This was six years ago and “now on our 21st revision” Angels Den founder Bill Morrow is telling me about how he built one of the fastest growing and most controversial startup investment businesses in the world. It also comes a few days after I got to experience the Angels Den first hand.
On paper the numbers are impressive. Angels Den claims to have 6,000 investors on its books, 20 experts in 10 offices around the world and to have raised £16 million in investment. It boasts of six ways for angels to invest and just four steps startups need to pass to get funded. It is part accelerator, part incubator, part mentor, part venture capitalist, part angel investor, part crowd funder and for the more traditional specialists in startup community – more than part suspicious.
“What actually is Angels Den?” said one investor to me who wished to remain anonymous. “Can its numbers be verified? Its founder is vocal about many things, but not so much about its track record and funding successes. Angels Den has been around for some time now, and startups don’t appear to have it on their radar. It does not come up in conversation when investors discuss the Angel investment landscape in Great Britain.”
Morrow is aware of this criticism and knows it is far from a lone voice, but he also couldn’t care less. He is an entrepreneur himself and has taken his fair share of knocks. He studied business before becoming (in his words) a “terrible accountant and even worse investment banker” before striking gold after he made and sold a financial services company, initially retiring at 40. He talks fast, cracks jokes, is remarkably self deprecating and certainly ‘vocal about many things’ but he is also incredibly direct. “I don’t want to save the world,” he stresses to me, “I want to make money.”
Of course this is true of all investors, but they tend to be less upfront about it. Convinced by a business plan, most investors exchange a stake in the company for capital in the hope the company grows in value off the back of the potential they saw and the advice/connections they can provide. It has long been passed off as a noble pursuit, but Morrow thinks this is outdated.
In shaking up the sector Angels Den breaks two longstanding investment taboos: it charges startups (£800 to pitch to the angel investors on its books) and, should they get funded, it takes five per cent of the money they raise. No equity, no long term we’re-in-this-together mentality, it matchmakes entrepreneurs and investors and wants to get paid for it.
Morrow (pictured right) explains the logic. “[After selling my company] I kept getting hit up to invest in companies because they didn’t know I was Scottish! So I casually set about looking for other people’s money to invest and found I consistently met people who pretended they had money or knew people who had. Months later I’d walk away with nothing. I realised even with all my connections it was hard to find good investors so how difficult was that proving for others? I thought of Dragons Den and realised there was a huge market for investors and startups but what needed fixing was the mechanism of getting the best of both sides together.”
For Angels Den the target is early stage businesses typically looking for between £50,000 and £500,000 of investment and a template angel which Morrow describes as a “52 year old male who has spent 28 1/2 years doing something boring like a lawyer, accountant or banker, made their money, built their contacts and expertise and now wants to do something else with their life.” While there is no official minimum, he expects angels to invest no less than £20,000.
Demand is substantial. Morrow says Angels Den receives in excess of 140 startup applications a day of which 90 per cent don’t make it past the initial approach. “They can’t answer the most basic question,” says Morrow, pausing for suspense: “Tell me about your business! Everywhere in the world 36 per cent alone fail this. They can’t properly explain it.”
Standards for angels are also high. All must comply with FCA and NDA agreements, have minimum ready assets of £250,000 and if they haven’t invested after three pitching events in front of curated startups then they are given free master classes. If they continue not to invest they risk being removed. They are also removed if they are judged to be rude or overly cruel to the companies they see.
The day I spend at an Angels Den London pitching event bears this out. Names won’t be disclosed, but what I attend are the pitches of four startups in front of 10 angels. Angels Den offers many pitch types, (including ‘speed funding’ where startups get four minutes one-to-one with a smaller group of angels), but today is more traditional. I am attending the Angels Den ‘Tech Club‘ which focuses on high growth EIS eligible software companies. Pitches will last 10 minutes followed by a 20 minute Q&A and a couple of the angels in attendance are already investors.
The tension is high as companies share a waiting room. The quality of the pitches varies, as does the intensity of questioning, interest levels and negotiation (invariably a higher stake for less money) but the overriding tone is of constructive criticism. While moments would make for fine fly-on-the-wall reality TV, this isn’t for ratings and it lacks the hyperbole of Dragons Den.
Furthermore if a startup fails to secure funding (something angels don’t have to declare on the day) they aren’t booted out unceremoniously for the viewers’ pleasure. Angels Den works with unsuccessful startups on their pitches and to improve their business model based on angels’ feedback.
“In truth I hate [Dragons Den] because it makes people think that is what you have to go through” says Morrow. “You should be able to go for a pint afterwards. There is no need for rudeness or ripping people off. That’s why we’re there protecting both corners.”
“We know our approach is controversial,” he continues, “but we are good at what we do. In truth the real reason startups need to pay [to pitch] is to display commitment to the process. If they cannot afford £800 they are either running their company into the ground or don’t have a proven business model and neither is appealing to angels in any case.”
Cynics may ask whether Angels Den has a proven business model itself. Certainly at six years old it hasn’t seen enough generations of business through its doors for it to be proved conclusively either way. This also gives Angels Den a powerful statistic: to date just four per cent of companies for which it has found investment have gone out of business compared to 86 per cent across the industry. Again time will tell if this continues to hold up./>/>
But what isn’t in question is the interest of startups and aspiring investors in Angels Den. In 2014 the part accelerator, part incubator, part mentor, part venture capitalist, part angel investor, part crowd funder will expand to Qatar, Kuwait, Mexico, Dubai and Abu Dhabi and it claims to be in talks with 12 governments about expanding into other regions as well.
“There are so many angel groups not doing anything, so many VCs boasting but not investing in anything,” argues Morrow. “The vast majority of entrepreneurs want capital and business nous and that is what we provide.”
For a price.