VentureFounders is out to “improve and professionalise” the crowdfunding industry in the UK. Co-founders James Codling and Paul Moravek tell Director how
Crowdfunding – the raising of finance from a large group of people, often via the web – has proved to have numerous benefits for both entrepreneurs and investors.
For the former, it provides access to not only potentially huge swathes of capital, but also a vast repository of expertise and – with the right social media mechanisms in place – invaluable free marketing.
For investors, it offers a diverse range of opportunities, allows the hedging of risk and delivers proof of concept in the form of mass consensus (“safety in numbers,” as the saying goes).
So what if there were a venture out there which treated both parties’ interests with informed, ongoing care and diligence? That is the mission of VentureFounders, a fledgling equity crowdfunding platform, launched last September.
Its founders completed a successful fundraising round in early 2014 among their network of investors – many of whom are now also part of the VentureFounders investor base.
To say the men behind the business have strong track records in financial services is an understatement. James Codling has 14 years of private equity, investment banking and start-up experience under his belt, including stints at JP Morgan and Montagu Private Equity, while his partner Paul Moravek has worked in the investment and start-up realm for 15 years, including at Merrill Lynch, where he spearheaded multinational corporate finance deals.
“Crowdfunding is one of the most exciting innovations in alternative finance in recent years,” says Codling, “and so far we’ve only scratched the surface.” Director met the pair in their central London office to find out more…
You both launched your own start-ups before this venture, is that right?
Codling Yes, my wife and I bought a vineyard in Argentina and started making wine to import back to the UK. The company is called Carmelita. This was in 2007, and we’ve just produced our fifth vintage. It’s been quite eye-opening, starting a business from scratch…
Moravek I set up a fine jewellery business, also with my wife, named Hall. These experiences have taught us a lot about the challenges entrepreneurs face. It’s complemented the way we look at diligence and structuring from a dual perspective.
What prompted you to start VentureFounders?
Codling I wanted to be more entrepreneurial, and the concept of crowdfunding – helping British business get access to capital, the democratisation of finance – really appealed to me. And when it came to the right way to do it, Paul and I experienced a real meeting of minds.
Moravek We looked at how the crowdfunding landscape has evolved since the financial crisis, and started thinking, ‘How would we like this structured and approached from an investor’s point of view?’ We came up with a nominee structure whereby everyone comes together and invests as a single shareholder group. For a start-up, employing an investor relations person to handle emails from hundreds of investors is not a good use of capital. So we’ve married what works for an investor to what works for a business.
Codling We spotted an opportunity to improve and professionalise the industry. By providing long-term advice and partnership with the businesses seeking investment and conducting robust due diligence to best serve the investors, we aim to evolve crowdfunding and push the boundaries of what can be achieved.
You also offer people the chance to invest far smaller sums…
Codling It’s not like being part of an angel network where you have to put in significant amounts. The entry point is massively reduced. With us, there’s a minimum investment in any deal of £2,500. That makes it much more accessible.
What’s your due diligence process?
Moravek For us, management is absolutely paramount. History is littered with cases of great ideas either hatched at the wrong time or driven by the wrong management team. We also spend a lot of time on scaleability – if there is clearly a national or international opportunity, that to us is significant. We challenge management on business plans and growth assumptions. We try to understand the pros and cons.
Codling Anything we present to potential investors is something we are comfortable with as an investment proposition.
How important are close, human relationships?
Moravek You’d be amazed how many businesses we speak to who have been through prior funding rounds but never even met those who’d be raising the capital for them. That’s baffling. If we don’t get the right feel of people, we don’t lift up the bonnet and look around. This is a people business, and you have to meet face to face.
Are you extremely selective?
Codling Having 40 or 50 deals up on our platform at any given time isn’t important to us – it’s about having a carefully curated range of attractive investment opportunities. That’s how we position ourselves versus a lot of the market.
Moravek We put fewer than one in 10 of the deals we’ve looked at forward. We would always trade volume of deals for quality of deals.
How much gut instinct is involved?
Moravek This isn’t Dragons’ Den. We’re not about flinging spaghetti against a wall and seeing what sticks. A lot of what we do is growth capital – the ideal investment timing is when all that proof of concept is done, but before the big step-change. We think that resonates better with the investor base. We’re making judgement calls, and yes, there’s an element of instinct to that. We put opportunities forward that we believe in – that are interesting, diverse, disruptive, scaleable and so on – and investors decide whether or not they want to dig around further.
How important is a diversity of clients?
Codling Very. Our recent investment opportunities – LabMinds, Hiring-Hub.com, EcoHydra, Connexin and The FreedMan Chair – are all disruptive and have great potential, but also their own unique characteristics. Seeing how differently investors react is part of the enjoyment.
How important is a long-term relationship with the enterprises?
Moravek We stay unobtrusively involved with these businesses on an ongoing basis. It’s a working partnership. We want them to exceed their forecasts. If they’re looking at selling to private equity or venture capital firms, which should they speak to? We have to be there to maximise value for both the management teams and the investors. It’s all about marrying those two things.
Do you expect others to adopt your model?
Moravek Yes. But the pie’s very big, and businesses we believe in being financed, and becoming part of growing the economy, are very important to us, even if it’s not eventually through us.
Codling I’d be very pleased if people thought we had a good model. As long as we stay true to our core principles there’s a huge market out there. Crowdfunding at the moment is a minuscule piece, particularly on the equity side, of a much larger market opportunity.
Is there an altruistic motivation for many investors?
Codling I think people want to feel closer to the things in which they’re investing. People have different motivations for investing, but what crowdfunding enables them to do is say, ‘Well, I like what such and such a company’s trying to do, and I’d like to help them along that journey.’
Moravek I don’t think [doing good] will ever be the sole motivator for investment, but it’s a nice sidecar. If an investment’s merits don’t add up, a large chunk of investors won’t back it, but if all the characteristics stack up, and it happens to do good, I think that generates more interest and backing.
What does the future hold for you?
Codling: We’ve got big plans for this platform. I hope you’ll see a lot more from us in terms of types of deals, different industries and different sectors.