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Stephanie Melodia interviews Simon Franks, the co-founder of LoveFilm, the DVD rental company which was sold to Amazon for 200 million back in 2011. He also sold RedBus film distribution to Lionsgate for £42 million. This business was the UK's fastest growing company between 2000 and 2004 with a growth rate of over 280%. It was behind famous movies including Bend It Like Beckham. Simon then went on to start RedBus Ventures, an early stage Venture firm with investments in the likes of Perkbox, Cleo, Lick, and Wild. Now Simon is also working on philanthropic projects in Southeast Asia focused on International Development foreign aid and is a strong promoter of entrepreneurialism as a means of addressing economic problems.
Watch on YouTube via the link below or keep reading for the transcript:
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SM: Simon, my pleasure to have you here on the show. Let's start off with the headlines: selling to Amazon, what was that like first of all?
SF: You started with a slightly contentious point because I always feel very sad that the business was sold obviously it was there was a lot of amazing people involved with that of
which I was just one of many and they all deser lots of credit and everyone made lots of money but if you think about it we were the market leader in Europe doing what Netflix was Market leading in the US and I always believed that company could go on to be the Netflix of Europe which would have been great to have one uh instead it went to Amazon and you know Prime video it's great and all but it's it's not Netflix and I feel like it's a real shame for Europe that we didn't keep it raise money here and not sell but sadly by the time it came today it wasn't my call I didn't have enough folks to stop it ah I see interesting well I think it is inevitable to draw those parallels between LoveFilm and Netflix I'm glad that you Nam dropped them in the conversation first I was going to ask what what led ultimately to that decision of selling instead of keeping it and building and turning it into the Netflix of Europe to be honest actually the love film was my second exit I'd had an exit before which you didn't mention which was the technology business but it was the only business I've ever had where there was Venture Capital effective control of the business and I think BCS just have a very different time frame certainly then you have to think about we started that business just after 2000 or 2001 something like that and there weren't very many VCS in London there wasn't really a culture of believing young people could build Global businesses which we now do have not as much as we could and not as much as in America but we do have that belief at that time it was a home run for people I guess and they wanted to take the money and in within the time frame of a fund which you know those days was you know certainly eight to 10 years Max so I can see why the decisions happened I also think that the company itself made some a couple of bad decisions I think affected its the pace at which it was going to grow I still think it was a decision that was probably right for the VCs but maybe wrong for the business but you know that's a counterfactual we're never going to know.
SM: I get your point and I think also what i' add to that is you know wrong to Europe UK that point you made earlier again we were flanked by two superpowers which constantly frustrates me you've got China on one side you've got the US on the other and here we are with Spotify to show for it
SF: well it's interesting firstly Spotify is absolutely amazing so we should be proud of that one but it's interesting because people forget just how bad things were in Europe on this in this sort of frame when I started my first business in 1997 I firstly I told my parents that I was going to be an entrepreneur and they looked at me with horror because in those days being an entrepreneur was synonymous with sort of having very long hair living in a in a sort of squat not doing any work and just saying you know I'm an entrepreneur um so it wasn't a
cool thing to do then at all it was the opposite of cool and then of course there wasn't an ecosystem to finance you so when I used to go around to I mean I didn't I grew up in quite a modest background so I didn't know any which people to go and ask for money and there were no VCS basically when I started literally none you know you'd go to people and I'd say um will you invest in this idea I've got and people would literally laugh at me I mean it just wasn't a culture and I was very very lucky I met a man called Larry chrisfield who was an amazing is retired now was an amazing supporter of young people was a very famous accountant he looked after the Beatles and things like that and he just loved helping young people and he helped me meet a few investors to help me on the way and thank God for that cuz in those days you just couldn't raise money so it's it was just it's a very different time
SM: And how did you meet this accountant that unlock those doors for you?
SF: just one B of luck such a beautiful man and I know he's helped so many young people start businesses just people didn't do that in those days there no one people genuinely thought that if if you were a Maverick of any kind that was totally bad uh I still think the UK and Europe doesn't deal with it very well because part of being a great entrepreneur is being a bit disagreeable it is being a bit confrontational and saying we can do better or the way that's done is wrong or I have an idea no one else has had before which you know in the UK where we respect humility and I think that's a great thing but in the field of entrepreneurialism if you're really humble that could be a bit of a problem in America they've never had a problem around humbleness as you know and actually in the field of entrepreneurialism that's a really good thing yeah absolutely I totally get it so it's interesting that you told your parents that you wanted to be an entrepreneur because you you didn't kind of Go off into the wild wild west of Entrepreneurship you went into was it banking you start off with a corporate career first so but only only because I had no choice so I always wanted to have my own business I had my first business in the playground of my school I remember when I was 12 years old I mean I I grew up in a pretty modest area comprehensive schools all that I remember I made £7,000 selling running an unofficial Tuck Shop from the age of 12 to about 15 £7,000 was a lot of money a lot of money even to my parents it was a lot of money so I'd always want to be an entrepreneur but then when I graduated my father was very keen for me to be an accountant of something like that where he thought you'd have a job security for life my parents never grew up with job security and I totally understand why a parent would advise that except if you know me that wouldn't be a good idea um but I went to I went to University and got a degree in a business related subject and wanted to have my own business went to my tutor of my course and said look I want to start my own business and he said no problem do you have any money I went no we go do your parents have any money I went no we go do you have any friends have' got any money I went no it's like okay Banking and in some ways it was the best advice you could get because four years into Investment Banking I hadn't made millions or anything like the numbers you read about now but I'd made enough that I didn't have to earn any money for about five years yeah so I could afford to spend five years penniless not earning anything but live pay my rent whatever whatever and it was in and obviously I got very lucky because my very first business which was a technology related media technology related business got bought within two and a half years in the first dot com thing and I literally went from being completely penous like I'm talking couldn't pay you if You' have put a gun to my head to give me a You' have been a dead person uh so and one of the things I always say to entrepreneurs once you had your first success things get a lot easier and so you know I was you know banking was the way to get money to do what I wanted to do it wasn't I thought oh that's a great preparation for what I'm going to do because basically it's not.
Did you know that eight out of 10 entrepreneurs go into business to be their own boss? And like eight out of 10 stats that are made up on the spot so was that one, but my yes is that you did not go into business to be bogged down by admin paperwork legal compliance no you went into business to have the freedom that you've always desired and to execute on the vision for your company. Strategy & Tragedy listeners this is why I am genuinely so proud to partner with Deel, the all-in-one platform for Global teams that's they make it simple for companies managing International Teams to seamlessly hire on on board and pay both Global employees as well as contractors if you're working with Freelancers they handle all of the paperwork exchange foreign salaries into local ones and ensure compliance with local regulations which honestly I think is just about as fun as it sounds, so if you're a Savvy entrepreneur then you know what to do you need to Outsource that stuff that should not be bogging you down to the expert like Deel - they are designed with the needs of a global Workforce in mind seamless contract signing easy expense uploads in platform time off management and more plus its customer support team is available 24/7 no matter the time zone. If you're ready to see how deal can transform your Global Workforce operations then head to the link in the show notes and let's dive back into the episode thanks for listening.
It was a pure financial gain. You do learn I'm very lucky that I worked at two great Banks and I did learn a lot from some very clever people but it's only the stuff I Learned was really in Capital Market stuff was only useful when I was you know later on where I've made bids for public companies or done large m&a transactions and obviously I learned a lot of the stuff there so I save a lot of fees from Banks because I think I we know some of the stuff but it's never been helpful as an entrepreneur in the sense of helping me understand how to want a business that hard skill set came in in handy a little bit later on but it is
SM: Obviously the brain is fantastic at pattern matching and with this show I've noticed there's quite a few entrepreneurs who have made that jump from corporate careers into entrepreneurship and it's not a bad strategy because they have built up that Financial buffer to mitigate that risk and especially these days you know needing quite a long Runway to give it that time to test the market need for it
SF: I think there are many potentially great entrepreneurs out there that will never be great entrepreneurs because they've got responsibilities mortgages kids at school Etc that mean that the risk is just too high. One of the very lucky things for me about starting so young as an entrepreneur I think I was 26 or something is that I had no one relying on me and I could pay the rent as I said for a few years so really if it didn't work out it wasn't that it wasn't a crisis for a whole bunch of other people other than myself.
"I definitely prefer being rich to being poor, I would recommend that as a strategy."
SM: Yeah, if you're going to be an entrepreneur try and do it before you've got big liabilities in terms of financial liabilities and whether it's a success or not is kind of get those first pancakes out the way right the learnings that you amass through the direct experience. So I'm really fascinated by your stages of wealth, if it's not too vulgar a subject, because you just mentioned that you have had moments in your life where you've been penniless modest background, you've had these exits - how has your money mindset evolved over those key stages in your career?
SF: Yeah so it's a really interesting question and actually one of the thing well just so one one side just is that I get asked a lot to go on Boards of companies and nearly always say no but one thing I will do is advise some Co who were going through Founders who are about to become very wealthy and that's a whole new thing and it causes so many new problems and no one talks to you about money and all the various things that come along with that good and bad I had that happen to me in my mid 20s uh and um the good thing I did was it wasn't very public the deal I did was a private company wasn't very public so not many people knew what had happened like for a while not even my parents or best friends knew I had this money I literally hid it I stayed living with a friend from University above a restaurant on a High Street I didn't do anything why did you hide it cuz I just didn't know I it was just just so crazy to it was just so crazy yeah um it takes some time to equalize to it and I and I do talk to entrepreneurs about this I know I've got there's some people in our portfolio you know still mid-30s who on paper have tens of if not hundreds of millions of pounds of value but probably in their bank account is 20 grand it's so crazy and helping them manage that help them to really think about how to plan for that and also to help them see how money their personal situation impacts decisions they make for the business which is not necessarily a good thing so trying to isolate what's best for them and to see that sometimes that won't align perfectly with their company and to try and help them manage that so so it you know it's an important topic so I'm glad you ask about it for me I've been very lucky in that the insecurity I had as a child where we were money insecure my father was a super smart guy who is a good example of should have been an entrepreneur he he end up doing you know doing really well in his career in much later life but just showed when he was young if he' have had the ability but working class boy left school at 50 no one would have backed him so I do think you know the Stages I've been through have been really interesting and challenging and great. I definitely prefer being rich to being poor, I would recommend that as a strategy for people. I definitely love being able to protect the people I care about from emergencies if terrible things happen and I and I and I've loved being able to be able to afford to build schools and and and public health projects that actually mean I feel that I would have hopefully left more than I took out when when my time's over.
SM: Fantastic. Well, it is a rare privilege to be sat across from some somebody who has made his money and you're quoted for saying the best thing to do is make a ton of money and give it away what did you mean by that quote?
SF: well I don't I said I that's maybe a slight that's already what I said but it was in the context of this too many people come to me and Pitch me businesses which are sort of about making money and sort of about saving the world and it really bothers me we have a phrase that I my old business partner in films like Z kamasa we used to say we hate it when people pictures tweeners and that was between here and between there and often people come to me and say this film's got to be made I go but it's so not commercial it's about this yes but the story has to be told because people will this will change people's Reflections and make people a better the world a better place and be like well look if no one sees the film it doesn't make the world a better place and no one's going to see this film. Likewise with businesses: if your business is a failure. it doesn't matter how good impact you are going to have. You will have no good impact, so it was in context of saying be in business to build a brilliant business that's brilliant for its customers and brilliant for it shareholders - that's it, full stop - don't go beyond that. Focus on making money. Now I'm not saying go out and for money do anything - don't go and do blood diamonds and don't go and do anything horrible that hurt people. If you've got a really beautiful business providing a great product or service for people amazing, make it fantastic, make lots of money for it and then when you've got that money step back and think about how do I want to use some of this or all of this or whatever you decide to make the world a better place. One of the things that I've been advising Founders on when they've made their money is how to think about using their skills and their money to make the world better. I do think the skills bit is important Bill Gates can change the world by the weight of his money and he's doing an amazing job and long may it continue but people like me who are not multi-billionaires I can't change it with a weight of my money so with some money and some time you can really start to work on some of the problems that are solvable.
SM: Yeah, that makes sense; amass the wealth so you've got that tool to make an impact. So I also I have to ask you, given that I have this opportunity. You give me and our listeners an aperture into a world that many of us don't are not privy to so just on your mentioning there of advising CEOs on the on the wealth front we just sticking with this for a second what are some of the most common discomforts problems and again you know it's nice to be rich like rich is better than being poor we know that -
SF: Poor's tough yeah and limiting and frightening. When your child's sick and you can't help them and you know those sort of things for sure
SM: So for the people who are on the other spectrum of that or they're about to enter it - playing the world's smallest violin here - but what are some of those discomforts fears problems like you hiding the money?
SF: Okay so that's easy; lots of people come to you in slightly manipulated ways which is about somehow getting money from you and that is fine I understand that but it needs to be done in a way that sets out some boundaries so that I don't feel guilty to say no and that you respect that no might be the right answer although not the answer you want uh I was you know coming from where I came from I was probably the only wealthy guy who a lots of people knew and therefore I was Open Season I remember getting letters from people I know seriously dislike me at school. My autism didn't help me that much at school didn't like me at all and then wrote to me as if we were best friends and can I help their their mother who needs this that and the other and I got a lot of that and it was really difficult. I got a lot of people saying I'm not going to ask anything for you I'm sure everyone else is asking things for you but could you give my son an hour it and I'd always say yes and then it took many I'm not exaggerating because you know it became a lot of hours and also one of the difficult things I found personally was as I told told you a few years ago I just I was diagnosed with having some form of autism and for a long time I would give lots of my time to try and really help people as best I could with my best advice now I can be wrong but my best advice and often it was please don't do that that's going to be a terrible waste of your time it's not going to work and people would get so angry and hurt with me and I'd be doing all this sort of trying to help people and people were getting pissed off with me and because I didn't know how to say it in the right words I couldn't hear and I now I understand that the way you say things is really important but I was young and I didn't know and people were going to come and ask me for advice and I certainly didn't get when I no one gave me any advice I wish they had but I didn't know anyone to ask and so it's quite difficult when you're you know you've been working so hard on your business just focus on doing the thing getting your head down then all a sudden everyone wants a piece of you and it's not that you think you're too big for it or any of that it's just it's really hard to navigate. And then of course there's people who care about who who asks you for loans and I've made lots of loans in my life and lots of loans have led to you know uncomfortable situations often when I make a loan now I say to myself I don't want this back if it comes back fantastic but I I don't want this to come between us because money is really can be really difficult for people so many people have such difficulties and then navigating the good people and the bad people who are you know trying it on it's so so complicated and doesn't happen to me anymore I'm older and wiser that people don't do that but this is when I'm in my 20s. On the positive side let's talk about the positive so I literally had this conversation with with two Founders who who've recently exited a business a really good exit and you know one question I got is this is how much I'm going to make how what can I afford like what kind of Life can I have now because they've been living a modest life on paper they were very wealthy but you can't spend paper so talking to people what they can afford and what you need and what you need to put aside and what you can afford to risk and what you can afford to give away some of that stuff I mean I'm not about doing this for everybody this is for people I care about and people I'm in business with. I made so many mistakes and I just feel like so many of the mistakes I made you could just avoid by actually asking but who do you normally ask these things on these CEOs who are email me now for fincial to add another job title to your it's okay Luke over there he'll be doing it on me on the CEOs from the precipice of an exit they're about to enter this whole different kind of wealth stage it's you know say KS up winning the lottery right especially you've got your lifestyle you live within your means and then suddenly you know quite suddenly you have this abrupt change in your life.
SM: Obviously only speaking from personally from your own experience was there a moment in your in your life in your career where you realized you had enough?
SF: So it's really interesting; I thought I had enough after my first exit which you didn't mention um I thought I had enough but again when you've never known anyone wealthy you don't know what wealth is I didn't realize I thought I had enough but no one told me there was another level of Club thing going on that you know nothing about because you've never been invited and all of a sudden the doors open to this other world of just craziness and I have to say what I've discovered now and obviously you know I've had many exits and you know I'm in a very fortunate position there's another league I didn't even know actually me and me and I'm very close friends to Richard Reed - he's another great guy self entrepreneur he was from harders my Moms from Blackport we kind of laugh about that and both our businesses similar times and we laughed that there was this other sort of destination where people doing crazy things like oh my God like so it doesn't matter how wealthy you are there's always another level. One thing about Rich and I which we both have in common we literally don't we feel so privileged and lucky I if I never make another penny you know shame because I'm still working so that would be things didn't work out but we've been very blessed we have more than enough I don't need to have $5 billion in the bank I don't need to have you know a fleet of Yachts I don't need to have 10 airplanes I don't need to have you know Mansions all over the place and you know I go I came here by bicycle. It's interesting cuz what's enough I mean that really depends what you need to feel that it's enough and I don't you know I've got some privileges I don't love flying so when I fly I fly nicely I get to travel on but I don't spend that much of money really I don't. There's nothing we really want you know we've got some nice houses and stuff like so it depends I think I have enough now someone else might say that's not enough because I've heard people say unless you're a billionaire these days you're not really a player well you know I'm not a billionaire.
SM: I feel like many have that itch to scratch and until you've had had that experience I feel like we sort of need to test it and keep raising that ceiling and going into that lead to be like is this enough is this enough.
SF: You've got be careful that's a drug right that's greed and greed is not good um you have to understand that if you don't ever have to work again you are a privileged VI on this planet who's not going to be sweating their balls off until they're in their 70s and that is such a privilege to have some time to do other things in your life uh to stay on the rat race just to make money is so dumb it's such a such a complete misunderstanding of the what's wonderful in life and the great things about life now if you're really good at business and you really enjoy it and you're doing it because you enjoy it and you do something positive with the money keep going, but if you're doing it out of just wanting more and more and competing I literally not competing with anybody if someone's got more money than me that's absolutely great. So I've got enough, I'm very, very happy and I don't understand these people who are try who are trying to compete with other people it's it's ends remember the very first time I got on a private jet someone was take in just was taking me to a boxing match in LA in Las Vegas we got off I'd never been on a private plane it was completely shocked to me that even people have private planes I didn't even know that was a thing literally it's another story for another time but when I got off he looked miserable and he and he told me that this guy he really really doesn't like had owns that plane and his plane was a Boeing 767 and that was like to me D be City no person could own a playing that bid but turns out he could and this this guy's playing I thought was stunning but to him it was like you know you like he was jealous I'm like it's so crazy like you got your own airplane what you want he's not big enough now I mean that's point it's endless don't chase money. Minimum money which is to pay your mortgage so you're safe and you feel comfortable and protect yourself after that just enjoy it - don't compete.
SM: On the airplane story, I've got a very tiny anecdote which is on a completely different scale so maybe a little bit more relatable for our listeners I was not at all you you've acknowledged the privilege and this is why you're here but I was extremely lucky to get a very random upgrade flying from London to Boston last year and we got to travel in business class and I'd never and it's kind of like your experience of going private Once my experience of going business class once I was like wow this is a whole other world and what was funny kind of my parallel here is as we were getting off the plane we realized that there was first class above us and we were like it's annoying isn't it there's another level and then of course the people in first class are wondering I've left my private jet at home and the people have got the private jet
SF: I've got so I which want to say right now cuz I am do care about the environment people obvious going to hes private jet person let me just say this right now uh I have a large family as I've told you and I certainly don't fly private jets very long distance I just want to say that before people start writing how horrible I am so but back to your airplane story which I think is very very interesting so I was flying to give a shout out to Emma Sinclair - she's another cool entrepreneur out there and she's she's running a really great business always complaining that you know it's all on paper and she doesn't have X money and I got on the plane in Singapore to London in and she was sat in first class next to her I was like what the hell you tell me like you've got no money she's like upgrade upgrade I was like I'm not sure I believe you but lots of people like you saying they've never done it I I don't know how but but what I will say is traveling is now really difficult it's crowded busy cramped seats you know there's nothing wrong with wanting to go with a bigger seat who doesn't so if that's why you're working to make sure you can that's totally legitimate, I respect that - but what I'm saying to you is don't play the drug of you always wanted business C that's what you wanted and now you want first CL and then you want first C you always want to go private then you want private bigger planes it it's just a drug it won't make you happy it's silly feeling that you've been lucky is a great feeling feeling privilege is a great feeling and I feel like if I never have more the universe has been super kind to me in that way otherwise it's challenged me but in this way and that's fine and I certainly don't we work to make myself richer just for that purpose but let's be honest we're talking about business you a lot of your listeners are founders and they're interested in business and that is the currency of business so if you're in a business slogging your guts out for 10 years and you've not got any money something's gone wrong.
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SM: So we mentioned you've got three exits under your belt. Apologies for missing the third one in the intro obviously research skills not quite not to scratch.
SF Can I just say I want to kind be blow my own trumpet here for a bit I've never paid in my entire life for any PR I've never had a PR there we go which has been a mistake I've suffered for it but I because then I miss it in your in there you go no but I know but because also yeah anyway I I don't get asked there are some things I get missed out on I think it's really unfair because I never shouted about it people don't recognize it.
SM: Well now you got a big microphone in front of you.
SF: I'm not going to doing that.
SF: I'm doing it for you so with those three different exits and obviously you know no need to go into detail just sort of broad brush Strokes before we move on to your philanthropy, your Venture firm as well at the moment which I'm sure listeners would be really interested to hear about. So there's this great saying that I love when it comes to exits which is:"businesses don't get sold; they get bought."
SF: I think that's generally true.
SM: That Rings true in your experience?
SF: Yeah I mean there are some people who are just great at spinning the story and setting stuff yeah that's not me I'm terrible at that stuff but if you've built a good business it nearly always will be throwing off cash and cash is is an asset people can value so there'll be a buyer for that. Or if it's a great Innovation that a another large business can see the power of that Innovation within their construct then they'll want to add buyers and add on to theirs and all the businesses get the most of the business that get bought are bought because there's something about them there's something flowing from that business that is has value to someone so yes I agree with your statement amazing can I just say though I don't think entrepreneurs should focus on where their exit is going to come from because that's starting to bother me now nearly we get 55 decks a week okay on average and I'd say 25 of them talk about exits - just stop it! If you build a great business eventually it's going to throw off dividends and you live off dividends, so don't worry about it you you'll get bought if you're a good business don't worry but too many people are telling me day one before they've even started who's going to buy them and at what valuation and I think it's silly you don't need to worry about that build a great business where your customers love you where the product or service you deliver is First Rate don't worry about the rest as long as you've got your unit economics right at the beginning you're going to make money and you will either get bought or live very happily off the dividends
SM: Interesting yeah that's great to share if there if there are any founders listening who are at the latest stages (I'm guessing these pitch decks are coming like quite early stage we are we are we're pre-seed and Seed pre-seed?)
SF: Exactly.
SM: So for those who are kind of later on and maybe nearing more different more kind of the light at the end of the the tunnel, what are the key lessons that you can share from your exit experiences across those three for Founders who are looking at that around the corner?
SF: Okay so the number one would be get a great chairman who's been around who's firstly independently wealthy and been around the block and who VC's private Equity the stock Market will listen to when they speak uh it's really important to think about what's right for the business in terms of timing and also to think about what's the right time in terms of for you to sell and is that time the same as for the business and the reason we touched this at the beginning the reason why it's important is you might have just had your first kid you're on £100,000 a year which is obviously a good salary but maybe when you've got $200 million worth of equity doesn't feel like enough you're under pressure to move to a larger house you haven't got any money to do it so you want liquidity totally human and understandable but the business might be just in the middle of a great growth spurt and not the right moment to sell and therefore that's when a great chairman will say this guy needs a secondary we need to get him some money so he stops worrying about his own circumstances. You'd be amazed how many Founders have the sort of personal Drive impacting their decision-making about the exit of their business and I think we want to be logical, focused but we don't let enough Founders do secondaries to get some money off the table so they're not pressured to make the wrong decision. As you said, exits normally find you! So I think getting your business in great health great shape n- you'll know the right time because the right buyers will appear - they'll come after you you won't be shiring for them.
SM: Is there anything you can speak to on the due diligence front as well?
SF: I've bought eight businesses in my career and there's a lot lot of work you have to do to buy a company to make sure what you think you're buying is what you're getting, so due diligence is a very legitimate process - but it's super painful. When I've sold my business it's always been to public companies, which makes it even more painful because they've got to literally dot every i cross every t - it's a really painful, slow process and it could be very demoralising for your team because they're like got teams of people over the office and remember this still might never happen, therefore you need to still keep everyone focused on the mission. It's also a really complicated time - again that's why I'm saying: have someone around who's been through this process before because there are some boundaries that need to be set. Sometimes it's hard for a founder to set those boundaries but someone who's been around the block and say "dude, I've done this before, more times than you have - back off." I do think that it's important to do that because some people do take can do things in a sort of very aggressive DD way and that's not healthy for a business.
SM: What's the longest exit process that you've seen?
SF: I made an offer for a public company that was extremely painful when it's a public company - just the the rules and regulations and the amount of oversight and the legal bills just just Insanity. You're talking maybe millions in fees - it's painful. I would say that a reasonable DD process should be done this stages people the you know the first thing is um I always think that the most commercial Secrets I that I don't want I will give you broad answers not specific answers to we're very far down the tracks it's very hard to really protect IP when you give it a show it like that but basically you know you you have commercial due diligence then you have a legal due diligence and accounting due diligence and I tried to do them in sections it's not like four months of endless stuff but if you're a big company and some of the founders you're talking to are no doubt running big companies it's months it's not it's not weeks yeah and you have to manage the interruption to your business and you have to think about how you're going to try and do I said do it in sections don't do it in one big thing cuz your company's overrun for that period
SM: Anyone who's been on this show who shared their exit story has invariably come up against some hairy moments in the final days and interestingly I've actually had the investors's perspective on that and from their side of the story it's kind of all part of the process but for the founder it's a nightmare; they're already stressed out, it's already so
anxiety-inducing - they just want it all to go smoothly. Is that something that's been a common observation from your perspective too?
SF: Absolutely, but I've also been both sides of that because I've see I've sold three businesses that I founded or co-founded and I have bought for myself eight businesses. I've also got my portfolio - many of those companies I've advised have gone on to be sold, so I've done this a lot of times. It is so stressful, but the thing to explain it is quite simple: nearly always the person buying the business, it's not their entire livelihood - he's doing five other things; you're one transaction. The person selling it, it's their entire world. Another thing on this subject is selling is really hard because the anxiety of "will it get done, will it get done" -it drags on and you feel so nervous - not because you're not selling a great business that you know will get bought but because you start to spend the money you haven't got. You want a holiday and all these things and it's just you're living on you know tenterhooks. Also last year we were buying a company in our business and during due diligence something came up. We were gutted because we really wanted to buy this company but they'd not been quite as clear about some things they could have been. We'd spent a fortune on fees and people and stuff and very excited about it so the buyer also has that kind of you know tenterhooks but obviously you know it's not the buyer's entire livelihood and when you sell a business as I mentioned it's like selling your baby - it really is so hard to let go. It's not that the stress doesn't end the minute you sign you sign you feel euphoric for about a day and then yo sort of the next day you don't know what to quite do with yourself.
SM: Yeah, I had Nick Telson-Sillett on the show as well who sold DesignMyNight and he had that same story. He was like euphoric - I mean he has the craziest exit day in history - listen to that episode for that crazy story, but after the last minute nightmare was resolved they went out and partied and the next day he treated himself to a lie-in! But like now what do I do?
SF: You're used to not sleeping. It is quite tough because a lot of your identity - with my first business, my identity was so wrapped up in that business that I didn't know really who I was after.
SM: Exactly, it's totally understandable. So, getting to sit down with someone like you who's seen this from all different sides of the table selling acquiring advising so let's segue onto Red Bus Ventures. First I'm just really curious why Red Bus?
SF: So it's an accident - I didn't love the name although now I'm quite used to it but my very first thing I business I was creating had a technology element to it which is very important we were the first people arguably in the world to stream something over the internet in the 90s. It sounds stupid now but then it was really ahead of it time. The guy who helped us do it was a guy called Cliff Stanford who was a total Visionary - he created Demon internet which is the first internet provider in the UK - if you wanted to be on the internet in the 90s you went through demon. Anyway, so Cliff invested in a little bit with me, helped me a lot, and he said the thing is you got to call your name Red Bus cuz he created a venture Capital firm called Red Bus and the idea was anyone he invested in had to take his name. (He was trying to copy Virgin - that was his idea). So I had no choice. I've had to go around buying to get the name back. He was a brilliant entrepreneur but his Investments didn't quite work out and the dot com boom finished him. I ended up having to buy his business. He was involved in a sex scandal not a terrible one but like you know prostitutes and drugs - no one died. I remember my mom saying "is that you?" "No, it's nothing to do to me - it's not me!" So as a consequence we ended up buying the Red Bus Ventures business from him and once you bought it and all the IP you think okay might as well use it.
SM: So it was never your idea?
SF: Not my idea at all. He created the whole brand thing. It's not red bus is in a red English red bus it's Redbus one word - he was really into branding stuff. But here's the thing I just wanted to say is I never meant to have a venture capital business. When I went off to do the philanthropy which is you know just after the love film exit when I to do the philanthropy I was gone for you know I thought five years end up being more than 10 years mostly in Cambodia Nepal La where we operate and um it what was so strange was I went from being asked to do lots of nice things like this and lots of Articles and people asked me to do certain interesting things to getting no phone calls from anybody and I felt quite I went from being feeling super lucky and relevant and important to feeling very unimportant un-relevant and you know just sort of out of it. So the the way I thought I would still stay involved with business (because I love business - I love Founders I love watching it all happen) I said you know what, I was always being asked for advice I'd say yeah I'll give you I'll do that advice and I'll invest a little bit to help you on your way I never meant to make money I thought I would lose money! I literally did it, if I'm honest, for ego reasons to feel relevant. If you invest in five or six companies a year for 15 years and then it stepped up to 10 and 12 a year and then then I had to hire my first person to help me with that and then the second person the third person the fifth person the eighth person by time you've got a business! Now I've always thought I'm The Reluctant venture capitalist because I don't I feel like I'm an operator I feel like I'm somebody who runs businesses. Being a venture capitalist is very tricky because especially if you an operator like me you want to sometimes you do know better sometimes you don't you want to get stuck in and it's very hard not to overstep the mark but also not to give too much time to something you only own 3% of because if you did - we got a lot of companies - I'd have no time to myself.
SM: Right, so now that you are a venture capitalist reluctantly / accidentally, what's your thesis? What is it that you look for?
SF: Oh, it's simple: make money. I know it sounds trite but it's simple. People forget that if you're in business to make money and you've got a good a good idea for how to do that obviously can't be certain and might not work out that's fine but you're willing to work super hard and you've got that X Factor about you then you know we're probably a good home in your pre-seed and Seed round. What we're not is someone who says we take huge blue sky bets - for example on very complex Precision Engineering or space or some of the most amazing biotech stuff I've seen that I love I don't know I've got no idea whether it's good or bad we we're a business that we're I would say we're mostly commercial, so our theme is businesses we can understand commercially where we think we can add something and our networks can add something. I've run lots of different kind of businesses - from rental car businesses to film distribution businesses to streaming businesses online to advertising businesses - we've got lots of advice we can give you and lots of experience different sectors, but if we don't understand what you do we're probably not the right investor for you and there are some great FS out firms out there who really invest in very clever stuff which I'm definitely not clever enough to understand but I'm not bad at knowing if something's commercial or not.
SM: Yeah, makes sense - so you've got a list of broad sectors based on your experience where you can genuinely add value - and in terms of ticket typical cheque size?
SF: It really ranges; the biggest we've ever had in one company is around probably a million dollars, and the minimum size check we want to write if you know preds really complicated sometimes only raising 300 400 500,000 in fact that exit I mentioned to you the two guys I'm advising their first round was only I think 300,000 so you can't have that much of of it but we're happy to do anywhere from sort of 100 to 250 300 in the first ticket. What comes next depends really on what we see and we're also sometimes recently we got crammed down and we were 50 something so I mean we're flexible but again if someone's got a really hot round I'm happy just to be in it and then see how it develops. One of the things people underestimate is the importance of watching someone in the first year. We don't really have much involvement with the company; we sit back, we watch. Now, if there's something specific we can help them with, we will of course - but it's important to watch because there's no way of knowing. Just like with an interview, no way of knowing someone's good for a job or not. Really you need to watch them, see how they handle certain situations, and decide if you think they have got the things it takes. Sometimes I think they have but the business isn't I don't think the models work out where we thought but then you might think well but they're smart enough to figure out another way around it and so you know that's the sort of things we're thinking about and then obviously what tickets follow really depend on what they do next. Sometimes we don't follow on because we just don't think it's going the way we thought it would go. It doesn't mean it won't be a big success and sometimes we follow on because we really get what they're doing and think we can add something and then we'll follow on with bigger cheques.
SM: And what are the top one to three mistakes that you see fundraising Founders make if they're approaching you? Things to avoid?
SF: I'm terrible to come to if you don't know your numbers. I have a sort of commercial filter even if I don't know your space my ballpark guess is on a lot of things quite in the zone I'm very precise on on stuff. A lot of people say to me "wow this is the most taxing meeting we've done" in terms of questions and I don't know if that's a compliment or a criticism but I for me I feel like it's good. I say to my team keep that up because a lot of time if we're doing a great job if we don't invest we'll highlight for them in the questions that they couldn't ask answer very well what might be wrong with the way they're thinking about things and hopefully that's not oh get a better answer next time that's think about that do we have a problem there so definitely don't come if you're not prepared don't come to me tell me about your exit about how you're going to make me 100x I don't care it's nonsense you can't know I almost went bus so many times my first business I know you can't know it's just not it's just unknowable uh just let's just stick with those two because I think there's lots of nonsense written about what are bad things the other day someone was telling me you've got to be a team player to be a great entrepreneur or great it's just so much out there about the mythology of being a great entrepreneur I know them when I see them in general I can't write you a set of rules because it's just sure because it's just not like that
SM: I get that, it's heuristics right? It's all the all the data points that you've amassed over your experience that sometimes doesn't fit into an investment thesis.
SF: But you know it when you see it some some person can be very boarish who you wouldn't actually like but they've got such gravitas around them and such passion for their mission that actually whereas most people saying those exact words would be considered rude and horrible and you' never work for but when they say it you go oh he's amazing what a Visionary so I'm just saying you can't make rules so you know if you've got that X Factor in your character that means you can get away with that and actually people find that inspiring great but you might not so that's you know what I'm saying you can't make rules yeah I think lots too many people are ping on what makes a great business leader who've never been a business leader have done it once and think that's the only way to do it there's loads of ways to do it I made loads of mistakes certainly and I think I'm quite good at it but I've also learned a lot from people and watch things and and after a while you can make some certain patterns that you recognise but not rules they're patterns and if you start saying they got to be ABC you got problems.
SM: Yeah, that makes complete sense. Alright well let's touch on some of the impact projects, some of the philanthropy that you've worked on. I mentioned in the intro you see entrepreneurialism as a force for change. I would just like you to expand on that.
SF: Happily. So the first thing is it without doubt entrepreneurialism helped me lift myself out of where I was coming from so that's just me and then of course when you lift yourself out if you feel kind about the area you came from then you help out the local school there that helps out the kids behind you and if you've made some really good money then you can say okay is there a problem I'd like to tackle you know that so entrepreneurs entrepreneurism empowers the individual but also in the developing world often and this really applies to women you see people in impossible situations with in cultures which don't really allow women much Freedom. A woman who starts a little side business they're normally very very good. Certainly in developing Asia where I work the the men are largely quite useless and the women are hardworking. They don't drink don't gamble focus on
looking after their family and a lot of these women have now feel empowered to start little businesses and do things and it's amazing but that wasn't acceptable 20 years ago now that that i so I think that's the answer to why entrepreneurism can can really change your life and and community's life and the country's life and of course if we all start starting businesses then you changed the whole country and I've spoken lots of times to governments in Asia about how small poor countries who who I think have amazing youth like they so their population is so young they're all amazing at maths they've just never been told to go and be in they've been told don't be individuals but of course you need to be an individual to to do your own business and I think you could unleash this amazing power these countries just think if L is a country I absolutely love which is totally landlocked and has so many harsh realities that has to face but just think if we empowered all their brilliant children - and they really are brilliant - I can tell you that from the schools we run to go and do their own thing that could really over over generation change the economic situation of that country. I do think about it in in that way so yeah entrepreneurism is is a Way Forward.
SM: Yeah absolutely, love that - especially in those impoverished areas it's genuinely empowering (another buzzword that gets thrown around but it I think it really is). Are there any other philanthropic projects or more kind of impactful government related projects that you're particularly proud of that you'd like to share on this on this show?
SF: Well I'll start with my biggest failure which was United for change - the political thing. I'm a passionate believer that Britain is a wonderful beautiful amazing tolerant Society it's what it was an amazing industrial leader in the world but I think we've really lost our way. I think that politicians of all sides are failing us. I think they will continue to fail us because our system pushes us to have politicians where it's their career rather than acts of service. United for change was all about saying to especially leaders in the public services to step up to serve as a politician for five years for 10 years as an act of service because we need their experience and their expertise and not have continually people Ministers of education and Ministers of Health who've never worked in a hospital worked in a school. I'll tell you something about L I love the secretary the Secretary of State for Education this one was a professor actually Professor to one of my team in Laos the his predecessor was also a woman Adam sendan she was a professor before she was the Secretary of State for Education the Dr Daron the head of the Education civil service teacher I'm telling you like they're really professionals, they know what they're talking about. We have people who've literally never spent a day in their life saying about running education and day when they dropped in they've got to know how to run schools what nonsense and they all want to change something to make their Mark which I understand I'm not criticizing them - there are some great politicians out there but the system just leads to economic paralysis and decline.
SM: Is that what ultimately led to the demise?
SF: That's correct; United for Change was killed by Brexit because we were considered to be anti-Brexit. I was anti-Brexit but our biggest single donor who's a very well-known person I will not name their name he was a brexiteer we were not about brexit. We were saying we're about better politics and whether you're for brexit or not for brexit we have to accept that the politicians representing us often pretty average often motivated by career which I understand because it is their livelihood too. I don't want to be voting for someone about their career. I want someone about passion and commitment who stood up to serve our country to achieve a thing and then we'll move back into life not be your ambition to be prime minister yeah I want to hear about what you want to do when you're prime minister I'm going to quote you know if you think about Margaret thatcher and Tony Blair they both had things they really wanted to do and you know there are there are others I'm being being unfair but at least whether you like them or not, they had a mission and they were there to achieve that mission. I think that's so important. I think we've we've lost that.
SM: Would you go at it again?
SF: No, so many bad things happen to me personally. Crazy things like really nasty things especially things you put through my letter box I'm not going to say why religion but even though I don't believe in God there was lots of that kind of stuff anti- brexiters and again you know some of them are some of our biggest owners were anti brexiters but some of them really took it out of me threats and stuff that wasn't too nice yeah it was not good.
SM: I'm really sorry to hear that and not only you know empathizing with you it's horrible to hear that an individual goes through that but also on a wider scale that's incredibly disheartening and I guess this is where we come back to entrepreneurialism as the means to impact change because it's not happening politically.
SF It's not happening politically but was we have to remember that was very toxic times around Brexit it's a real shame to see the real division it caused.
SM: Do you think times are any better now?
SF: Sadly, no. I think our country economically is getting poorer I think therefore things get harder and people are more disunited and more confused than ever. I'm very sad about the state of the world at first I mean it's really disheartening.
SM: Well, continuing on this Doom and Gloom negative not my traditional closing question is one particular tragedy that's taught you an unforgettable lesson?
SF: I can't say that any specific tragedy that's befallen me and that's spurred me on but I can tell you a tragedy that I've seen in other people that has spurred me on and that is the level of poverty that still exists today in our world. One of the things I'm doing a lot of is trying to persuade entrepreneurs who've made money to do something themselves I'm not talking about just giving money come and see the problems and see what you think you can solve because entrepreneurs are great at finding the networks and the solutions and not taking note for an answer and getting over roadblocks. There are children today in our schools who in Nepal La Cambodia who don't have access to enough food. We're co-founders of the only modern paediatric Hospital in Laos who turn up having driven hundreds of miles to get there over what can be a day day and a half have no access to real Healthcare now it's the 21st century we're a very rich planet with lots of resources how we are allocating the resources between the developing world and the developed world is absolutely a shame it it's it feels to me like a war crime if there's a martian looking down on Earth they'll be saying how can we all accept this I'm not saying everyone should be given lots of free handouts and we should be all make obviously there's limited resources but it is still crazy in the 21st century some children don't have access to clean water don't have access to any kind of education or any kind of healthcare that has spurred me on I hope that the next generation of entrepreneurs and so many much better entrepreneurs than me coming up now that when they've sold their business for 20 160 billion or whatever it is that they say the next five years of their life is about solving a problem I will happily take them to any other country they want to go to and help them navigate the country and pick the problem they want to solve but I do believe entrepreneurs can solve anything and I wish we'd get more entrepreneurs trying to solve some of the tragedies happening today in the developing world.
SM: Simon, thank you so much pleasure to sit down with you - really appreciate it. And thank you so much for listening in really hope that you've enjoyed this episode. Make sure you're subscribed - episodes are weekly and hopefully see you this time next week! Thanks a lot.
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