the more, the more you get into tech, not for tech’s sake but tech as a tool to apply to other industries, I think the more other regions tend to have a competitive advantage, right? But when the guys in Silicon Valley see the market you’re talking about, what you’ve been able to accomplish so far, they must salivate because like those are big markets with big numbers, and so those guys that love to scale and that kind of thing, they must at least be interested.
23:22 I mean, obviously they’re on your board. Yep. But so when you talk to them about it they’re curious, but then again they don’t know finance well. That’s absolutely right, and I think one of the really interesting things about our business in particular, and this I don’t think applies more generally, but certainly about Seedrs and about equity crowdfunding is that there’s a, when we talk to folks in the valley there’s a real cognitive dissonance between on one end, exactly what you say, they see that we’re succeeding.
23:48 They see that we’re scaling. They see that we’re doing all the things that make for a successful business, but at the same time this whole democratization of capital doesn’t make a whole lot of sense to them, because the valley is one of these very clubby and fairly opaque places where deals are done by people who know each other at their own clubs and over, you know, over a game of golf or whatever it may be. And they like it that way, and I don’t think there’s anything wrong with that, and I, you know, I don’t want to go Wall Street in the 80s.
24:13 Yeah, it is kind of like Wall Street in the 80s and you know, I mean, I had, I’ll give you an, I don’t want to use names, but I was I had a chat one day with one of the probably top four or five venture capitalists in Silicon Valley, a household name in this world, and explaining what he did, he’s super super super smart guy, and got the mechanics of it and all, but at one point he said, well, why would somebody want to go into a deal, why would somebody want to invest through your platform, you know, when they just see that there are a few hundred other people involved when, you know, they could go to, say, AngelList and see that another top, very famous venture capitalist was involved, and the answer was, if you sit in Silicon Valley and if you sit in that world and you know who that other famous venture capitalist is, you know, maybe you do want to follow him, but guess what, the vast majority of the world has never heard of that guy.
25:04 And this notion that we’re all, that we all care desperately, I mean the example I do use by name is Dave Morin. He sits on our Advisory Board. There are people out there who anything that Dave Morin does, they want to be part of, and I get that the vast majority of the world doesn’t know who Dave is and isn’t necessarily going to make their investment decisions based on what he’s done. I think that the former category sits more in the valley, the latter category sits elsewhere, so you get this, as I say, kind of cognitive distance, where they see the size of the market that we’re going after, but it doesn’t necessarily sit alongside the way they’re used to doing business and that’s it has made for some very interesting discussions.
25:40 I love being out on the West Coast. I love talking with people there. It is a, you know, it is a hugely open, energetic, thoughtful group of people. But the conversations we get into are always a little bit weird, and I always think that you know, if I were in some different business, if I were making electric cars or I were games developer, you know, maybe it would be a much more straightforward set of discussions. Instead, it’s actually always a little bit of a, well, okay, so we see it, so yeah, okay, so your numbers are amazing, but wait, this doesn’t really fit with how we do business and it’s a very interesting sort of phenomenon.
26:12 Sounds like a great opportunity in that sense. Are we the best in fintech in the world now in London? I think we are. I think we absolutely pretty much say that absolutely couldn’t say that two years ago necessarily. No, but I think there’s just no question now, and we see it, you know, we see it with the number of great businesses that are being built.
26:30 We see it in the way that the rest of the world is coming here. I mean, I can tell you that in the last few months I’ve had very senior representatives of both the Singapore and Hong Kong governments in my office, not because they love me or love Seedrs particularly, but because they were leading delegations to London to learn about fintech and trying to meet with some of the fintech businesses in town. I don’t think that they’re doing anywhere near that level in, say, New York.
26:55 I think they want to be building that kind of thing in their own cities, but they’re learning, and it’ll be a few years before they do. I think London is just dominating the fintech. Who’s the top list, TransferWise, was a big one. I think TransferWise is an amazing business. I think Funding Circle is an amazing business.
27:09 I think, actually, the three really major peer-to-peer lenders, Zopa, Funding Circle and RateSetter, I think are all really fantastic businesses, and I’ve been the first to say that a lot of what we try to do at Seedrs is in some ways following their footsteps, what they’ve done for debt and the path that they carved out a few years ahead of us on the debt side. I think they’ve done brilliantly, and we try to do on the equity side. But no, I think TransferWise and a few of the other currency guys, like Azimo and WorldRemit are doing amazing jobs.
27:42 I think that, you know, people like Nutmeg and you know, some of the automated investment and wealth management stuff, and then I think, you know, there are a whole host of businesses that I couldn’t even tell you what they do, but they are providing in the backend technology that is increasingly supporting the FX and the trades and everything else that’s happening within the City, and it’s just getting so hugely recognized. And then the whole new generation of guys coming out of, like, the Barclays Techstars accelerator. I was over there giving a talk a few months ago and just meeting people, and they are so much smarter than I am.
28:17 Like they like, I don’t, I could never start a business against those guys today. So I was over at one of the buildings there, and I was given, like, a moderating a talk for Microsoft Ventures, and I bumped into an old trading colleague, who was at, I think he was, he might have been at, I think he was at one of the banks in the City. Maybe it was Barclays, but he was now at Techstars and at the accelerator which was the Barclays Techstars. And I’m like, what are you doing?
28:41 He’s like, I’m doing a startup. So I mean, like you know, shocking. And so that talent’s going in there. Nutmeg, we’ve had the CEO in here, very impressive. He’s amazing You know, Dill d a great business.
28:53 You know, TransferWise, when they got the board seat from Andreessen Horowitz. It’s the first one in Europe. Okay, you know, the billion dollar valuation didn’t hurt. It’s like, okay, you can, not to mention all, like you said, all these other small businesses, backend businesses that are happening, you can pretty much say it, and that’s a big thing. It is to kind of put the stake there, and it looks like we have a lot of momentum.
29:13 Yeah, I think we do, and I think it’s very exciting, and I think that, look, I, you know, I think there’s momentum in a lot of areas of the tech scene. I think what’s, and I do think that in the next few years we’re going to see London become better known for not just fintech but for a much wider range. But certainly fintech seems to be leading the pack, and as you see these companies hitting billion dollar, billion pound type valuations, pushing toward IPO, and all.
29:39 I mean, it really, that’s the kind of validation that starts to make people sit up and take notice. It’s no longer about optimism and thinking about what might be. It’s what actually is. Right, practicality. Let’s talk about competitors.
29:49 Yes, the first one and pretty much the only one in your space comes to mind. I believe it’s Crowdcube. Yep, you can tell me. Some people say, for every Ali needs a Frazier, and you’ve probably never been asked this, but in what ways can you say that they’ve helped you or you’ve helped them over the years? You know, I know you’ve always been battling it out.
30:09 I’m probably summarizing here but you know, you were more of a due diligence type company, and you even said that at the last time you were here, and you were like, we’re going to get this by the book. Some even say that you are more investor-focused. I think that’s fair to argue. Whether, as Crowdcube was a bit going ahead, you know, you waited for the approval from the FCA. How would you summarize that rivalry, and can you see benefits of it now in retrospect?
30:32 Yeah, look, I think, I mean, I’ve been very, I think, open and transparent on my views about Crowdcube through the years, and I admire a huge amount of what they’ve done there. There’s a lot, you know, a lot about the way they’ve come at the market. I think it has been outstanding, and I think it has helped us. I mean, I think I’m sure they won’t want to hear me say this, but, you know, the hundreds of thousands of pounds they spend on Tube advertising have been wonderful free advertising for us too, and you know, it’s not, you know, but that’s just the nature of it.
31:06 You know, they’re advertising, you know, they’re advertising themselves but they’re advertising a space, and I think they’ve done a very good job at it. And so I think there’s a lot that they’ve done well. The financial services business, I think, of, I think, is a different one than certain other areas of tech, and I think that if you look, if you compare it, for example, to the ride-sharing and transportation business, you know, there’s a lot of admiration for businesses like Uber that have gone out there and have been seen to kind of break the rules and push down doors and, you know, trample in and clean up later, and you know, I have a lot of sympathy for that, because fundamentally what they’re doing is all in the favor of the consumers.
31:47 You know, the rules are basically protectionist, old-style measures meant to protect a very limited group of suppliers. And you know, I think that while I don’t ever ad keep breaking the law, I have a lot of sympathy for that. The attitude that they and others have taken in that particular industry, which is to charge first, ask questions later, ask for approval later in France. Exactly, exactly. I finance is a different one.
32:11 And I do think you need to be aggressive, and we’ve certainly pushed the bounds, and I think that, you know, you can’t always, on every single thing, you know, play it, you know, super safe, but you have to put the consumer first. The problem with investments is that, particularly, the types of investments we’re doing is that they are very long-term, and you won’t really know whether it’s working or not, or whether things have held together, right, or not, until much later down the track, and years, 10 years. Exactly.
32:40 And one of the things I specifically always say, and I won’t get into a whole discussion about the technicalities, but when we think about what’s the worst that can happen in our space, it’s not that a company fails, it’s not even that a company commits fraud. That’s bad, and there’s a lot that you need to do to go against that, but frankly, I think all of us in the space are working pretty hard and doing a pretty good job to step, the worst that can happen is a much more technical, but much more dramatic problem, which is the company becomes Facebook, becomes hugely successful, but because the deal hasn’t been done right, because you haven’t sort of watched out for investors in the process, they don’t actually get anything out of the deal. It happens all the time.
33:15 It happened in Facebook. One of Facebook’s earliest investors got totally screwed, because deals in the movie, right Yeah, exactly. Right, the Brazilian guy. Exactly. And so, you know, these are things that can have very dramatic consequences down the road, and I think that if you’re looking build a sustainable business, in financial services, one that can gain trust and build up a strong reputation over time.
33:36 It is very important to focus on getting that right and making sure you’re treating consumers right, making sure you’re doing the things that ensure that they will be protected in the way that they should be protected down the road, and that has been something that we have placed as a very, very high priority. It is, you know, it is a choice, years on the docum. We did, yeah, we spent three years getting our regulatory approvals, and that was, you know, that was one aspect of, you know, a general philosophy that we have, which is that, you know, when it comes to making sure that investors are protected, they’re getting what they think they are.
34:13 High-risk space, many investments will fail, but that they’re getting what they think they are, and that when a business succeeds, it’s going to succeed. You know, the investors are going to share in that success, that’s a whole kind of philosophy that we’ve had, that maybe certain others in the space haven’t had, and you know look, we think it’s very important. I think at times, you know, in the long run we think it’s critical, in the short term it’s helped us in a lot of regards.
34:39 Certainly the folks who’ve just invested in us, in our Series A, you know, obviously looked closely at the market, and I think, you know, took a view as to which business was the most sustainable. Obviously, you know, others could take different views, but I think that’s helped us a lot. Of the partnerships we’ve done, a lot of the relationship ship, and the volumes we have, you know, we have more activity on our platform day in day out than anyone else, including Crowdcube.
35:05 You know, they do different types of deals, and they’ve got some debt deals, and they’ve done well in a lot of what they do but you know, we have managed, I think, to use even in the short term, you know, the trust that we’ve created to build what we certainly think is a better and certainly a more active platform. But at the same time, we’re not as concerned about the short-term as we are about the long term, and that’s where we focus that’s the distinction. That’s where I think we, where we really part ways with them.
35:36 But I don’t want that to take away from the fact that, you know, number one, it’s always good to have competitors in the space. I actually rather wish that there were a few others. I mean, I think that, you know, there are probably 15 or 20 equity crowdfunding platforms in the UK, but it really is the two of us, you know, very, very far apart at this point from the rest, and it probably would be good for the space in many ways to have more. But I do think that the competition that we’ve had has certainly brought more attention to the space it certainly attracted interest, and do your game up sometimes, do it, step your team’s game up when you’re, we got to do this.
36:12 It does, you know. And look, I will be the first to tell you that when we see them do something in the market that we think is effective or we think works well, and we think, you obviously respects the sort of ethical and legal standards that we hold so dear. You know, we think very hard about should we do something similar, and, you know, and there are many times when we do see that I think, you know, I think I said earlier that we’re still working very hard on sort of getting product right.
36:41 I think, interestingly, we were probably a little ahead of them on product at first, but I think they’ve gotten very good at product, and a lot of what, you know, what we’ve seen of them, and the way their platform works has been very impressive. So yeah, look, it does help us step our game up. And you know, I would have liked it to have been a more friendly rivalry. I think that the fact that there is this kind of ethical, legal, sustainability dimension, undermines the ability to kind of be friends, and I think that the if you look at the three peer-to-peer lenders I mentioned, Zopa, Funding Circle and RateSetter, because all of them have held to a certain ethical and legal bar.
37:19 I think they have found it easier to compete on a friendly basis with each other in a way that maybe we haven’t with the folks at Crowdcube. But, you know, competition is healthy for any market, right? It’s probably helped both of you. I know you always had a fairly detailed questionnaire, making sure people understood that they were kind of big boys, as we used to say on Wall Street, that they could, you know, really intelligently invest, you know, that kind of thing.
37:47 You had a questionnaire that I think later they adopted. So, you know, it absolutely. I think one of the things that I think we did understand from early on. I think, you know, and I mean this with greatest respect to them. I don’t mean this to come off in any way judgmental, but I do, I think that they felt that the burdens of complying with regulation and the commercial limitations of that were greater than they really are.
38:12 I think one of the, you know, as a key part of our, what I’m calling our sort of ethical legal structural dimension has been that there are ways to build a great business and while still complying fully with the law on protecting investors and things like this questionnaire we’re talking about. I think we realized early on maybe they didn’t, and but pretty quickly did, and you know, I think that in many regards, hopefully the example we’ve set has been helpful there. Okay, no merger in the talks.
38:43 A good friend of mine James Dawson founded The Humble Grape, raised, I think, just under a million dollars with you last year on your platform. I was very impressed with him. I was very impressed with you. And you gave a speech, I think the night when we were announcing it over at Level 39, and I was there, and you talked a little bit about what you do, and you talked about your fee structure, and I was just really impressed with the way you explained it.
39:08 You’re really transparent about it, and you’re like, look, this is what we do, this is why we do it. This is your alternative with lawyers. You’re a formal lawyer. I am, Sullivan and Cromwell. I love that Can you just break down, the fee structure, that kind of thing, or what I saw that night?
39:24 Yeah, absolutely. So it’s a very simple fee structure. It’s two fees. It’s a commission charged to the business on funds raised So, no upfront pay to list type fees, no payment fees, no hidden legal fees, just purely commission on funds raised and the way we do that is it’s a nominal 7 and a half% rate, but we also discount that for when you bring your own investors. So one of the things, actually, probably that’s emerged since then was, you know, we listen to our customers, and one of the things that we heard from them was that, you know, we bring two types of value to these transactions.
39:57 Part of it is about aggregating a whole lot of small investors that they couldn’t otherwise do, and then part of it is providing a source of capital and providing a source of liquidity, and what our customers, what our businesses were telling us, was when we’re doing both of those things, when they’re getting new investors through us and we’re doing all the paperwork and all the aggregation, 7 and a half% a barking. But when we’re only doing one of them, when they’re going out to their networks and getting their friends and their family, and all, to invest, we’re still doing something of use, we’re still bringing them together in a way we couldn’t, but it’s not quite worth the same as when we also bring the capital. And so what we’ve come up with is this idea that we will discount that by 50%, so effectively you’re paying 3.75% now on what you bring, and that’s a little more complicated and it’s a little bit less elegant than it used to be, but it does respond, we think, to the need, and people seem to have been very happy with it, but either way, you know, you wind up with a blended rate that winds up being about 5% or 6%, depending on how much comes from your network, how much comes independently and that is just a straight commission on success.
40:59 Absolutely no other fees to you at any other end of time And then from an investor’s perspective, we’re not charging any fees to get in, any fees for management, but we charge a carry on success, so if you get more than your investment back, you get more than the cash you’ve invested in a given deal back, we take 7 and a half% of the upside. And what we like about that structure is two things. One is we really hate hidden fees. I mean, I think one of the things that we figured from very early on, and we look at the broader financial services industry, you know, and other industries like travel, like Ryanair.
41:32 I mean, nothing greets people more and undermines trust more. P for bags, exactly, to just, you know, to see a basic fee, think that’s all you’re paying, and then have all this stuff hidden in. So we said, you know what, we’ll take a little hit, maybe if it sounds like our nominal rate’s a little higher, but we will then wind up encouraging trust and encouraging repeat behavior when people see that there’s nothing else to pay any other time, so the transparency of it, cas.
41:57 But the other key bit is, we align our interest with our customers our goal is to make sure that we’re getting paid when, and only when, our customers have succeeded in doing what they want to do with us. You know, if you go to a lawyer, and fairness to them, fairness to their model they make a lot of money off of it, but you pay for their work regardless of whether you did the deal or didn’t, regardless of whether you’re happy with the deal or not, no matter what. With us, if you’re a company raising capital, you’ve come to us to raise that round, so you’re only paying when you actually get the money in the bank from that round.
42:28 And if you’re an investor, you’re investing with us to make a profit, and you’re only paying when you actually make that profit. Right? 7 and a half%. It’s chunky. Well, so 7 and a half% on the carry is actually, I think, really low.
42:41 I mean, if you’re investing in a fund, you’re usually paying a 2% annual management fee and a 20% carry. Now, we’re different. A fund, it’s not a fund, right? It’s not a fund, and the key thing that you’re also paying for the fund manager is that they’re picking the businesses, whereas we’re a self-directed platform. So it’s not 100% comparable, but we don’t think that, you know, if you think about that as being a reasonable cost when there for the fund management element, our fee, no management fee, and 7 and a half% carry is a reasonable fee for investors.
43:13 Well, what does the market tell you? It probably doesn’t have a problem with it. It really doesn’t. No, you know, seem, I mean, obviously you adjusted the upfront fee a little bit based on what people are telling you, but the carry doesn’t seem to bother anybody. That’s exactly right.
43:25 And you know, it’s good to have you aligned, because when Facebook does pop, when it does public one day, they know that you, the former lawyer at Sullivan and Cromwell, is going to get his equity, and so I will too. Well, that’s that’s a key part of it. I mean, part of, and getting back to this idea of the degree to which we stay with the business through to exit. I mean, you know, we operate a nominee structure where we’re holding and administering the shares on behalf of underlying investors.
43:49 A lot, you know, a lot of what goes into that is is relatively mundane, but what it does mean is exactly as you say, we got a stake in this and you know, we got a lot of money on the table, and that means that, you know, if you’re an investor that we’re in the same position as you are, and we’re going to do what we can to make sure that you get returns out of the business. Okay, talk to me about the deals on your platform. I look at the top 50 deals on your platform.
44:13 I look at the top 50 funding articles that just hit, been on TechCrunch. They’re different companies Yeah, sometimes, the companies on your platform, I’m like, I don’t know these businesses. I don’t know what they’re going to do that, you know, that could be a fitness instru, it could be this. Then I hear Balderton Capital or Passion Capital I’m like, okay, that seems like there’s a business model here. I’m just, a lot of people must ask you this question is the smart money still going to VCs?
44:38 Do they still get looks on certain companies, or is this just the nature of crowdfunding? Well, look, I think that, I think there is, and remains, a huge role for good venture capital firms, and you know, you mentioned Passion Capital. I think that, you know, that is an outstanding firm for seed and early stage businesses. I think there are a lot of other great firms around in London and across Europe, and you know, we’ve now taken capital from a few ourselves.
45:06 I think there are two important differences between the types of deals that come to us and the types of deals that tend to go to venture capital, and it’s a Venn diagram, and there is some overlap, and there are lots of deals that come that are co-funding, so partially venture, partially crowd, and we see that a lot on Seedrs, but to the extent that there’s a separation, you know, one is that we fund, and we like to fund deals in all sorts of different sectors, not just tech. You know, we have a lot of consumer products businesses. We have services businesses.
45:37 We have entertainment assets. We funded films and theater productions. We want to give people the chance to buy into the businesses that they care about, and each of those businesses has slightly different risk-return profiles. I mean, your classic tech business tends to be a real boom-bust kind of play, very high risk, but if it hits it can be massive. A lot of our investors like to invest in small growth businesses, but they want one that maybe has a bit of a higher chance of success, but perhaps maybe won’t be 100x, but has a good chance of being a 10x or 20x.
46:10 And I think you see a lot, particularly the food-type businesses that we’ve had we’ve had some great businesses that have massive distribution already that are doing wonderfully, and you know, is it possible they could become billion-pound companies, maybe, but it’s actually quite likely that they’re going to wind up being bought by a Nestlé or a Unilever or somebody like that, where the prospect of a return is actually fairly significant. So, you know, one is it’s just different sectors, different spaces along the risk-reward spectrum. The other has to do with stage.
46:41 A lot, you know, the nature of VC is they, you know, the way venture capital firm makes money is to do as few deals a year as it can, by and large. I mean, you know, they, they need to keep very thin overheads. For them to do a 10 million pound deal, is not that much harder than doing a 500,000 deal, so spend down the fund largely with larger deals, and you see this time and time again. Venture fund start out doing small deals as soon as they can raise more money, they go and move to late stage, and so at any given time there are only really a handful of venture funds, because they have limited bandwidth, with limited personnel, limited bandwidth, limited personnel, exactly.
47:16 So you only really have at any given time a handful of really interesting venture funds that are doing seed and early stage stuff, and Passion is a great example of one of them but you know, that means they’re only going to do so many deals, and in the seed space, and that means that there are heck of a lot of other seed deals out there and early stage deals out there to be done. And it’s not even a matter of the VC or smart money going to one particular type of deal, you know, deals that happen to meet a particular venture firm’s thesis at a particular time get funded by that, but the wide range of brilliant deals out there, and that maybe, maybe haven’t fit those theses, or maybe want something different, maybe they don’t want to venture from. They simply want the opportunity to build a big crowd behind them, build a big base of users, tend to come to us.
48:03 So it’s not an either-or type of thing necessarily, but to the extent there is a separation between the two, it’s caused by a number of factors that I think mean that the VCs are getting good deals for them, and the crowds are getting good deals for them. Right, well said. Just quick thing about the whole concept of crowdfunding, you know, I hate that word. I know you hate that word too, but you know, I had Alex Stephanie in here from JustPark, who raised money from Index, and then he went and did a crowdfunding deal, and it was just like the most counterintuitive piece, and he was talking about how, you know, the people that he raised money from were his clients, and then his future clients, and there’s this whole strange relationship where it’s part marketing, part investment, part reverse investment.
48:42 It’s this weird thing going on. We were just talking about how, you know, we have the Academy at London Real, and when people invest even a small amount of money, they become almost partners in a way. You must see this on your platform. Well, that’s a huge part of it. A lot of the businesses that come to us have a number of other places that they could get funding from, and they’re not coming to us just for the money.
49:03 They’re coming to us because it gives them a chance. You know, we talk about it. It gives them a chance to build community, and that means a number of things, but it often means engaging their existing customers, marketing, and creating awareness and recruiting new customers. You know, last year we funded Chapel Down, which is probably the leading English wine maker. They a lot of money for that.
49:23 Yeah, we did, and you know, they’re a public, we were also you know, there was the first time a publicly quoted company ever, you ever used crowdfunding, and the reason that they came to us was very simple, and said they could get money from anywhere. That wasn’t the challenge. The challenge was how do they get people to be passionate, passionate about their brand? Their CEO likes to talk about pilgrims to their brand. He wants people out there not just buying the stuff, not just drinking it, but going to dinner parties and boring everybody with how awesome it is, and getting them to drink you, and so, you know, they came to us to have that opportunity, to have an easy way to access their wide customer base, and I’ll give you a fascinating statistic about 1,400, a little over 1,400 people invested in the Chapel Down campaign through us, and that was in September of last year.
50:10 At Christmas time, 700 of them ordered Chapel Down products directly from the vineyard, in addition to any others you may have bought it in the store to serve with their, you know, with their Christmas meals and the families. It’s a 50% conversion from investor to customer. That’s massive, and that 700 households around the country, whose uncles and cousins and whoever else, they said, oh, what’s this Chapel Down? I like it. I should go out and try it, and so we see that in so many of the businesses that come to us, it’s the marketing, it’s the customer engagement, it’s the whole value chain lock-in.
50:43 I mean, it goes beyond customers. If you get your suppliers or your partners invested in you now suddenly they’ve got a vested interest in being part of your business as well. Right? No, no, well said. What’s the funnest company you’ve ever, dealt with or done business with?
50:55 Oh, we’ve done some great ones. You know, one of the recent ones that has been, I think, very exciting, is a business called Oppo ice cream. Oppo is founded by two brothers. Young guys, they’ve done a trip to Brazil a few years ago, and discovered the use of both coconut milk and Stevia Leaf to make really tasty sweet things, and so what they’ve come up with is a new type of ice cream that is incredibly healthy relative to traditional ice cream, instead of sugar, and instead of cream, it’s using Stevia Leaf as a sweet and coconut milk as the thickener.
51:28 It’s about half the calories, third to half the calories of traditional ice cream and tastes just as good, and as somebody who very much likes ice cream and very much should not be eating regular ice cream. I am a particular fan of this product, but I’m also a fan of them. I mean, these are guys, and this is a great example of crowdfunding done well. It’s a great business. It’s a great product.
51:46 They’ve got distribution and Waitr. They’re building fast. They’ve done amazingly, but they’re also just really good Hustlers, and hustlers in the best sense, people who can get out there and get their message out. My is I got an email from their founder a couple, maybe about two months ago, saying that he just received a call from number 10. They were keen for him to join the Prime Minister on a flight to Italy, to meet with the Italian Prime Minister and an Italian delegation, to show off some great British startups and great British businesses This is a guy who managed to get himself invited to sell ice cream to the Italians.
52:21 Now, that’s a really, really impressive sort of thing, and so, you know, we have so many businesses like that and so many businesses with impressive entrepreneurs. But maybe because of my love for the product, that one sticks to in mind at the moment. It’s interesting how, as consumers and buyers of products, we really fall in love with the narrative, yeah, almost more than the product sometimes, and we want to know the story. The why. You know, Simon Sinek has a famous TED Talk, the why, you know, and people talk about Apple products being great, and they are great, but the why is a lot of it, the way it makes you feel.
52:51 Well, I think there’s, I think there’s something in our generation, and probably more of the folks even younger than us who really care about authenticity. You know, certainly when I was growing up it was you bought packaged stuff from the store, made, you know, certainly in America, and to an extent here, I think, you know, name brands built by big, vast companies, and you didn’t care, and if it was kind of cheap and consistent, that’s what people cared about. I think people more now, you know, they extreme versions of it with the local food movements and all, where people are really committed to it, but even when you’re talking about packaged goods even when you’re talking about mass-produced items, people want to feel that there is some sort of real story behind it, instead of just a faceless corporation.
53:33 I mean, Ben and Jerry’s, you know, right? Another ice cream example. I mean, they’re, you know, they’re a massive business, but you know, the story and the image of this ice cream coming straight from a hippie farm in Vermont. People, I think, increasingly like that, in a way that they didn’t in the past, and that’s very interesting. It’s interesting from a consumption perspective, and it’s interesting from an investment perspective.
53:51 Jeff, let me ask you about your personal success secrets I just want to ask you a few things about kind of maybe you and maybe how you changed your game over the years. I was wondering if there was like one thing that, if you look back, I don’t know, 5 years ago or 6 years ago, where you were like, I made a distinct change in the way I looked at life, the When someone tries to valuate your company, is it very difficult, because you must at this point have hundreds of 7 and a half% equity investments in companies? You know, we take an interesting, perhaps, approach to that, which is we don’t actually place any value on that.
55:03 We don’t model it you know, it’s maybe a, it’s an overly conservative approach, but what we say is, you know, what we’re going to build this business, you know, for purposes of what we share externally, but also, more importantly, for our internal modeling, we’re going to build this business purely on our commission revenue stream, and our goal is to be a highly profitable business based purely on doing the deals, and then everything that we get from the carry is windfall. And I think that I would rather be in that position if that undervalues us slightly today, but then means that we perform better than everybody expects. I’d rather that than try to make up some number for unmeasurable carry.
55:42 I mean, it is so difficult, and there various. I mean, I’ve show, I’ve got a little document that shows equation wise that it is so difficult to predict what carry is going to be, even if you can model the overall success of the portfolio, because it’s the exact way that success comes and the magnitudes of in individual companies. I would rather just write that to, you know, just not write it to zero but just hold it to the side and say, you know, what, there’s a lot of money there someday.
56:07 We don’t know what it is. Let’s focus on the bit that we do now. Okay, volatility in stock markets lately, down it’s up, it’s down again. I’ve been watching this forever, but it freaks people out sometimes, it freaks consumers out who just read headlines that they don’t report the next day that it’s back up 3%. Does a market downturn of 102% does that make crowdfunding markets dry up?
56:29 Do the consumers get skittish before everyone else? You know, the interesting thing in crowdfunding and equity crowdfunding is, it’s a pretty non-correlated type of investing, and it’s an early stage businesses are pretty non-correlated asset class. You know, and those are two, I think, very important statements that may be worth parsing a little bit, not to sound immodest about it, but the, if you look at early stage business as an asset class, you know, it’s very interesting.
56:58 They tend not to correlate with not just the markets but with the broader economy. There are some businesses, some startups, that do very well in good economies, some do very well in bad economies. Those whose advantage is being able to employ talented labor at low costs, or who otherwise compete on the basis of cost of their outputs, actually tend to do very well in weaker economies. And so when you take the early stage business environment as a whole, you’re dealing with an asset class that really is going to have winners and losers in every environment, and doesn’t go with the kind of cycles the rest of the market does.
57:32 In turn, crowdfunding and Sh investment through Seedrs, you know, doesn’t really correspond to the broader market trends, partially because the underlying asset class doesn’t. But more than that, I think it’s because, you know, there are sort of countervailing trends when markets are up versus down. So, in a boom, in a bull market, you know, when the public markets are up. Okay, people are optimistic and there’s enthusiasm and there’s cash CL about. There are a lot of assets to put it in, and we’re competing against a lot of really interesting opportunities that are producing really good yield or really good capital appreciation.
58:08 In a down market, okay, people are a little more reserved, and they’re going to have some people are going to hold their money under their mattress, but those who are looking for growth opportunities have fewer places to look, and suddenly a platform like ours gives them an investment that isn’t going through that volatility, that isn’t particularly affected by the wider trend, and you know our view, and you know, has yet to be seen, and what would happen in a very deep recession like 2007-08, I don’t know. But you know, at least short-term, medium-term volatility of the sort we’re seeing, I think that we wind up unaffected and potentially even advantaged by it. It’s an interesting theory.
58:43 I disagree with you, but there’s one way to find out. So we’ll see. Hopefully it doesn’t find out for everybody. Last thing here, you know, 5 years from now, what does fintech look like globally and in London? You know, not just your market but in general, you have thoughts on that?
58:58 You know this industry so well. I think the really interesting thing is whether the major financial institutions ever figure out a way to do real fintech and financial innovation internally, or whether they will always be dependent on early-stage businesses and startup-type businesses. And I’m a big believer, and part of my commitment to this asset class, part of my belief in this, in investing in early-stage businesses, is that large businesses are structurally incapable of innovating effectively, and I’m not, this is, you know, this is not, I’m all I’m doing is rehashing business school 101 type theories.
59:35 Innovator’s dilemma, exactly. I mean, you know, we know it full well. I mean, you see, Kodak is the example of, they invented the digital camera, but they couldn’t promote it because it would cannibalize their own business, so they let other people build it and put them out of business. I mean, it’s so, it repeats time and time again, and it’s probably, it applies in the financial services world, and probably even applies worse in financial services world, because you have the commercial imperatives around not trying to build products that are going to undermine your bread and butter, and then you’ve got the regulatory complexity, and the fact that, you know, large businesses tend to be less willing to take risk, and less willing to, you know, try something that may be a very small bit of their overall revenue stream, if it could have an impact on the rest.
1:00:22 So far, the large banks have been incredibly bad at solving that problem, and that I think has been one of the reasons why the fintech startup community has flourished the way it has. I mean, there’s just a huge opportunity for small, agile businesses like Seedrs to come in and do things that the big guys can’t do. It’ll be very interesting to see whether the big guys ever solve that, and whether they do internalize innovation, whether they do whether they find ways to, you know, to segment it, whether things like the Barclays accelerator or others, you know, wind up being, you know, quasi-external, quasi-internal sources, or whether it remains the domain of companies like ours.
1:01:07 I think that either way we’re going to continue to see massive innovation in the fintech world in the UK. I mean, I think, I think we’re going to continue to lead the market, but the bit that I just don’t know about is, but to what extent will the big guys have a piece of it, or to what extent will it just be small, lean agile challenger-type businesses? It’s an interesting question. I was in that industry for a long time. You know, I was an inter-dealer broker at ICAP plc, and ICAP’s invested in lots of things.
1:01:32 Michael Spencer’s invested in Nutmeg and lap, all that stuff. So personally, he’s very good at doing that, but, you know, I got paid. He invested in Chapel Down as well. Chapel Down, did he as well? All right.
1:01:41 So I got paid fixed commissions to voice, close deals on the phone. And the last thing, we were kicking and screaming when, quite when James Dawson was trying to get us to adopt broker tech, an electronic platform. This is 10 years ago, so you know, we didn’t want to. We saw our margins going, and we were just kicking and screaming, and we finally allowed a little bit of adoption there, but you know, there’s so much money involved. On top of that, you have regulations, and you got these big institutions, very, very few smaller players or medium-sized players.
1:02:10 So, a man, I mean, we, it just, I see this consolidation process being very bumpy and incomplete. Even if you were bought, you know, by, for tomorrow, I would be really questioning on whether they could actually, you know, assimilate your business into a bigger business, because, like, you know, would the innovation stay there, you know? It’s hard. No, it’s a really, it’s, say, it’s a really good question. And it’s interesting.
1:02:36 I mean, I think we’ve done a lot with ICAP through the years, and you’re talking about one of the most innovative, one of the most thoughtful, one of the most commercially minded businesses out there. The old sort of stuffy, you know, stock-broking firms or whatever they may be, merchant banks. It’ll be even tougher for, so I think it’s going to be very interesting to see how that emerges. Good, last bit of advice. If you had to write a letter to London and say this is my advice for you.
1:03:02 Maybe they would wake up, you know, in 5 years when it’s their birthday and say, oh, I can read this, or maybe it’s something you should tell them now I mean, what should this city be thinking about, you know, tech-wise or even investment-wise? Should we make sure to do this, or not do this, or don’t follow the valley too much, or it’s a really good question. I mean, I think, and I’ve said before, that one of the things I love about London, and one of the great opportunities I see is drawing on its myriad traditional strengths.
1:03:29 I think, you know, particularly when I first, when I left law and first started, got into kind of the tech, tech ecosystem, there was still a lot more talk and this is sort of seven, eight years ago, there’s still a lot more talk in the UK about really trying to compete head-to-head with the valley, and, you know, maybe making semiconductors, or, you know, doing sort of core enterprise software, and I that’s never interested me as much. I think London is a very special city. I absolutely love it, and it is a special city for a number of reasons.
1:03:59 It’s been a historical center of commerce for all intents and purposes for 400 years, consistently, really longer than that, but you know, since the 17th century, consistently. It was the center of an Empire, which has lots and lots of bad connotations about it, but it also means that there’s a level of internationalism, both in terms of the wonderful diasporas and wonderful diversity that we have in this city as well as the fact that London and Brits generally, at least certainly compared to Americans, are so outward looking and really do think about doing business with, and the connections and the value that comes from working in Africa, working in India, working in East Asia, and so many other things like that about this city’s history, its commercial history, its political history, its social history, that I think can be drawn on, and can be used as a part of how you develop a tech industry here.
1:04:52 And, you know, I talked about this a little bit in the context of fintech, or be it things like adtech, or other areas. You know, adtech is a great one. I mean, London has been, you know, London was the seat of advertising. Still is in so many ways. You know, and you know, it’s a natural place to sort of take that great history, to take what companies like WPP and Saatchi have done, and lay, and put a tech layer on top of it.
1:05:17 You know, so I think that you know, the letter to London is to say, you know, draw on your strengths. I think, you know, Brits love to be self-deprecated and love to underestimate themselves. And, you know, Americans, we love to, we love to, you know, promote ourselves, and overtalk ourselves, but I think that, you know, have confidence in the great things that this city and this country have done and have built in the great history and great diaspora that we have now living here and build off of that, rather than thinking in terms of going head-to-head with another particular area that has a very different history and a very different cultural reality.
1:05:55 Excellent. Are you going back? Are you moving back to the States ever? I don’t think so. My wife and I took citizenship here earlier this year, so we’re now proud, she’s American as well.
1:06:04 Yeah, she’s American as well. Join the club. Me too. Yeah, yeah. Fantastic.
1:06:09 Congrats. So we are proudly Anglo-American. You know, never giving up US citizenship. Proudly, you know, proud of American history and upbringing, and who knows what’ll happen as the years go by, but for the moment we’re very happy in London. Good.
1:06:23 So am I I retain both business ships as well. I used to, I took a standup comedy course about 5 years ago and part of my, one of my one-liners was, I would tell the Brits, you know, I tell the Americans I got a British passport, and they’d be like, oh, and I tell the Brits, and they’d be like, oh, he like So, you know, right? Yeah, exactly. No one’s a big fan of me here, but, but I love it. I love it here.
1:06:46 It’s great that you remind me of the history here, because it’s so deep, and there’s so much deep value here that maybe on the surface you can’t see. But just that history of a culture that’s been, you know, globally dominant, that’s been a center of trade, has done business everywhere. You know, that’s real value that you get to feel, you know, at the same point, world, we’ll both always be Americans, and you really can’t get rid of that. It’s in your blood almost from growing up there, and it’s F, you know, I find it fun to live in a place where I didn’t grow up.
1:07:19 I still learn new things all the time. I learn historical things, not just a quick silly story, but I was at a very sort of fancy lunch a few weeks ago. Very formal. Everybody else in the room was English born and bred, and there was a dessert that was sered a putting on Ser that I had never seen in my life. I’d never seen anything that looked like it, and so I just sort of went, assuming that this was some sort of, you know, omission for my cultural education, and that this was going to be something that was a very common British staple that I had somehow missed, and I was sort of waiting for everybody else to eat it, and I figured out, until all of a sudden one of the English guys looked down.
1:07:55 I say, does anybody know what this thing is? Yeah, sure enough, it was a dish that nobody ever heard of, but I’m never quite sure when it’s, you know, have I just miss something out, or oh, no, is this thing really actually? This is very strange. So I’m the same way. I still walk around and see historic places I still marvel at some of the architecture here, and so sometimes I find it hard to believe I’m here, and I’ve been here 13 years.
1:08:17 So, I know how you feel, and then sometimes you learn something new, and sometimes you realize that everyone is just as confused. Exactly. That’s fantastic. Jeff Lynn, founder and CEO of Seedrs. It’s been a real pleasure talking to you.
1:08:31 It’s been fun to watch you grow. It’s been fun to see friends of mine do business with you, and, you know, it’s just a great testament to fintech here in London. You guys are right at the top, leading the charge. It’s such an important piece of the fintech puzzle. Some would argue the most important piece.
1:08:48 It’s right, it’s right up there, and so it’s great to see you representing, so thanks much. Well, that’s very kind. Thanks so much for having Brian. This is great. All right, let’s do it again in two more years.
1:08:56 Let’s do it. All right, thanks. Cool. Thanks. This week on London Real, we have Alice Bentinck, co-founder of Entrepreneur First.
1:09:20 The problem with ideas is that most people don’t know what a good idea looks like, and they need help to work out what that is. Okay, everyone at the time was, you know, incubating and accelerating, but where did you guys come up with the idea of, wait, we’re going to start before that, and really you’re looking for raw talent, startups that are producing hard, defensible technology. You know, Matt and I were pretty naive about the industry. I don’t think I even knew what an accelerator was, and because of that, it meant that we weren’t trying to replicate an existing model, building technology, developing interesting products, solving problems, rather than startups, because the media has done a really good job of making startups cool, but actually, for the people that we’re most interested in, that just makes them sound a bit lame.
1:10:14 London Real presents Alice Bentinck, Entrepreneur First.
