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Jeff Lynn is the Executive Chairman and Co-founder of Seedrs, one of the pioneers of Equity Crowdfunding. He created Seedrs as part of a business project while attending an MBA program at the University of Oxford, and spent 3 years on getting the idea approved by European regulators. After getting regulatory approval in 2012, Seedrs received a first round of £1M and now has over £48M in funding from investors and is now considered the leading online platform for investing in startup equity in Europe.
Andrew: To learn a little more about you, could you tell me a little about yourself and your business background? I could only find your experience from Seedrs and previous experience as a corporate lawyer. Did you jump right into the “right” decision with Seedrs?
Jeff: Sort of yes, with an MBA in between. I was a corporate lawyer with very conventional training — undergrad in the states, law school in the states, law masters here at Oxford and started practicing in New York City. Then I had a chance to come over to my firms London office so I did that. But I always had this kind of inkling that this wasn’t what I wanted to do for my whole career. The thing that struck me as I was working as an M&A lawyer on really big deals with massive companies is, I was payed very well, but all I was seeing was value being destroyed along the way. Large companies who were struggling to find ways to grow were taking over other companies that were struggling to find ways to grow. Then they made a bunch of people redundant, hoping to boost bottom-line profitability for a few years, but there was nothing fundamental about building something there.
I often joke that one of the things that happens when you’re a young corporate lawyer is that your friends in startups start pestering you for free legal advice. So, I started getting exposed to the world of startups and growth ventures, these were two people in a garage and seemed to be a place where value could really be created.
One of the running themes about me through the years is that I, more than some tech entrepreneurs, I’m not a bad capitalist. I actually believe in making money, I believe it’s good for society when money finds its most productive uses and I do think money is an important part of the picture. But I also think it’s not about just spinning money around in some synthetic way, it’s about how do you build things of real value. Because if you build things of real value there is going to be enough money to go around for everybody.
So part of me thought, look, these people are actually creating real things and this is a space where you should be able to look back on your life and career and hopefully say I built that, I did that, and if the thing you built had value you probably got to keep some of that value and build a very nice life for yourself. And those two things together matter.
I was 30 years old then and I thought, if I’m lucky enough to have the health to have another career then I should, and that this looks better. I had no idea how to get into it or what I was doing so I decided to get an MBA. There was a lot that I needed to learn about business from an operational side. As a deal lawyer, I picked up a lot about finance, transactions and corporate matters. But I didn’t know anything about marketing or strategy. I needed to understand some of the jargon, some of the frameworks and some of the basics of it. I also thought it would be a great way to spend a year and figure out where I might land. I remember saying, in an ideal world I’ll meet a co-founder and start working on a business, but I knew that wasn’t likely. Maybe I’ll wind up taking a junior position at a VC and see where I land. I really didn’t know what the MBA would produce, but I got lucky, met my co-founder, and we started working on Seedrs in the MBA program.
Seedrs actually started as a business school project. Oxford has a requirement, regardless of whether you’re interested in entrepreneurship or not, that everybody has to get together and do a business plan for credit. We got together in a group and started working on Seedrs. It was my co-founder’s idea, I loved it, we started working on it and one day said “Hey, you know what. This thing works, should we actually go off and do it?” And that was where it came from.
Andrew: That’s amazing. Well, you had very good timing! Tell us about the first few years of Seedrs. At a time when equity crowdfunding was so new, what were the major challenges that you encountered doing something so different?
Jeff: First of all, equity crowdfunding was not a thing. Crowdfunding wasn’t even a thing. Yes, Indiegogo had sort of launched but we didn’t look at them closely or see them in the same vein because, although they would go on to get a lot of brand recognition, to us investment versus products for purchase are such different concepts. We were looking at Peer to Peer lending in the early days of that, Zopa in UK and Kiva internationally. We thought that was the best analogy we could come up with, which was “See what these guys are doing with Debt, we want to do that with Equity.” And that resonated to a degree. But for the most part we were phrasing it in much broader terms which was: We are one more of the massive wave in the last 15 years, of taking traditional offline reasonably inefficient business models, and trying to find a way to bring them online and take advantage of all of the scalability and efficiencies that come with digital technology.
So depending on who we were talking to sometimes we would be very specific and say, this is P2P lending and we’re doing the same with equity, and sometimes we would say, venture capital and early stage Angel investment has not evolved in 60 years and here are all the problems with it. Here’s how we can solve it with our business model.
And we got a hell of a lot of pushback. The vast majority of people we talked to in the first 6 months to a year told us we were nuts. And they all had slightly different reasons why they thought we were nuts, there wasn’t one fundamental thing they all said. Some thought we’d never get regulatory approval, so that was one of the really big innovations and successes in the early days. And eventually we succeeded. We had a mix of tactics to get it, first we had ruthless transparency how we would operate and educate people, and second, we had to involve some lawyers and be a bit tougher particularity near the end of the process. To be honest that is one of the things I am most proud about that we’ve accomplished.
The other pushback we got was even more frustrating, which was a “This isn’t the way it’s done” mentality. There was a lot of doubt that people would part with money without human interaction with the founding team. And our response kept being, if you are in the group of investors we have identified who would want to invest £100 or £500, they will recognize that the team can’t spend hours with every £500 investor and if they want to invest in this asset class this is the way they can do it. Of course, for the bigger guys, people investing £20,000 or £50,000, just because the transaction takes place online there’s nothing stopping you from emailing the team and inviting them to meet and have a coffee. And that’s exactly what happened. A lot of investors really struggled with this, they saw online as a pure play and the notion that there could possibly be this hybrid aspect threw investors off.
Other investors challenged it from the entrepreneur’s perspective, which was, why would an entrepreneur want to raise money from the crowd? If they could raise money from a VC they would, so you will only get bad businesses on your platform. And if you believe the VC propaganda that they are gods, this argument makes sense, but any entrepreneur worth his salt knows this is 99% bullshit. Of course, there is value at times of having certain types of VC’s or institutions in certain deals, and for all of our companies as they get bigger it makes sense for them to have an institutional component. But the reality is a good entrepreneur knows that you go where the money is. If you can get the money at a fair price, you can hire in the talent and buy the things you need, you don’t need to fixate on a VC that can help you with HR or whatever other offers may be out there. So, we said as long as we can make the experience more attractive to entrepreneurs — whether it’s faster, more efficient, more certain, better pricing, etc — if we can make this a better experience why wouldn’t they come to us.
Andrew: It sounds to me like most of the challenges you had to early investment was just pushback for the sake of pushback, would you agree?
Jeff: I would. It’s interesting how tough it is to get people in a given space to wrap their minds around change and innovation. I distinctly remember that my father described us to his barber in Arizona and the barber got it, he got it better than some seasoned financial professionally because he wasn’t coming in with any preconceived notions. The barber was thinking of it in terms of his own business and it made sense to him. But when you have a lens around what this ecosystem or funding ladder looks like, it can be a lot harder to break out of that.
There’s a particular individual named Lucius Cary, and he’s relevant because he was known 10 years ago particularly when I was coming out of Oxford, he was known as one of the most active VC investors in the country. And I reached out to him for advice and he sent me back a very pleasant but very difficult note saying “I’d be happy to meet you but I don’t think you’ll want to meet me, here are all the reasons why I think this is an absolutely terrible idea.” And I was a little stunned by that. Particularly because his background is really interesting. He noticed the popularity in America of hamburger chains, came back to the UK and started one of the first hamburger chains here and was quite successful. Then he realized that his journey raising money for this business was really difficult, so he started something called the Venture Capital Report newsletter for startups seeking deals and looking for money. He had innovated in our space, seen a problem and innovated. Then we came along in the internet era and he couldn’t see it at all. This really fascinated me.
I’ve very conscious of this because now I’m 20 years in, and I’m the established person in the industry. Blockchain is a good example of this and has a lot of interesting applications, but some of the ideas look wacky to me. But then I wonder, am I being that guy who isn’t able to see the next big thing?
Andrew: So, dealing with these challenges and in the early stages of the company, what mindsets and strategies helped you the most in overcoming these roadblocks to get customers, funding, and regulatory approval?
Jeff: I think the short answer is stubbornness. When we launched in 2012 after 3 years of breaking through the regulatory process, raising bits and lumps of money and fighting like hell, it had been a very long pre-launch period. At that point the only thing we should be congratulated for was being really good at banging our heads against the wall.
The other thing I think matters comes from an essay by Paul Graham, the founder of Y Combinator. He had a great essay called schlep-blindness and the whole point of it is that many of the most successful entrepreneurs are successful in part because they are blind to just how much of a schlep they’ve got in front of them. If somebody told me in 2009 it would be 3 years of banging your head against the wall, who knows whether I would have had the endurance to do it. I would like to say I would have but let’s be realistic. But we didn’t know that. We thought it would move fairly fast and be lovely, and we were also slightly willfully ignorant.
We were stubborn and ignorant, and those two things probably helped a hell of a lot.
Andrew: Being stubborn and ignorant is not the classic mindset advice you normally hear from successful people.
Jeff: No, but how else do you do something quite so irrational?
Andrew: What strikes me about great ideas is they seem to be extremely logical and irrational at the same time.
Jeff: I think that’s absolutely right. One of the things I’ve said often through the years is, from the entrepreneur’s perspective you devote years trying to build something that likely won’t work out, of course there is an irrationality to it. But in a broader context, I always think this is worth saying, I had a good education, wasn’t going to wind up in the gutter if it didn’t work and I would always be able to find another job. I was married and my wife was working. Other than being embarrassed and demoralized if it didn’t work out, when you have a personal safety net it’s a little less irrational.
At a fundamental level I was conscious of the fact that this wasn’t going to be life ending if it didn’t work. But it was still an irrational thing, rather than plugging away making very good money as a lawyer, the mentality has to be slightly irrational.
Andrew: Selling the idea to investors, did that happen within the first 3 years or after getting regulatory approval? And how did you sell this idea that was crazy to other people?
Jeff: It was a mix. Early on it was friends and family who fundamentally were backing us rather than just the idea. In almost all cases they were non-specialists who didn’t come with the biases of investors in the space. They viewed it as a high-risk, interesting idea and were investing in us because we seemed credible. We did also spend a lot of time those 3 years talking to VCs, talking to Angels, talking to other financial people and got absolutely nowhere. Really interestingly we got lots of meetings with partners at major VCs and it wasn’t hard for us to get meetings. But I think that was because they were interested in what we were doing since it was close to their space, but they weren’t willing to write a check. It was a lot of wasted breath running around Mayfair and Shoreditch, however it certainly helped us hone the pitch and refine our offer. The key investment was after we got advanced notice of regulatory approval in March of 2012 and off the back of that raised a £1M round, that was our first real money to build the business. Certainly, getting the regulatory signoff was key, but the big thing for us is that we discovered people who were fundamentally tech investors had absolutely no interest in us, but financial service guys loved us. Because if you were a VC from the tech investment world and spent your days thinking about innovation rather than financing models, we clashed with truths you held close. But all of the financial services guys, all the people who made up our first round of Angels, a lot of them were sitting in banks in the city and saw a lot of fucked up things, had no biases of how startups currently got funded, and thought we had an interesting model and were willing to back it. Ever since, we focused most of our fundraising efforts on people who really understood financial services rather than a tech lens, and that was a lesson that took a few years to learn.
The people who tended to have the really fixed ideas and were unwilling to invest were the ones who were in Venture Capital and the Private Equity side of the financing world. If you look at the profile of many partners at Venture firms, they were finance guys and they probably shouldn’t be. The ones who invested in us were, for example, real estate derivative sales guys, a totally different part of the market. So they had no bias about how this particular part of the market should work and they were able to wrap their heads around the idea. If we had approached them with a real estate platform, we may have had problems, but there was something about the fact that we weren’t encroaching on their vertical or way of thinking about things that impacted them investing in us.
Andrew: What was your initial process for setting milestones when first starting something so new and different than classic business models?
Jeff: I’ve been very very very skeptical of milestones and targets for very early stage businesses. I’ve gotten into discussions over the years with the board about it. Now we’re at a point where forecasting can be done in a scientific way and has a lot of value, but early on the board would push me to set targets and I would often say no. I would say, look, now that we’ve raised some money we need to do as much as we can, as effectively as we can. I don’t know exactly what this is going to look like, we may have a lot of success here or a lot of success there. I tell them we are going to be as thoughtful as we can spending every pound, and we’re going to do everything we can so that the next time we go to market for money we’re able to show and tell a story about significant progress.
I think that when you’re experimenting and finding product/market fit and you’re figuring out how to scale I think it’s really important to have that mindset. Because if we set targets then everyone is going to chase those targets. For example if we say “We want to get 100 deals done this year, assuming each deal will be tiny, around £50,000”, then all of a sudden a large deal comes along that will make us a bunch of money, but it will take some additional work, the team may say that it won’t contribute to volume and pass on it. So I think you have to have a little flexibility, and corporate managers hate that. They really don’t know how to work with not having clear targets. But I think up to a certain point, basically up to our Series A, that’s how we did things.
We would talk about type of growth rates we were trying to hit, but we tried as hard as we could not to make those milestones and targets any more concrete than they had to be. Just because we needed the opportunity to learn and grow and chase opportunities. If you’re finding your place and doing something somewhat innovative it’s important.
One of the values of targets is once you get to a certain size, like right now we’re around 90 people, and now not everybody can be bought into or understand every bit of strategy or everything the business is doing at every moment, targets act as proxies and act as simplifiers. But in the early days we were 10, 15, 20 people and we’d sit around the office and chat. People knew what was on my mind and what we were chasing at any given point and we were able to have that kind of flexibility. And that’s one of the reasons I love startups, they’re agile, they’re small enough that they don’t necessarily need as much of the fixed systems since they’re able to just respond to what happens.
Andrew: I think that’s a great lead in to a problem that I’m having right now, which are those first few hires. I’m really curious for your first few hires, what you’re advice is for that. How you ensure you hire people who will thrive in a startup environment?
Jeff: That’s a really good question. As I look at a number of our first successful hires, a disproportionate number, based on the nature of what we needed and what we were doing, were lawyers or ex-lawyers like me. And that made slightly easy hunting ground in the sense that at any given time there are a lot of young lawyers out there who are in their firms and frustrated or bored, and they want to be doing something more. But for one reason or another they haven’t come across the idea that they want quite yet or haven’t taken the plunge to do something on their own. So, we give them the opportunity to be part of something entrepreneurial and get in almost at the ground floor. A few of our first key hires were that profile.
More broadly, we looked for people who were highly intelligent and we always prioritized intelligence over skill, in the sense that we wanted people who would be able to adapt and learn with the business even if they weren’t the most experienced in the tasks we needed done at any given point. Our early legal head, who’s now our COO, she’s 2 years post qualified as a lawyer and essentially what we needed was a general council. There were people with much more experience that her who applied, but we had a feeling that she was really bright and really hungry and really wanted to learn and adapt and grow and was also one of those people who was frustrated in her environment and wanted more.
Generalized intelligence, hunger, and young helps since they’re more willing to roll up their sleeves and work for equity> There’s also the aspect of trial and error to it. If they’re coming from an environment where they’re frustrated by the button-down corporate life, that helps.
For the business roles like law, marketing, sales, commercial, a little bit of experience in a bigger operation teaches a lot of professionalism like the importance of proofreading and returning phone calls quickly. These are things that are hard for a startup to teach. It doesn’t hurt to have that kind of experience behind you, but you also don’t want people who’ve been there so long they’ve gone native. There is a profile of people who’ve done one or two corporate type jobs, are 25-27 years old, still fresh and young and hungry and willing to do what it takes to build, and also have just enough seasoning and enough frustration with the corporate life.
Andrew: I’m really curious about the Secondary Market, your most recent innovation. How did it happen and what was the mindset in such a big addition to your platform?
Jeff: I think we always took as a given that if you make a secondary market work then it would be a good thing. There is, locked in with the 1950s Venture Capital “This is how its done”, a mentality that every investor should be with every business until they exit, and that a secondary market is somehow a bad thing. That’s bullshit.
I think we recognized that early on and now most of the VC world has too. There are any number of reasons that as an investor that you may want to leave at any particular point, or join at any particular point. And especially as companies go public later and more private capital becomes available, why does investing in a space mean you have to be in it for 15 years before you see a return?
From those friends and family who invested early on, every so often I’ll get this incredibly sheepish call, desperately worried about offending me, asking for a way to exit. I always say great! I’m so happy to get a good return for you. But mechanically it’s super hard to do. And not just mechanically but maintaining liquidity particularly on the buy side when you don’t have any of the information flows out there, has bedeviled people and private companies who’ve tried to make secondary markets for years. And the number of examples we had of unsuccessful secondary market companies through the years was endless. It’s a very hard thing to do. You can actually find somewhere I said that a secondary market was never something we planned to do, because I didn’t see how we could make it work. But then two things happened;
One was, we have for every funded business a discussion forum for those who invested in the business. And we found that people were using that discussion forum to create their own market, asking to buy or sell their positions. But it was a shitty product since they were trying to do it literally on a bulletin board. So part of us said, since people are trying to do this anyway, let’s build a product around it and see what happens.
The other part of the driver was we were going into another fundraising round and I wanted a big strategic announcement to hang our hat on. There’s nothing quite like being able to announce that you’re doing something or have launched something, but it’s before you have to prove the numbers for it. So, the timing seemed to work well.
Much of the way I approached business over the years would be a corporate managers nightmare, because we went into it with no targets and no expectations and without a whole lot of hype. One of the core observations is that all of the secondary markets through the years that have failed, part of the problem was that was their whole business. They had to make the secondary market work. For us it’s a side product. Our primary market is our core business, so we can have the patience to let the secondary market grow organically and not freak out when it’s slow and gradual. And actually, it’s grown a lot faster than we expected and as a consequence we’ve invested more in it. It’s been one of our big successes.
But I’m the first to say, one of our big successful products, while I will take credit for ultimately pushing the button to instigate, was one of the things I said that I never envisioned us being able to do.
Andrew: As a close out, what are some of the new technologies or trends that you’re most excited about?
Jeff: I’m not going to say anything here that is unknown or massively insightful. Applications of data, AI and machine learning there’s just no limit to the potential there. I don’t really spend my time worrying about cyborgs taking over the earth type of AI, but I’m interested in what you can do with these bigger datasets and how can AI get better on the smaller datasets. I think we’re just scratching the surface and there’s a huge amount that’s super exciting about that. We spend a lot of time thinking about how we can use the data we have as well at Seedrs.
A second is fintech generally. There is still do much of the financial services world that hasn’t been scratched by innovation and technology. Every time I talk to a banker or insurer and understand how they do business I have a clearer view of how much is still left untapped.
The other bit that I find interesting is not so much a technology, but I think there is a lot of room to take traditionally offline models and take them online. We funded a business, one of my favorites, called Hectare, which is a cattle and grain trading site for farmers. If you are a cattle farmer in England or anywhere else, a part of what you’re doing day to day is managing your herd size. And for various reasons you may want to sell some of your cows or buy some more in, and that’s all a bricks and mortar operation that doesn’t look a lot different than it did 100 years ago. I think likewise for other agricultural products. These guys came up with a platform that allowed that to come online. And what’s interesting about that, it seems obvious, but as the demographics of farmers shift to a younger generation of farmers and you have better connectivity, suddenly there is an opportunity to bring this in. And I think there are a lot of spaces like that.
There are opportunities in all of the sectors out there that haven’t had the kind of penetration you’ve had at the levels of a few limited ones.