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Podcast transcription - 31st may 2018
Peter Cowley: So welcome again to another Invested Investor podcast. We must just apologize to listeners that we're in a working space in Central London and in a glass office but there's a bit of noise roundabout so it's a little bit more noisy than some of our other podcasts. Today we have Modwenna Rees-Mogg, who I've known for six or seven years. Worked together, helped her out. She's helped me out. Has got some very interesting stories. So Modwenna, let's talk a little bit about your background, your education et cetera.
Modwenna Rees-Mogg: My education was ... At the age of 15 or 16, I remember saying at a family party, "What we need is somebody who goes round supermarkets and picks up the food for busy, working people and drives it in a little van to their homes after work." That was in about 1981, so sadly I was ahead of Ocado but I was only 14. And I did say, "Will somebody lend me the money to buy a van?" And nobody would. So I went to fairly conventional schooling. I was alright at school. Wasn't the misfit, wasn't the super keeny. Just got on with it, went to university.
Modwenna Rees-Mogg: But my grandfather, who was very influential in my life, always said that as a woman, I should have a career and I should have money because then I had choice and I could choose who to marry and choose where to live and I took that on board. And then he also said, again back in the 80s, "You should work in the city because women have been in the city in America, in financial services, for quite a long time and they will be now arriving in London so by the time you grow up, there'll be women in the city, therefore breaking the glass ceiling. It won't be you on your own."
Peter Cowley: That's phenomenal, that was really forward-looking.
Modwenna Rees-Mogg: Yeah, so this is just after really, equal pay and equality acts and things in the 70s, so he really was far-sighted. When it came to actually looking for a job, actually I decided doing deals in the city was what suited me. It was a nice balance of people, maths and writing. And most jobs are not all three. Most jobs are heavily dominant on one or the other. So that suited me.
Modwenna Rees-Mogg: So I applied, got a job in the city, worked in corporate finance, had the fun of the little red sports car, flying round the world first class. Then as many people know, a lovely gentleman took me out for lunch one day and said, "Would you like to live in Somerset?" I said yes, so he said, "Will you marry me?" So by the main course, I was engaged. So I got married. That was 22 years ago.
Peter Cowley: So you'd been working in the city for about 10 years at that point?
Modwenna Rees-Mogg: Six years.
Peter Cowley: Just six years?
Modwenna Rees-Mogg: Just six years. So then I suddenly found myself in Somerset, as that was clearly part of the deal. Married, had some children.
Peter Cowley: Quite a few children, I think.
Modwenna Rees-Mogg: I had a couple then I had a little break and then a couple more. So I think there's a great correlation actually between entrepreneurism and having children. There seems to be a lot of people I know have at least four, and so therefore I have four. And I started trying to do work and the starting point of the Angel journey was quite interesting actually. A chap came to me with a clever sort of Coke can that if you pressed a button it heated up to make hot coffee. This is all before Nespresso.
Peter Cowley: Has that gone now?
Modwenna Rees-Mogg: Long gone. And he said, "Could you help me out? You've been in the city." I was bored, basically, so I said yes. So I rang, I was thinking, "How do I find money for this company." I rang up the BVCA.
Peter Cowley: The British Venture Capital Association.
Modwenna Rees-Mogg: That's right and they sent me this little green book of about 10 pages and they said, "This is the Angels. Angels is what you need. You're a start up. We don't do start up."
Peter Cowley: Can I ask which year this is? Just so we can put it into context.
Modwenna Rees-Mogg: This is about 1997/8, sometime around then. And that was quite a colourful journey, as many journeys are with entrepreneurs and...
Peter Cowley: Did you raise some finance?
Modwenna Rees-Mogg: No, we had a slight hiccup where I did actually find some people in the city who said that AIM quite a new market then and those opportunity to list new and clever technologies on AIM.
Peter Cowley: As a start-up almost?
Modwenna Rees-Mogg: Almost as a start-up, but it was close to having, it was one of these things where if it could get to being listed, it could probably get contracts, it was all sort of a bit, putting the pieces of a jigsaw puzzle together. And then we discovered that some of the founders who I didn't know very well, first lesson, I hadn't assumed that people I knew would know people who weren't, and the small challenge of some due diligence that we discovered some offenses.
Peter Cowley: Criminal offenses?
Modwenna Rees-Mogg: There were, yes, involving custody sentences, yes. So that was my first lesson in you know, it isn't, in a corporate world I would say you're quite safe actually, corporate is actually pretty good at keeping you away from people who have more colourful backgrounds.
Peter Cowley: Good. If they done the due diligence before they notice this.
Modwenna Rees-Mogg: And by definition it's sort of harder, so as a rule you're always working with people who, you know exactly sort of who they are and what their backgrounds are. When you go into this world, suddenly you're in a much more colourful world, and you know, people on colourful journeys are the ones who make difference and make change so it is ... You just have to be much sharper, your antennae have to be wide awake.
Peter Cowley: Okay, so this is 97/98, what happened next? You formed a business, didn't you, shortly after that?
Modwenna Rees-Mogg: Then I helped, my in-laws had a publishing company, and it was not quite working so I went and helped sort that out, which involved again quite interesting, quite young, basically moving the managing directory into a new opportunity, and putting in a new team. And that was quite interesting.
Peter Cowley: This was Rees-Mogg of course, isn't it, so this is to do with the previous editor of the Times.
Modwenna Rees-Mogg: Yes, he set it up. It was fine business, I mean that in the right sense, that it took out of print really brilliant authors and bought them back into print. So they bought Darwin back into print, they bought Mary Wollstonecraft back into print. And had a fine line in selling those reprints to libraries who didn't have the great classic writers.
Peter Cowley: So you replaced the senior management and...
Modwenna Rees-Mogg: We bought the bought the next level down and helped them come up and they turned it around into a profitable business, it had a shareholder who was pleased I suppose with what I did, and they asked me to go help their UK business. And we turned that from being, I don't know what you call it when it's really fast-growing and a cash cow at the same time, but anyway, we did that, they got millions...
Peter Cowley: Good news, for the shareholders.
Modwenna Rees-Mogg: Of dividends and lots of turnover growth repeatedly. And then that team, how I came to the Angel world is that team who I still learned so much from in terms of how you turn the key levers, to make a business work. I think most businesses have two or three levers that you need to turn. The rest of it is icing on the cake. And if you get those levers right, everything else will sort out. Don't know what you think. So they rang up and said "oh it's dot com boom time" we've moved on to 2000 now.
Peter Cowley: Yeah, yeah.
Modwenna Rees-Mogg: "We've got all these uber customers, could you run this club? Go and find and find that dot com stuff Modwenna and show it to our Uber people."
Peter Cowley: So people had high net worth’s where they?
Modwenna Rees-Mogg: Yes, and we didn't really know how the Angel world worked at that point. So it had this touch point early on but not really connected, four years later, suddenly I'm back, so thinking, pulling out that green leaflet thing, what's going on? Pretty much the same situation it was then. And I didn't know the rules of how you managed some sort of Angel group. I didn't know about commissions on fundraising or you know how you did this or that, we just said, well we're serving high net worth, we need to get them an excellent service because that's what high net worth are used to, so we have to charge enough money that we can afford to give an excellent service, do excellent by-side only research. And so we got 150 people to purse 3000 pounds a year.
Peter Cowley: Wow. And what was they called this?
Modwenna Rees-Mogg: It was called the Supper Club, which is not Duncan Cheatle's current Supper Club, I hasten add because we then merged it fairly quickly with another...
Peter Cowley: And based in Somerset or based in London?
Modwenna Rees-Mogg: No based in London. So we had lots of fun, it gives you an idea of why it was different, if we offered commissions, we kicked that commission back to the investor. Because we said, we've already taken your membership fee so we're not trying to take money on the back as well.
Peter Cowley: Right, okay.
Modwenna Rees-Mogg: You can't do a sell note, you can't say "don't buy" because if you're showing stuff, but we did write a long research note on each deal and at the end we wrote about 20 questions of further questions you must ask. Which were designed to pull out the stuff that will probably make you money.
Peter Cowley: Are they still online?
Modwenna Rees-Mogg: Online?
Peter Cowley: Where?
Modwenna Rees-Mogg: This is the days where you know, I used to have to go down to the IT shop to get internet access, so we printed them.
Peter Cowley: Yes.
Modwenna Rees-Mogg: And so I learned a lot about how that world works, and still there's a lot of issues where there are things like rules and attitudes and approaches which actually prevent becoming better because people are fixated on how it should be. And they're not prepared to change how they do things, even though it might be better for them.
Peter Cowley: Right.
Modwenna Rees-Mogg: Because they're used to doing it a certain way.
Peter Cowley: Right.
Modwenna Rees-Mogg: In my view.
Peter Cowley: You're talking about the Angels? Or the entrepreneur?
Modwenna Rees-Mogg: Both. But in the context of raising money, I think there's some things that still could be changed a lot.
Peter Cowley: And how many deals did that Supper Club do?
Modwenna Rees-Mogg: We did probably 10 or 12 in a year and we got our first exit after four months because we’re frightfully clever.
Peter Cowley: Oh wow.
Modwenna Rees-Mogg: Or it was luck.
Peter Cowley: Yeah I think luck
Modwenna Rees-Mogg: Yeah, I think luck. And then about six went bust. So you know I don't think I'm a good stock picker.
Peter Cowley: And how many years did you run that for?
Modwenna Rees-Mogg: For about a year and then merged it in with another group because somebody else dented the market seeing the opportunity for doing a premium product. And there wasn't room for both of us, so we came in together and then did it for a year and then the rest as they say, is history.
Peter Cowley: Okay. So then you've done a number of entrepreneurial things, so we want to talk a little bit more about that and we'll move on to angel investing. So what was next? You've got...
Modwenna Rees-Mogg: So I've run an Angel club from this person, then I ran this combined entity, that was then sold to another group so I helped them and in all through this time was getting to know more and more of the Angel world and the other people running groups and we were either trying to do deals or just learn from each other. And there were two key things I learned, one is that most people in this market were not trained in financial services, and therefore they didn't see this as a corporate finance deal. They saw it from a business perspective or a government's perspective. Which I think was one of the issues, because people didn't have the training to run deals.
Peter Cowley: So these are the people who run the clubs or rather than the angels themselves.
Modwenna Rees-Mogg: The clubs, and indeed the groups, you know most of them are, they weren't financial services trained, there were very few, there was Alex Macpherson who was Octopus, he was a bond trader, there was me, and that was about it.
Peter Cowley: Right, Anthony Clark?
Modwenna Rees-Mogg: No no, he's an accountant but he's not a trained corporate financier. So I thought well, I've obviously got something, I know something about how to do things which other people don't have the same skills. The other thing I noticed was that nobody had managed to build a really big Angel business.
Peter Cowley: Right.
Modwenna Rees-Mogg: So some people built successful groups, that looked after themselves, and some people, Alex Macpherson to be one, built a group that was getting sensible levels or turnover per employee, but overall was not making enormous multimillion turnovers.
Peter Cowley: Right.
Modwenna Rees-Mogg: So and look at this market which I knew and thought I probably had some tricks that I might be able to help people better than others, nobody else managed it. So I was like, well can I really beat lot’s of other people.
Peter Cowley: What about other countries? Was anybody doing it, say, in the States? Which of course has got much more activity.
Modwenna Rees-Mogg: The States has got much more activity and yes, they will have a certain amount of bigger, but still we've got Angel lists of course, but that was set up, you know with a very different philosophy all together.
Peter Cowley: Yeah.
Modwenna Rees-Mogg: So I noticed people completely siloed and I think Angels still are siloed, I would see Angel groups across the country doing deals into basically the same company, but it was actually a different company, but they were going to be talking in the same market room as the same product, and they were both getting funding, and there was just no way they were going to make it.
Peter Cowley: Yeah, sure.
Modwenna Rees-Mogg: So I thought, well so I can't do what everyone else hasn't made big, there's no point in doing that, so I won't do that, but I like this world, I like the long holidays. And so I thought well I'll put people in touch with each other and at that point, friends are united. The marvellous friends are united. I just thought, that's so cool, what if it was that for business?
Peter Cowley: And this is 06? 05?
Modwenna Rees-Mogg: No, this is back in 02/3. And yes, Bebo hadn't yet happened. And looked at that and I thought, how can I do this in the country and all my babies bouncing around, you know, I can't, I don't even know web developers. So my brother helped me find a web developer, I had 1000 pounds so I set up a site that people could put news and people could look at the news, and that was my friends reunited.
Peter Cowley: Called Angel news then was it?
Modwenna Rees-Mogg: Called Angel news then.
Peter Cowley: Okay.
Modwenna Rees-Mogg: Bought my first website, it was very exciting. And then started going. And I had nothing to lose so it's great when you have nothing to lose, because you just go any way you like. So I tootled around and did bits and pieces to earn a bit of money here and there and muddling through. And then, I remember the first time a company voluntarily sent me a press release of their own accord, without me having to ask for it. And I was like, it was in September, I was set up in May, so it took me four months. And anyway then I started a newsletter. So I though move aside Rupert Murdoch, publishing be damned, if I am a publisher I have to, you know practice publishing.
Peter Cowley: And you wanted to monetise it at some point I guess?
Modwenna Rees-Mogg: No, at this point I had no idea, I didn't even understand the issue. And so I started this newsletter and I had no money so it just went out on Outlook and I just literally blind copied people and anyway, people kept signing up and I kept blind copying and it just carried on month after month, you know. I did have another baby at one point, I remember writing in the middle of the night because the baby ... It was the only way I could actually be free to do it. And one day someone rang up and said "I really like what you're doing, who are you?" And I was like "well I me and that's what I do and don't really know what I'm doing but it's fun" and they said "well tell us about this" well I have all these readers and it's a real pain because overnight when I send my newsletter, i have to send in batches because there's no many, and it takes me all night to like get out these emails...
Peter Cowley: Oh really in blocks of 50 or 100?
Modwenna Rees-Mogg: In blocks of 100 because I'm sending one every five minutes, and I had great organizational charts of "send block A followed by block B followed by..." you know, but of course at three o'clock in the morning you're getting quite tired. So they said "who are all these readers that take all night?" And I said "I have no idea, I've never downloaded anything other than the email address" "so well why don't you look at who they actually are because you kept their address" so that's a good idea, so I rang the developer and said can you teach me how to try and it's got readers all over the world except South America. So I was like "oh that's pretty nice".
Modwenna Rees-Mogg: At that point, you must commercialized, I found a marvellous guy, Kevin McNaly who'd run Unquote the private equity publication. I basically emailed him and, he left his job and was going traveling, so I said "when you get back from traveling you are going to come and work with me to make this a business, rather than an idea". So he came, he had three months, I said "if you don't have a customer in three months…”
Peter Cowley: Customer as in paying customer?
Modwenna Rees-Mogg: Paying customer. So he said "right, what we're going to do is we're going to find customers and we're going to..." this was another very interesting, that people don't tell you the secrets of business, which I think is really unfair and more people should tell young people and new people the secrets of business.
Modwenna Rees-Mogg: He said "we're going to be doing exclusive partnership with somebody. And the basically the deal is, they will be the exclusive advertiser in their channel on your website for a whole year and the only guarantee is we basically won't do a deal with any of their competitors" and I said "well that's silly, you're selling nothing, you know all you're selling is the promise that you won't talk and that seems to be mad" and he said "no, no, that works". So I said "well good luck, see you" and “knocked me down with feather came back” and said "here's this person who'd like to do this" and I said, that was lovely, and I'm still friends with that guy, we're really good friends. And it was only two years later when that friend said to me "you know why I did that deal with you" I said "yeah I thought you were completely bulking mad but delighted you did because it got me on my way". He said "well we had been spending ten times more in advertising to try and reach your audience, than you said you'd charge us".
Peter Cowley: Alright.
Modwenna Rees-Mogg: So I should have put my price up.
Peter Cowley: Yes.
Modwenna Rees-Mogg: So then that was it.
Peter Cowley: Okay, and that's still going, and you still got a large mailing list, I suspect...
Modwenna Rees-Mogg: We’ve got tens of thousands of people who read that, and we've just relaunched, and it's very pretty angelnews.co.uk, do go and have a look.
Peter Cowley: Yes. Yeah we will. But before we move on to top tips for Angels. It's I think International Women's Day today that we are happen to recording this on, let's talk about diversity. Diversity both in terms of entrepreneurs and Angels. I know you have fairly strong views on that.
Modwenna Rees-Mogg: Yeah. I'm not even going to mention the word "women". Diversity is the issue. It doesn't matter, if everybody comes from the same culture, the same attitude, the same practices, you're not going to get diversity. That includes whether the colour of your skin is the same or not. Despite the colour of your skin, your whole life experience has been the same as somebody with a different colour skin, you're not going to have much diversity.
Peter Cowley: So diversity for you, what's the definition of diversity?
Modwenna Rees-Mogg: For me, diversity is where there's social class diversity, I'm not sure what the modern expression is, but I think where there's ethnic difference. I did talk to some people who said that within the Muslim and Pakistani and Indian communities, there are whole economies operating within this country very successfully, who aren't needing to connect with our bit of the economy. And that surely we can learn from each other.
Peter Cowley: That would have to be to do with trust, won't it? And trust within the groups.
Modwenna Rees-Mogg: And trust and knowledge I think also we can't ignore that many areas of diversity are underpinned by people with different religious faith. And actually it's very important that we consider that issue. People are very scared of talking about, let's call it spirituality actually, because that sounds more neutral. People are very scared to talk about this issue. But it's not illegal. And actually there are lot of people with different faiths which leads them to different behaviours. And as I say, we all learn enormously from each other.
Peter Cowley: But how are we going to do something about this? We, the community, our community.
Modwenna Rees-Mogg: I think we need to be bold probably and start welcoming in people like somebody in the local shop, who, you know if you don't know people, then have to sort of reach out, and say "crickey, that person is...", go and find somebody in a primary school, in an area where, and say to the head teacher "who do you know amongst the parent group, who's doing something?" You know, the reason it's not there is because there aren't many roads between the two.
Peter Cowley: I can mention that happening already with entrepreneurs, I mean the Princess Trust, et cetera. There have bene a number of initiatives there. Are we talking here about investors, and about Angels?
Modwenna Rees-Mogg: You've raised it to make me think about it. But I think yes, actually. I think it wouldn't hurt at all.
Peter Cowley: But let's just go back briefly to women, why are you wanting to broaden this out, I mean there's a lot quite right emphasis on bringing more women into the Angel community, because, I mean the Cambridge Angels, which I am chair is, we're 30 to 1, it's really pitiful, that there are plenty of sophisticated, wealthy women out there that can add a lot of value.
Modwenna Rees-Mogg: I think men have treated me really well. I joined the city in 1990, 50% of my gradual intake were female. But even when I worked in teams of 11 blokes I didn't feel that it was because of my gender, it was whether I was good or not. In fact, I got cross because they kept giving chartered accountants more pay than me, just because I wasn't a chartered accountant, I thought it was outrageously discriminatory when I did the same job as a chartered accountant.
Peter Cowley: Well it wasn't sex discrimination, it was...
Modwenna Rees-Mogg: It was professional qual ... no it was different skills, I did the job, in exactly the same terms as the other person, there was actually no difference in the quality...
Peter Cowley: Yeah, yes, true, yes.
Modwenna Rees-Mogg: Of what we did, who we worked with, whatever. And yet they could command a premium because they spent three years learning to be an accountant. Which I was delighted for them but I hadn't, but I didn't think that was a fair reason that I should earn less.
Peter Cowley: Yes.
Modwenna Rees-Mogg: So I don't per se think it's about women, I think it's about giving people who are different to you opportunity, and both of you learning from each other. It's a two-sided thing at all times.
Peter Cowley: Yes.
Modwenna Rees-Mogg: So that's what I would like to see much more of. Because it's so interesting as well. Imagine what we'll learn.
Peter Cowley: So Modwenna, Pitching for Management, I was involved with that some four, five years ago. You started that and you closed it down. Can we just a little bit about that journey, you know, whether it was a failure or not.
Modwenna Rees-Mogg: So that was one of the most interesting things I've done in terms of lessons. People talk about what's success and what's market take-up, market take-up was January 09, I did my first pitching to management event, we thought if we were lucky, 40 people might come. We booked a room in an office, you know some nice accountant let us have a room, and it was a rainy, cold January night. January 09. 150 people turned up, all of whom had lost their jobs, to look for work.
Peter Cowley: Oh really? Here in London presumably?
Modwenna Rees-Mogg: Here in London, somebody came from Darby, on the train, having just lost their job to try and get work.
Peter Cowley: Right,
Modwenna Rees-Mogg: Then you know you've hit a vein.
Peter Cowley: Yes.
Modwenna Rees-Mogg: But we had to lock a lot of those people out of the building so health and safety. They all had to go home, so that cost me a lot of bottles of wine.
Peter Cowley: Right. Okay.
Modwenna Rees-Mogg: Having done that, we're like, well many of you remember January 09, nothing was going on. So we said well looks like something going on here, we will start going and we basically ...Lloyds bank gave us a little bit of money to sort of help us on our way as a sponsor. And we basically started doing it in London, within a year we're like, "well let's try and roll out all over the UK because the problem is massive". We we're getting 100, 150 people turning up to every event. Six companies pitching.
Peter Cowley: So these are companies pitching for senior employee’s?
Modwenna Rees-Mogg: Help.
Peter Cowley: Oh, help. It could be part-time, it could be full-time et cetera, yeah.
Modwenna Rees-Mogg: Yeah. Interesting things, we would talk to entrepreneurs and we would say "would you like to come and pitch?" We don't really charge you, just come and hear all these nice people and see what happens. And they'd say "no, I need money" I said "we don't raise money, we're not regulated and there's lots of other people that can do that. But out of interest, you don't need any help but you need money, so could you tell me what you're going to spend the money on?" And they'd say "a marketing director".
Peter Cowley: Yes, okay.
Modwenna Rees-Mogg: So please could all Angels and entrepreneurs out there remember that it's not just about money.
Peter Cowley: Yes.
Modwenna Rees-Mogg: Sometimes you can get the help for nothing. My favourite case study from that was a chap who said "I want a sales director, I need to sell to the big four oil companies, is anyone a sales director out there?" And a man put up his hand and said "well I'm not a sales director but I play golf with the CEOs of the big four oil companies, should I ring them and ask if they can help you?"
Peter Cowley: And that was successful?
Modwenna Rees-Mogg: Yeah, so you know, this mental attitude of training of how people should businesses, and how they should obtain and use resources. By creating prescriptive ways and sort of, if you wanted to be mean, bigoted attitudes to how it should be done and shouldn't be done. What that does is actually it sometimes prevents much greater efficiencies. That being said, so we did it, we got into 26 cities as pop-up events. Really interesting in terms of things like logistics and having to actually manage that sort of activity. Learned a lot about that, learned a lot about local communities being quite confident in their own abilities and not welcoming outsiders. And the challenge of trying to befriend people, "we don't need you" was sort of typical. "we don't want you because you're threatening our little ecosystem by trying to do something different", that repeatedly. Actually being cut out of communities to the point where others in the community, one law firm threatened to sack it's client it was so outraged by this client refusing to help us, even though they were a government agency whose job was to promote enterprise.
Peter Cowley: Wow.
Modwenna Rees-Mogg: So you learned an awful lot, I tried very hard not to cry. Then the market changed, the job market massively picked up, which is really good.
Peter Cowley: So when was that, sort of 11, 12?
Modwenna Rees-Mogg: Four years later, so yeah 11/12. At which point some of the audiences started dying. I sadly convinced the entrepreneurs that this was good, because they all told me that they needed money to hire marketing directors, they didn't want ones who'd work for free. And so I shut it.
Peter Cowley: That brings us nicely actually to an article that I read on the train here, which is the smart money, the Angel that adds value. Can we just talk about the Invested Investor. That's the whole reason behind this podcast.
Modwenna Rees-Mogg: Angels are, I just think staggeringly brilliant people. I really do, I just think their willingness to sort of write checks, you know, and some illegal strings, but many of those strings are, you know, who's ever going to prosecute, to actually be able to tug the string. And they have so much to offer. I think one of the things I'd love to see is slightly more debate and discussion about how one should structure that help. I think it's still done a little bit informally actually and there could be some more discussion around how we think about that. So I was talking to one the other day, and naming no names, but there was a situation where there were two entrepreneurs, and I definitely believe, if the Angels, after they has invested, the team is right, idea right, everything. But if they actually sat down with the entrepreneurs the day after the money went in and said "would you both be really honest about what you really to get, and what you really can and can't do, and actually where you're really successful" that would have started things on a much better journey. And I believe...
Peter Cowley: Started the relationship between the investors and entrepreneurs?
Modwenna Rees-Mogg: The relationship between the entrepreneurs better.
Peter Cowley: Oh the two entrepreneurs, this was an issue with the team?
Modwenna Rees-Mogg: Yeah, this awful lot of British assumption “… god knows what we might find if we open the lid" but actually opening that lid and having a constructive and controlled and not emotional conversation about actually what's needed.
Peter Cowley: Surely that should be done before investment?
Modwenna Rees-Mogg: Perhaps it should be. You see remember, I mean I laugh about investment because I was, gosh maybe this isn't appropriate, but hey ho, but I would charge any Angel to find out whether the entrepreneur's founder is sleeping with the other entrepreneur's wife. I bet none of you would find that out in a fundraising exercise until after the fundraiser is completed.
Peter Cowley: I spoke to a VP guy once who actually had to sort of send a private detective on, the story is not quite the same but similar, Angels do not that. We do trust, we use gut feel about whether to believe you, I cannot believe we would ever get to the point where we could...
Modwenna Rees-Mogg: You wouldn't, it's not...
Peter Cowley: But hopefully it's not appropriate either...
Modwenna Rees-Mogg: Hopefully it's not appropriate. Not sort of a way of life I engage in so I wouldn't really have any antennae for understanding the science, but I use it as an example to explain the lack of actual, you know ... people are, it's a risk they're taken upon, and therefore they just do it. And I don't know if they necessarily have to do it. What I'm saying is after the money is gone in, I think actually having a sensible chat, just saying "you told me you were going to get all these sales, are you actually any good at selling?" And I mean in a detailed way...
Peter Cowley: No, I disagree though, unfortunately.
Modwenna Rees-Mogg: Do you? You think you do that, do you?
Peter Cowley: You do that beforehand. Yeah. And hopefully the education we're giving will make sure ... I'm sure these things happen. Totally true, but the more you can do beforehand, the more you can understand the team dynamics beforehand and get to know them, et cetera. So to lead onto the Invested Investor, in that situation, was one of the Angels then on the board? To be closer and to help this.
Modwenna Rees-Mogg: No.
Peter Cowley: Okay. Do you think it's appropriate that an investor should be on the board?
Modwenna Rees-Mogg: The investors I see who make money, it's like a different thing, are the ones who retained trust of the entrepreneur.
Peter Cowley: Yes. Would that be the whole journey is good though isn't it, till that point?
Modwenna Rees-Mogg: Yeah.
Peter Cowley: Because they make money if the journey is good, it's not the trust that makes it good, it's the journey.
Modwenna Rees-Mogg: It's the journey, but actually it's the trust as well because there's so much on the journey where actually the interests of the Angels and founders can become separated.
Peter Cowley: Trust is being transparent and open and honest isn't it?
Modwenna Rees-Mogg: And being helpful,
Peter Cowley: Yes.
Modwenna Rees-Mogg: Proactively helpful.
Peter Cowley: Positively helpful rather than negatively.
Modwenna Rees-Mogg: Positively helpful. You know I think Angels much more talk about the companies they've backed, try and help build the sales pipe blind.
Peter Cowley: That doesn't apply to all crowd-funding raises though, does it?
Modwenna Rees-Mogg: The crowd-funding world is a totally different world to the Angel world. There are many other issues, the biggest issue of the crowd-funding world really is, these are private companies in effect operating public markets within a private company structure.
Peter Cowley: Yes.
Modwenna Rees-Mogg: And so public companies and therefore the properly public markets, they will sort itself out quite quickly. The big issues I would say, because I know we're short on time, Angels need to think about inflation in funding.
Peter Cowley: The amount raised you mean?
Modwenna Rees-Mogg: The amount raised, actually how much money does it take to get a company off the ground. So what I see if far too much, 150 grand SCIS or you didn't quite make it, well we couldn't, because actually we're changing the world so we didn't know that we were going to change the world that way. And guess what, it does take time, and time means even if you're just paying for a mobile phone, money goes out every time. So we don't allow enough money for mistakes to be made. We haven't actually allowed for inflation in money, in the cost of life. So I defy any small companies cost less than 10 or 12 grand a month to run. So 150 ground SCIS round gives you 12 months, and if you're a real start-up, you don't have anything yet. Well you know, I just defy many people in 12 months to actually get there, if it's something really clever.
Peter Cowley: Get to product market first.
Modwenna Rees-Mogg: Yeah.
Peter Cowley: And start scaling. Exactly, no chance.
Modwenna Rees-Mogg: Exactly, and even half a million, because actually company of any scale is probably going to have to spend 50 grand a month. By the time it's got four or five staff and an office and a bit of travel and actually having time to do marketing. And marketing is the thing, everyone thinks marketing should be free. But marketing isn't free. So I think there's a lot to be said for actually adding up what actual money is needed and allowing little bit of room for things to go wrong. And I think that's what the Americans do so well.
Peter Cowley: Yeah.
Modwenna Rees-Mogg: That they typically, I saw some research, the first round is often pound for dollar in terms of value of services and good bought the same, but the second round is not half million, it's a million or ten million.
Peter Cowley: Yeah, right.
Modwenna Rees-Mogg: So having sort of the proof of concept you phase. They then just...
Peter Cowley: They throw money at it...
Modwenna Rees-Mogg: They really chuck money at it...
Peter Cowley: Which we don't do in the UK.
Modwenna Rees-Mogg: We don't, I think that's certainly a debate the investors should have amongst themselves about, are they actually doing right by companies by just dripping.
Peter Cowley: You can't put a lot of money unless you've got a big evaluation, otherwise you dilute the funds too much. And high evaluation implies a journey which is going to lead to a high exit. And we don't have those exits in the way the Americans do.
Modwenna Rees-Mogg: And you've absolutely hit the nail on the head Peter. This is the issue, most companies sell for less than 20 million.
Peter Cowley: Yeah.
Modwenna Rees-Mogg: And I think what we need to do is a much more, maybe it's after proof of concept stage, to be having a much more rational discussion about, "actually this is a fairly, we'll call it a normal company" you know, over time it's going to become profitable, it's going to be valuable, it's going to employ people, and it's almost certainly going to sell for less than 20 million.
Peter Cowley: Yes.
Modwenna Rees-Mogg: But then fund it and manage it to achieve that objective. And there's a lot of value can still be contributed by the Angels, people will be employed, profits will be made, tax will be paid. That's not an invalid situation.
Peter Cowley: Yes.
Modwenna Rees-Mogg: And then there's the very few who are the superstars.
Peter Cowley: Yeah. Very few.
Modwenna Rees-Mogg: Very few.
Peter Cowley: One in 20, one in 40, one in a 100.
Modwenna Rees-Mogg: One in a 100.
Peter Cowley: Yes.
Modwenna Rees-Mogg: And those need to be taken, almost extracted like the super bright stars of sport.
Peter Cowley: Yes.
Modwenna Rees-Mogg: And given very special, very intensive treatment.
Peter Cowley: Exactly. It's a matter of identifying the right time of course.
Modwenna Rees-Mogg: Well exactly I know it's so easy being me.
Peter Cowley: Kissing the right frog. In Istanbul last weekend or two weekends where we saw each other.
Modwenna Rees-Mogg: Yeah. And it's very easy being a commentator and looking on things.
Peter Cowley: Yes.
Modwenna Rees-Mogg: Sort of make big pronouncements about how obviously it should happen this way. But actually this, we are the most intelligent group of people on the planet. We've got the most...
Peter Cowley: Human beings are, or?
Modwenna Rees-Mogg: You, me, but I would argue that the Angel community.
Peter Cowley: Ah yes, I can’t say that.
Modwenna Rees-Mogg: Yeah, no they're the quality of experiences and brains and abilities and combination of activities is such that as a group of people should we choose, as a community to actually sit down and think about these things. I have no doubt we can solve them.
Peter Cowley: Modwenna, two or three tips for Angels?
Modwenna Rees-Mogg: Don't invest alone. Write your investment down to zero when you first invest. Invest for the right reasons, and communicate those reasons. One of our Angels who if he listens to this will laugh when he hears it, with Crowdrating he said "I don't think that you'll ever make any money, but I believe you should exist as a business".
Peter Cowley: A public service.
Modwenna Rees-Mogg: I don't think he said that, he said there should be independent research available for people to get advice.
Peter Cowley: Yes.
Modwenna Rees-Mogg: And he's right. That's a big motivation for entrepreneurs, to go "actually we are trying to do the right thing" but there's a different angle, which, you need to stay commercial, in the dream.
Peter Cowley: Yeah. Well you do. And it's a social enterprise where some of the outcomes are actually social good rather than necessarily financial good.
Modwenna Rees-Mogg: Yeah. I do think that matters, I think you should be doing it to change the world for the better. But I think that most Angels go "well I do that, that's obvious".
Peter Cowley: Yes, and for entrepreneurs, two or three tips for entrepreneurs?
Modwenna Rees-Mogg: Know your co-founders. Don't let things get to a bloody fight such that you can't talk again.
Peter Cowley: Which you must be saying from experience?
Modwenna Rees-Mogg: Not so much my own personal experience, but more observing others and you know, there are always points in relationships where you can choose to turn them nasty or not to. Sometimes silence and a nice sleep is a better solution that wrath.
Peter Cowley: I've been involved in several businesses where one of the founders has left, sometime on the journey.
Modwenna Rees-Mogg: Yeah, and actually sometimes the departure is right, but it's much better if that's managed through in a mature way than as a bloody fight. Bloody fights are very disruptive.
Peter Cowley: So that's two tips for the team..
Modwenna Rees-Mogg: Raise as much money as you dare. So I always say to entrepreneurs, so sorry Angels if you're nursing the impact of this, I always tell them to probably double how much they're asking for, rewrite their plan to justify the amount of money they need, and go there. Because it's really hard work raising money, it's very distracting, you will need much more money than any of you think. So you may as well get as much of the dilution issues if you can do less rounds.
Peter Cowley: Exactly, but this comes back also to evaluation. And this where the conflict is between Angels and entrepreneurs.
Modwenna Rees-Mogg: So my few evaluation for both is, don't go into this game unless you're intending to make it a really, really, really big company. Don't really even if you're trying to make it a ten, 20 million pound company. Actually, maybe you should get one or two Angels who stay with you as a sort of, I don't agree with what lifestyle in any context is, because it's all jolly hard work, but who're are prepared to stay for the long-term. Like my father-in-law's company, you know, he and the other shareholder had backed it for years because they wanted it to be what it was. And that was fine, very healthy and sensible thing to do. That's not the superstar one in 40.
Peter Cowley: Yes, exactly, yeah.
Modwenna Rees-Mogg: So try and calibrate that journey at all times.
Peter Cowley: Excellent Modwenna, it's been great, I'm just going to ask you one more question which you haven't been prepared for, which if you listen to any of the podcasts you would have heard. You're well over a decade younger than me, what are you going to be doing when you get to my age?
Modwenna Rees-Mogg: How old are you?
Peter Cowley: I'm 62.
Modwenna Rees-Mogg: Okay, I'm probably older than I look. My son is 21. So when I get into my sixties, oh god I'm going to have to working. I have this club I set up called the Pluralist club, couple of years ago. Because I notices all these people, Angels are a subset of Pluralist but people who are not prepared to have a proper full-time job. Talk about being unemployable in that context. And one of the things we say to members is "you can't afford to retire because you'd die two years after you retire" so it'd be a really stupid thing to confess to doing. So I can't retire. So that I means I have to be working. If this world has decided it doesn't want me, or somebody wants things so much they don't want me to own them enter them anymore, I will probably write my book, finally, called the "The Shoreditch Tales" which is a rewriting of "The Canterbury Tales".
Peter Cowley: Alright, fiction one presumes, but based on some facts.
Modwenna Rees-Mogg: Oh, you know, there's so many stories over the year. Pre-orders will be taken on a website.
Peter Cowley: Excellent, really good, everybody will learn so much from you. Thank you very much.
Modwenna Rees-Mogg: That's alright.
Peter Cowley: Thanks for listening to another Invested Investor Podcast, you can subscribe to all future podcasts via our website, investedinvestor.com or via a number of online podcast platforms. And be sure to follow us on Twitter, LinkedIn and Facebook to get the most up-to-date, interesting and insightful content.
