Edward Stephens – Be Empowered, Vote with Your Capital

https://www.linkedin.com/in/edward-stephens-041b0323/ (Edward Stephens) is director of the global brokerage at the Angel Investment Network, where he’s worked since 2010. In that time, he’s helped raise money for more than 400+ start-ups, including https://what3words.com/ (What3Words) and Simba Mattresses. He also hosts a podcast called The Startup Microdose, which he started with a colleague. Guests have included the founders of Huel, Depop and Killing Kittens.   “Something that was meant to be liquid, easy, cash in, rolling the business through, turned to absolute hell.” – Edward Stephens   Worst investment ever Young deal-maker wants a piece of the action In 2012, Ed was 25 years old and had had two years of deal-making already at Angel Investment Network, getting a feel for what a good deal looked like. It was very appealing to look at what investors are looking at and feed off their excitement. Until that point, he didn't have any money of his own to invest but he felt it was strange to be deal broking without having any real experience of the pain points for investors who were having their capital put at risk and not understanding it. He started thinking about joining in all the fun. Sets eyes on attractive lending business idea Ed was working on a deal on a lending business called “Cash until Friday”, that was looking great. The entrepreneur liked Ed, and the investors were really excited. It was to be readied for trading on AIM, a secondary market of the London Stock Exchange. One big investor was putting in 500,000 UK pounds, so Ed joined in with 2,500 and he persuaded his father to invest 10,000 pounds. Conflict arises almost as soon as money goes in Almost as soon as they did, the main investor and the entrepreneur had a falling out. They were accusing each other of dark practices and the investor was adding strange fees onto the listing statements of the shell company. The investor also started to add consulting fees for the entrepreneur to pay to regain his investment and then wanted to pay for his investment in instalments in some kind of “weird equity clawback”. Sky darkens further Meanwhile, the AIM market looked as though it was on the verge of collapsing. The type of business relies on operating – lending cash – and the investor was angry and wanted to start lobbying other investors to get a court order to stop the business trading. If the business did so, it would die and be scrapped for the remains and the spoils divided. Battle lines drawn The ex-army entrepreneur started to put up the barricades and wanted to play hardball and it appeared as though Ed and his father were not only not going to get their equity in the business but that they would lose their entire outlay. They had not been given share certificates, the entrepreneur had their cash, and they had no means of getting it back. Deal’s off but father offers a life lesson  Ed didn’t sleep for a week because of feelings of failure, the loss of his own money and that of his father, but his father reminded him: “This is life. Shit happens.” His calm parent advised that they sit down with the entrepreneur and appeal to his goodwill. The entrepreneur agreed to service their capital back to them as a 7% loan. Chasing payments adds insult to injury While they had to chase the entrepreneur’s payments on a monthly basis, and sometimes the guy disappeared for months at a time, they got their equity back at 7% interest. In the end, it wasn’t that bad a result. The AIM market survived, there were no lawsuits, and the company was still trading as some kind of bridging-loan company. But Ed says the shocking thing was that it went bad so quickly. And it took such a long time to get the money back that even getting the repayments ended up being a nightmare. So it was a big relief when the last payment was made. However, the opportunity cost of capital, the stress to everybody for the 7% definitely wasn’t worth it. While it...