In the fast-changing world of digital media, there are the entrepreneurs who create start-ups, business angels who finance their first steps, venture capitalists who provide more substantial funding, and investment bankers who take the most successful through to maturity. But as innovation gathers pace and disruptive new technologies sweep away traditional industries, the barriers between these different activities are breaking down, and new types of finance models are emerging—often run by people with a record of successful entrepreneurship.
Jonnie Goodwin and Brent Hoberman epitomise this trend, having created three organisations that can help successful entrepreneurs from cradle to maturity. In 2005, they set up Founders Forum to provide a support ecosystem for entrepreneurs and help them make connections. In 2010, they were behind the creation of PROfounders Capital, an early stage venture capital fund for digital start-ups. And in 2011, Jonnie co-founded Lepe Partners, an independent merchant bank focused on helping media and consumer entrepreneurs and business leaders to unlock growth—with Brent a member of its advisory board.
All three organisations are complementary, according to Jonnie. ‘Some of our Lepe people are focused on Founders Forum which stimulates and supports entrepreneurs. When there is a need for early stage finance, we can point them towards PROfounders through our close working arrangements. And Lepe can advise them as they grow and develop their businesses— and hopefully in ten years we will have made a number of investments with success stories attached to them.’
Both have more than enough experience between them to help digital media entrepreneurs achieve their ambitions. Jonnie is one of London’s best-connected media dealmakers, who founded Longacre Partners in 2000 as a media corporate finance group. It began working with Elisabeth Murdoch and helped her to build Shine, her TV production business, through a series of acquisitions over 10 years. A continuing relationship with Ministry of Sound began by raising £25 million of capital. And in 2005, he was involved in the sale of the website Friends Reunited to ITV, the British commercial broadcaster.
Jonnie Goodwin’s tips for digital entrepreneurs seeking finance
• Get going as soon as you have raised even a little money. Start-ups need momentum and if things are going well, the money will come
• Make sure you can explain your product to financiers, who may not have a technical grasp and won’t invest if they don’t understand it
• Analyse why your product hasn’t been created already. There are lots of entrepreneurs searching for internet businesses that can provide benefits for consumers, and may have found downsides that represent an unacceptable trade-off for those consumers
• Work on your team skills—a can-do attitude
will inspire others
‘We stumbled into it when I was invited to a business golf day,’ he says. ‘I hate golf and I ended up playing with the managing director of Friends United who was running it for the founders. An attempt to raise capital had failed and he subsequently agreed to sell it. It was the first sale of a social networking business and there was a lot of interest—in the end, ITV bought it for £175 million.’
Other deals included the sales of the TV quiz show Who Wants to be a Millionaire? and uSwitch, a website that compares utility prices. Longacre became the leading European advisory business in digital and media and was bought in 2007 by Jefferies, the US investment bank. That opened up opportunities in other sectors and further afield, but deals were hard to find after the financial crisis and Jefferies decided on a change of strategy. So in 2011, Jonnie co-founded Lepe Partners with some of the Longacre team to focus on working with entrepreneurs in the media and digital industries.
‘We call ourselves a merchant bank because we are very much driven by building relationships with clients. With our work at Longacre and Jefferies, we have done more than a hundred transactions and we can offer advisory services to rival much larger banks. We have also set up Lepe Capital, which will raise around £50 million a year from 26 high net worth individuals and family offices. As a rolling fund, it’s the equivalent of a fund worth more than £300 million, allowing us to co-invest in transactions.’
Brent Hoberman, by contrast, has a very different history, as one of the leading entrepreneurs using digital media to disrupt traditional business models. He grew up in an entrepreneurial family and says he was always interested in gadgets—with the internet being the ‘ultimate gadget’. But he first came to prominence in the wider world as the co-founder of lastminute.com, the travel website which sells late holiday deals and whose ups and downs mirrored the dotcom boom and bust.
We wrote the 20-page business plan in six weeks and raised $1 million over the next six weeks.
‘We launched in October 1998 and listed eighteen months later—faster than any company in Europe had listed. We priced the shares on 10th March 2000, the day when the stock market peaked; by the time the shares were issued three days later, prices had already started falling as the dotcom bubble burst. Even so, the issue was 40 times oversubscribed—a classic example of a Giffen good where the higher the price, the greater the demand.’
The shares leapt in price on the first day of trading, but plummeted to less than half the issue price within a month. Nevertheless, lastminute.com grew dramatically in the following years, making 14 acquisitions before being sold to a US buyer for USD1.1 billion in 2005. Brent had intended to stay with the company for three years after the acquisition, but left at the end of 2006—finding it hard as an entrepreneur to work for the new US owner. It was not long, however, before he moved on to his next venture.
‘Like many people who sell their company, I bought a house and was immediately struck by the furniture market which felt like the travel market before the launch of lastminute.com. So I put together a software package with some technology experts to create mydeco.com, to allow consumers to buy furniture online, use 3D visualisation to see what it might look like in their homes and share ideas with a community of users. Almost a million rooms have been designed on it, and it was put on the website of most of the large UK furniture retailers.’
Brent Hoberman’s tips for digital entrepreneurs seeking finance
• Convince me that I would use the product— or that my family and friends would
• Show that you are genuinely passionate about the product and not just out to make a quick buck
• Demonstrate that you can delegate or even hand over the business when necessary
• Make me believe that I would work for you— if not, I will be reluctant to back you
After mydeco.com, Brent spun out made.com to disintermediate furniture retailers and allow consumers to buy direct from the manufacturers. That was launched in 2010 with finance from PROfounders Capital, the venture capital firm he co-founded with Jonnie in that year. Because of his high profile, the firm has been a magnet for entrepreneurs: he gets five to ten approaches a day, will typically see around a hundred a year and end up financing and supporting perhaps seven. ‘It differs from many other venture capital funds in that is backed by entrepreneurs, more and more of whom are turning into investors—Niklas Zennström, the Swedish co-founder of Skype, is a good example. It’s a really interesting trend, because they feel they speak the language of entrepreneurs and can help them through the ups and downs of a start-up. We now have 20 companies we’ve invested in and I’m also an angel investor in another 12. It’s relatively easy for experienced entrepreneurs to add value, especially when the going gets tough.’ Brent and Jonnie also work closely on Founders Forum, which brings together more than a thousand of the world’s best and brightest digital entrepreneurs at global events. The events are designed to stimulate thought and provide networking opportunities—to help people on their journeys, work out what it is they want to do, and hear from people who can advise them and offer services. The Forum has just held an event in Rio de Janeiro and an Innovation Forum in Los Angeles, with the main event in the summer in London and others planned for New York and India later in the autumn. What are they looking for in the entrepreneurs they back? ‘They’re all very different,’ says Jonnie, ‘but the common thread is that most of them are unbelievably driven, with enormous energy and focus.’ Brent puts it slightly differently: ‘The challenge of the best entrepreneurs is that they are slightly unhinged. You can’t be too balanced as an entrepreneur—you must want to prove that you can succeed.’
He adds that the conventional wisdom is to back people, not necessarily ideas. ‘The right entrepreneur confronted with problems will pivot and change to find a solution. When Michael Acton Smith realised that his Perplex City adult game was getting nowhere, he changed it into the highly successful children’s game Moshi Monsters. And the people who created the Angry Birds app, one of the most successful games so far, had already failed with 40 games before.’ Jonnie says he is always wary of entrepreneurs who talk about their exit. ‘The best entrepreneurs are those that want to build really good businesses on a journey that will last a very long time. Holly Tucker at notonthehighstreet.com wants to build a new online market that allows small artisan businesses to sell their wares to consumers looking for something out of the ordinary.’
What have been the biggest failures for the two men? Both mention examples from PROfounders which illustrate common errors when funding start-ups. ‘With hindsight,’ says Jonnie, ‘you realise that the guys that were running them were the wrong people. We knew that at the time but brushed aside our misgivings about the entrepreneurs— we should have relied on our gut feelings.’ For Brent, it is the businesses they chose not to back.
You can be forgiven for backing the ones that don’t work, which is inevitable in venture capital.
‘But we passed on Supercell, the gaming company whose Clash of Clans game is now grossing more than Angry Birds. And when I saw the alpha version of the Hailo app for ordering taxis online, I thought it was brilliant but our guys had already turned it down—though for good reasons.’
Founders Forum will continue to expand over the next few years and hold Innovation Forums in new countries such as Philippines, Australia and Hong Kong, says Jonnie. ‘I hope that we’ll be able to look back at a lot of relationships that have been created and deals done that have been a catalyst to make things happen. From the first Innovation Forum, we’ve already identified over £75 million of business done as a consequence of the relationships created. ‘There is more money now to invest in good businesses than ever before,’ he adds. ‘If you are out there in a network, you will get funded.