Paul Kemp: Welcome to another episode of The App Guy Podcast. I am your host, it's Paul Kemp. This is the show where we go around the world and introduce you to some fascinating founders and entrepreneurs, so that we can learn from them and take their lessons into our own businesses and our own journeys. If you're a solopreneur and entrepreneur, an indie developer, an app developer working on side projects - all of these things, it's highly relevant to you.
Listen and stay tuned, because this is going to be a great lesson, particularly focusing on fundraising. It's a really big topic. In fact, I'm going through some struggles with fundraising with Velapp, which is an app I'm partly involved with, so I'm really always fascinated to learn how others are doing it.
Let me introduce to you then our guest today. His name is Adam Barker, and he is the CEO of MagnaPass. He has already gone through a pre-seed angel round of 150k, and he's also raising 200k pounds. We're going to talk about that and the process.
Adam, welcome to The App Guy Podcast.
Adam Barker: Hi, Paul. Thanks for having. Just a quick one - we're raising 300k.
Paul Kemp: Yes, even better.
Adam Barker: Even better, going even bigger.
Paul Kemp: Well, let's go straight into the fundraising round, because honestly, I get these questions so often, like "How do you raise money?" I'd love to take you back to the start... Take us back to the beginning where you had no money, you had an idea. How did you get your first money in to start the company?
Adam Barker: Like you said, we had no money, we had pretty much nothing. We had a really basic prototype and a few users. We tried to heavily beta-test as much as we can, but as you know, money talks. We couldn't go much further without having to actually raise any funds and get a fully fleshed product out and start making some real money from there.
It was about 18 months ago that we started having some sort of basic prototype and getting some users to actually engage with us. And having no money at the time, I had to be back and forth, staying with my parents, back in London and driving up to Manchester where we're based, pretty much every week. I slept in the car a few times... It was quite a journey.
Paul Kemp: Adam, you're going to get the best interview here, because we have had an entrepreneur who slept in his office, but I don't think I've ever had anyone sleeping in the car before.
Adam Barker: Yes, I did a pitch once (January last year), and it was in the middle of nowhere, it was some hotel in the middle of Lancashire, and I drove up from London the night before, thinking "Okay, I'll try and get a bed in this hotel, if they've got any room." I wonder why I didn't check to see if they had any availability. I drive all the way out there - it was in the middle of nowhere, miles away from anything, and I got to the hotel and realized that they didn't have any spaces.
I was like, "Okay, the car it is." It was just starting to snow, and it was heartily freezing. I was in my big coat and joggers in my car, just shivering all night. The pitch was in the morning, and I had to get changed in the car, I probably smelled awful... And I remember going out of the car and I slipped on some ice, and I felt like I nearly dislocated my shoulder, it was really bad. And you know how you get that really bad, sick feeling after you've hurt yourself...
I had to go in and do this pitch, basically looking really ghostly faint, which was an experience. But from that we raised the money, so it must have done something.
Paul Kemp: That's a fascinating story. So that was the first bit where you raised some funding?
Adam Barker: We raised from an angel syndicate a little bit before that. We obviously went around the friends, family route to begin with and see who had the connections, see where we can connect some dots. This was the time when I was traveling up and down, trying to network as much as possible. The advice was "Get some friends and family members involved." Not necessarily to invest, but they would have the network, they'd have the connections, so use your connections really wisely, and use their networks to the best of your ability, because there are people you might not even think...
It was one of our friend's uncle... He did really well for himself, he started and sold quite a few businesses. So we just used our network. He pulled together a few other angels as well to get the ball rolling, and that was the first 50k. It was essentially just friends and family, just utilizing our network. We used that to the best of our advantage.
Paul Kemp: Okay, let's have a pause there, because this is really fascinating, and I often think we forget that if you have a great idea and you start talking about that idea, then people sometimes don't call themselves angel investors, but of course we do have a lot of people in our network that have money and are always looking for potential investments. So what you're saying is the friend or the family wasn't necessarily a dedicated angel investor, but liked the idea and got some money together for the initial seed.
Adam Barker: Absolutely, yes. Obviously, at the very early stage it's difficult to gain enough traction, so the more traction you can get, the better. Whether this is pre-sign-ups - or people who sign up to your landing page or your newsletter... Even the most basic of things. We got a few pre-sign-ups.
We had a horrible prototype, I'm pretty ashamed to show that in the live day ever again actually, to be honest. It was really basic. I think he just really liked the vision and the plan that we had going forward to really execute what we anticipated to do.
Obviously, as you may know, things don't go the way it's planned a lot of the time, but I think he saw that me and the co-founder (Shawn) were really driven to actually make it succeed, make it a success.
I think showing a lot of passion in what you do, and showing that you have some expertise in your field, and using the networks to the best of your ability. They pulled together 10k each. Possibly to them it's not a lot of money. And you've obviously got the insurance of the SEIS & EIS in the U.K. as well, which really helps people that may not be investors, like you say; they might not be angel investors as their job, it's just a one-off thing. We used that to our advantage as well, and really started to get the ball rolling from there.
Paul Kemp: Yes. Do you mind if we go into this, because I do feel like this is a valuable lesson. We often neglect -- we've had past episode where we've been talking about those large sums of money, but I'm guessing this is incredibly important, because first of all it gives you the credibility of the fact that it's a legitimate idea, with the backing of a group of people.
Adam Barker: Yes.
Paul Kemp: What did you mention there about the security and insurance policies for the investments?
Adam Barker: In the U.K. you have the SEIS & EIS - it's like a tax rebate you get for investing in really early stage companies. SEIS (we've got both SEIS and EIS insurance) is the Seed Enterprise Investment Scheme. When I tell American people about a scheme, they automatically think it's dodgy... It's not. It's essentially a 50% tax rebate on an early stage investment, so in a company that's not been around for more than two years.
Paul Kemp: Okay. That's quite straightforward to set up?
Adam Barker: Really easy, yes. You have to send over an executive summary, and essentially they can see that the company has only been set up for so long. You have just an executive summary to send across, and they normally get it assured within a month; I know the government takes so long to things sometimes, but about a month is pretty good for them, I suppose.
Paul Kemp: Right. And then what a lot of people don't realize is that then the funds hit the bank account, and it's pretty straightforward then after that. I guess you have the free will to do what you like with the funds.
Adam Barker: I think you have a responsibility to your investors. They could be your uncle, they could be your friend, your father or whatever, but you still have that responsibility. You can't just go out and buy a brand new car or something with it, because you're just wasting everyone's time. The investor could probably sue you if you do that, as well, if you spend the money in an unwise manner... If it's stated in the terms sheet, for example.
We have to spend it really frugally. We obviously didn't pay ourselves until we were making significant traction, or if really badly needed it, for example. I must explain as well that me and Shaw pretty much just came out of uni, pretty much. We had previous experience in work - mine was more sales-focused, Shawn was more design. We didn't have any money ourselves... Before friends and family, it's "Have you got any cash yourself to at least allow you to survive, to gain some demonstrable traction?" Like I say, you have a responsibility to your investor to make sure that they get a return. The SEIS & EIS goes so far, but you need to put the money to work, that's what it's there for, whether it's you need to start developing your app, or start developing a website, or get some basic licenses or services that would enable you to grow your sales. It could be using SalesForce or MailChimp - basic things like that, that allows you to put your money to work. But never waste money.
Paul Kemp: Let's try to answer the first question, which is often "Is it right to raise or not?" We've had a lot of episodes on this series of podcasts, and there's two schools of thought. One is that it's better to bootstrap in the early stages, and raising money is deferring your ability to ask customers for money. But then it obviously helps if you do have funds, because then you could do a lot more with them.
Do you have any views on the two schools of thought? Bootstrapping or raising?
Adam Barker: It does depend on the type of business, I think. If your product is inherently a revenue-making product that instantly makes revenue, then the best money is customer's money, and you can bootstrap as much as possible. As an entrepreneur, the day-to-day is you have to just survive, whether that means, like you said, the previous guy - slept in his office, slept in the car, whatever... You have to just survive, and use the customer's money to grow. If it's a revenue-generating product straight from the off, that's the best way to go.
That could be more applicable to bigger SaaS products, and maybe companies like ours, that would take transaction fees and has that inherent revenue-making ability in the product.
Then you see other products that are depending on mass. For example Snapchat - it's not an ideal business I would invest in personally, but it's reliant on mass, so you need to raise money in order to grow it and scale it. All you have to show is that the user is adopting the product, and that you're gaining users. That's kind of your money, that's what you live and die by - the user numbers.
Like I said, it depends on the product. I'd obviously prefer to go in some more inherently revenue-making products, but it doesn't work like that... Sales do tend to be quite slow, so there will be a time where you need to have some financing in order to make a big enough company for you to take it to the next level, unless you've got stacks of cash anyway.
Paul Kemp: Adam, I'm really interested in what strings come with the funds. For example, are there specific guidelines of what you can and cannot spend the money on, and how is the reporting? I'm guessing there's regular reporting back on the success, and managing expectations as well, I should think.
Adam Barker: Yes, absolutely. As an entrepreneur, you have to be the optimistic one. You can put whatever financial projections out there to an investor - they have to be relatively sensible, of course - but you still have to be a bit optimistic as to what you want to achieve... Because you're the entrepreneur, you've got to be optimistic about your business.
I think there aren't necessarily specific guidelines, it's more of like an unwritten rule - you have to spend that investment money as wisely and as frugally as possible. Like you said, there's frequent reporting. I meet one of your key investors pretty much once a week. It depends on how active or passive the investor is, as well. It's on their back, as well; they're taking the risk to invest in your company.
I'm not saying that our investors that meets us every week is on our backs, nailing down on what we do and do not spend money on, but... Yes, he meets us every week, we do frequent financial reports and use a number of reports etc. It comes back to that responsibility you have to your investors to say, "Look, we're actually putting this money to work", which I think is very key for investor relations.
In that respect, going forward, even if you don't meet your targets, which for an early stage startup sometimes you will miss targets... You won't have 100% success rate on a quarterly target, for example, so just showing that you have respect for that investor... They could come back, and if you want to raise a follow-on round, they could be happy to chipping some money in, price around for you. So it's a long-term gain with them, it's not just "Get the money now. Spend it." It's a long-term relationship we have with them, and you have to keep the trust going with them to make the best use of that relationship.
Paul Kemp: Adam, let's move forward then to the next phase of your journey, which is the angel syndicate I think you mentioned. To all of us who don't know what that is - what is an angel syndicate?
Adam Barker: A syndicate is essentially just a group of investors. You have a lead, which was our friend's uncle, and they essentially brought together their friends or the people that they invest into businesses with, in a group, to essentially diversify the risk.
An angel, for example our friend's uncle, wasn't going to put in the full amount, but he would rope in whoever he knew that either had money or was a bit keen on investing in new things, and spread the risk for an investor that way.
Paul Kemp: Great. And after the syndicate, what was the next phase in your journey?
Adam Barker: Our pre-seed round was 150k, so we got about a third of the way. Mainly up in Manchester, we tried to network as much as possible. Obviously, the more of a better proposition you have for an investor, the easier it is. It's quite difficult whilst you're raising, because raising financing is essentially a full-time job, I suppose. It's difficult and time-consuming.
You have to make the case for an investor that it's not just an idea, we're trying to put the money that we've got to work; we're getting this much traction, this many users, this much money coming through the door. That essentially makes it easier for you to get an investor on board.
It was trying to network and trying to go to as many investor-related events and networking opportunities as possible. There are quite a lot, it's definitely a growing thing. Unfortunately for angel investors, they like to hide away in the Cheshire suburbs, or wherever they are.
Again, we try to use as many programs as possible. There was a really good -- they're called Northwest Business Angels and they essentially run pitches. There's quite a lot of these "paid to pitch" schemes out there at the moment, but Northwest Business Angels was a free version of it, and they allowed us to practice pitch, hone our pitch and our deck, and get in front of a really good pool of investors.
We managed to raise money from that, so that was really successful. But there are still things out there where you have to pay to go into this program. I wouldn't advise doing that, because first of all you're paying a lot of money to just go on a program to pitch in front of people. There are other ways of doing it.
We just try to go out to as many networking events as possible, and stumbled across the Northwest Business Angels and managed to get into one of their pitching days, and strike lucky from there.
Paul Kemp: It's reminding me of a past episode with Josiah Humphrey of Appster. His company now is 300-400 people, strong. But he was saying that many of the app entrepreneurs - some of them get very lucky. One even had funding on his first phone call. But the typical story is it takes months if not years of continuous pitching and rejection, and you just have to have that passion, as you say, to keep going.
Adam Barker: You have to have the passion. I think you have to treat as kind of like a long-term sale cycle. Luckily, I've had some business developments, I was experienced; you treat it as you're selling an investment to someone, so you have to get your credentials out there, you have to show your passion and show that you really believe that you can do it, because as an entrepreneur you know you can do it. You understand the risk, but you believe in your product, you believe in what your vision is.
And yes, treat it as a long-term sales cycle. You made the initial contact, you have a deck or a one-pager - it has to act as a taster. You can't just show your cards, show the deck straight away. You have to rope them into a conversation and initiate some sort of call or meeting with them, because you can sell your business better than what a pitch deck can sell your business.
Previously we had a deck which was about 15 slides long. It had literally all the details in the business, and it just didn't work because an investor looks at it and they make assumptions based on the information they give you, and don't come back with any follow-up questions. We then developed a taster, which was really basic. It's essentially, "Okay, what's the problem? What's the product? What have we done so far? Look at the projects, look at our vision", and nothing else. Nothing about what's our go to market strategy, how do we actually accomplish these things... It's just the kind of bare basics, and just a taster of what we've done and what's to come.
An investor then comes back with questions, and then you can initiate a conversation and really sell the investment.
Paul Kemp: Yes. What I've learned before is if you give a third of the information as a teaser, two-thirds of it tend to come out in the Q&A, and I think a lot of people do learn in the Q&A in a meeting or in a pitch or a formal presentation. So that's really valuable advice.
What else did you learn in the pitching process, in terms of tips that we can give for others that are in the same boat as you are?
Adam Barker: As in tips for people that are pitching, I suppose know your business inside out, as you probably will do, and just be super confident. I can't really say anything -- I think at a very early stage in the company, the investor buys into the team, or buys into the entrepreneur. If you show as much passion as possible, there might be some gaps... Don't be afraid that there are gaps, because it is early stage; you won't have all the answers to all the questions, but if you show your passion, the investor buys into you, not necessarily what the product is at the moment, for example.
Just show crazy passion, network as much as possible, utilize your networks... You might have a LinkedIn contact that knows somebody that knows somebody. Utilize as many networks as possible, go to as many networking opportunities that there are - there's tons of them going on - and don't be afraid to pick up the phone and make a call. You have to treat it like a sales process. Be the entrepreneur, and...
Paul Kemp: ...keep going.
Adam Barker: Kick some ass, yes.
Paul Kemp: Adam, in the last few minutes we have with you on this podcast, I would love to know... You've just recently come out of university, and there's a career out there for you, there's a regular salary... It could have been quite easy to take the corporate route, 9-to-5 and have a lot easier life. You could have even stayed in the hotel, I'm sure, rather than sleeping in the car. What made you want to go down this really hard route of being an entrepreneur and getting involved in this whole world?
Adam Barker: It's a pretty funny story.
Paul Kemp: Go on, we love funny stories.
Adam Barker: Cool. So I did some work before uni, during uni and a little bit after uni, as well. I understand what the corporate environment is like and I understand what the 9-to-5 feels like... Especially in uni - you don't really do anything in uni, so I had to go out and work and do something, so I started a couple projects and worked in retail, things like that whilst I was in uni. I did a placement year and I understand what the corporate life's like in it. I suppose something triggered during my year out where -- this was in between university years, so essentially my third year of uni, where I realized that I wasn't really passionate about it. I kind of waited for the day to finish every day whilst I was there.
I learned a lot from it, I'm not saying you don't learn a lot from it, but something told me that I needed to do something a bit different and try something on my own and see where it takes me. Obviously, being young at the time - well, I'm young now, I suppose - I didn't have that many responsibilities, it's not like I've got a wife, kids and a mortgage or anything, so I can really go out and, like you say, sleep in the car.
Of course, at the end of uni, it was about June/July 2015, it kind of hit me that my tenancy ran out at my flat in Manchester, and I was like "Crap, I have to move back home, basically, within the space of a week." It just kind of hit me...
Paul Kemp: Well, that was one easy phone call, because you just phoned your mom.
Adam Barker: Yes, I had to go back to my parents and stay in the spare room, which... Obviously, when you go to university, you kind of get that independence and you want to keep that independence. So it's not that I don't know my parent's house, I was slightly dreading it, but... I came to the realization, "Okay, I have to go back home." I went back to my parents, and my parents are saying, "Look, if you're going to stay here, you're going to have to kind of give us some rent money, and get a job etc." I was like, "Okay, fair enough. That's absolutely fine, but I'm kind of working on this little project here... I think it can go really far." They basically said, "Is it making any money yet?" I was like, "No, but it will... I promise." [laughter]
They weren't having any of it, and just kept saying "Go and get a job." I mean, I've got a decent degree from Manchester uni, so I went on and applied to those places. It was mainly more sales/finance focused, that's what my background is... So I applied to a lot of investment banking, investment management type things, financial advisory, stuff like that. I ended up getting in the space of about a month or so about seven job offers, and ended up taking one of them, whilst I was still working on the MagnaPass project.
I remember going in at first saying, "Okay, I'll give it a few weeks and see how it goes." I ended up going in on the second and the MD called me into his office, saying, "Adam, you're doing really great. You seem to be fitting in really well, picking up things really fast." I was like, "Yeah, this really isn't for me..." and I just kind of left on the second day. That was when it really hit me... I was like, "Crap, I'm actually really in this now... I'm going to have to really dedicate all my life to it, and all my guns onto it", I suppose...
Paul Kemp: You know what's really funny about your story, Adam? I'm actually now remembering various points in my life where I think I quite somewhere after a day, and somewhere after three days; somewhere I think I was fired after two weeks on another job, living in Sydney... So all these different, various things... It's actually quite hard to go and resign after even just a day.
Adam Barker: Yes, I think it's easier after a day, to be honest, because you don't really develop too much of a relationship with the things that you're working in.
Paul Kemp: For all these people that are listening - if you've been in a job for several years, for instance, like I have when I left my big job, it's really hard.
Adam Barker: Yes, it's not an easy decision to make. I'm not saying you can't start a business whilst working, either. I think you can still pick up some valuable skills whilst working, but I got a sense literally on the first day where it's just like, "This isn't for me. I can't imagine myself being here for 2, 3, 4 years, or spending the majority of my life in this space." My gut told me that I just had to go at it alone... Just go at it, I suppose.
During the process, those next six months - I took on some really funny jobs, but just to kind of pay my way, I suppose, while I was working on the project. But yes, it's not easy, especially for people being in a business for a long time, obviously developing relationships with the business with the people within it.
Paul Kemp: Adam, I realize we're getting to the end and we haven't even spoken about MagnaPass. Perhaps in the last few minutes - this is the challenge to you... Are you able to share with us your pitch that you would typically give in an elevator? Give us a sense of what you're doing, and then how best we can help you in your journey.
Adam Barker: Okay, so MagnaPass is a platform that allows you to discover and get access to independent fitness-based experiences and events and activities that are going on near you. We also double up as a customer acquisition and retention tool for independent studios and freelancers. We don't team up with any chain gyms or anything like that, we're more about the smaller studios, the wider range of activities, and the more experience-led fitness journey.
We've got just under 1,000 loyal users now, with 100 partners just in greater Manchester, obviously doing pretty well revenue generating, and picking up... Our month-by-month growth is about 12% now, and we're picking up a lot of commercial agreements with a lot of the companies to provide them with their wellness packages.
It's quite diverse, and we essentially allow these independent studios that could be doing things like rock climbing, yoga, water sports, circuits, whatever you can imagine in the fitness realm, allow them to diversify their business model, manage their business a lot better, market to new users, and not just be reliant on drop-ins, which they currently are. It allows them to build a more stable business straight from the off.
Paul Kemp: So really then, for any managers who are in corporations who are looking for wellness packages for their employees - these are the types of people that could perhaps be interested in MagnaPass.
Adam Barker: Absolutely, yes. We deliver packages for whole sites. We essentially build a bespoke pool, arrange all the courses and sessions and experiences etc. for the employees, and we save companies 71% on average, as opposed to going through a traditional route of harrowing wellness managers, paying market rates for things and taking a lot of time to actually build these wellness packages... We essentially do it all for them through technology, through a bespoke portal with us, specifically for their business.
Paul Kemp: Yes, it sounds like it's beneficial as well for companies to do this, because it's looking after their employees a lot better.
Adam Barker: Absolutely. You see workplace stress... That's becoming more prominent, especially in things like law firms, even in investment banking firms, things like that. Stress is really high, and when stress is high, the productivity dips, so the more you look after your people, the more people will look after you.
Paul Kemp: Adam, it's been a beautiful story, I've really enjoyed it. You are the first guest to have such an interesting story about how you left uni and stumbled into entrepreneurship, and especially the infamous sleeping in the car story.
How best can people reach out and connect with you at MagnaPass? What's the best way of getting in touch?
Adam Barker: We're on Instagram and Twitter. It's @Magna_Pass. Me personally, I'm @Adam_DBarker.
Paul Kemp: Adam, it's a beautiful story. Thanks very much for coming on The App Guy Podcast and all the best with the continued journey with your company.
Adam Barker: Thanks, Paul. Thanks for having me, it's been good fun!