Online Investment service Wealthify recently sold a majority sharehold to Aviva (the insurance giant now owns 60% of the company). CEO RICHARD THEO gave us his views on what it takes to create a successful exit, the current and future challenges in the investment market and why he believes Bitcoin is a sham.
In your experience as a CEO, what do we all need to keep in mind in order to one day be acquired by a big corporate?
One of the challenges that fintech has is that a lot of the CEOs are very young, so they don’t actually have huge amounts of business experience, and that’s fine. Experience can be overrated, but it’s also very valuable at certain moments. In doing the deal with Aviva, my experience definitely counted in terms of understanding how to approach it, play it and see it through to completion successfully. But if you’re a young entrepreneur or CEO and you don’t have that experience, then I would advise you to recognise that limitation and seek support through investors, non-executive directors or mentors and take the benefit of their knowledge. With mentors, if you cheekily ask – ‘can you help me?’, they often will. I sometimes receive questions myself from somebody saying – ‘Hi Richard, I’m starting this company and I need your help’ and I find it quite hard to say no. Sometimes I have to, but don’t be scared to ask.
Another thing CEOs need to remember is that sometimes the skills required to start a business are very different skills to scaling up a business, and I think that that’s where a lot of people go wrong. They do a really good job of starting a company with a product or idea, building a small team, developing it, launching it, and then they get into the scale up phase where they have to deal with people problems – detailed operational problems and incremental innovation, where you’re now trying to add not just one or two new features, but multiple new features for partner apps, and it can often go wrong. So the thing to do there is to bring people in who have taken companies through that journey and can operate at that level. And to not be scared to hand the reins to this person if you feel like you can’t handle that. Equally, however, I think that, if the business is growing enough, you can bring people in to handle the scale and still carry on and be the CEO you want to be, concentrating on strategy, vision and leadership – the big topics.
What has been your biggest challenge in the past three years with Wealthify?
Definitely funding. The business model of online investing doesn’t generate large amounts of revenue in the early years – you have to acquire a lot of customers without making any money out of them. If you’ve done the job right then, in seven or ten years, those customers will be investing more and more money with you and become profitable customers. We solved that problem by working really hard on crowdfunding campaign and business angels in the early days. Obviously we self funded it with our own money to quite a significant degree, but that was because, being a little bit older, I was lucky to have a bit more money than perhaps some of the younger entrepreneurs, so I was able to do that. But later on, when we went to the VC world to try and raise money, we were unsuccessful in raising backing for the business. Largely because our business model requires patient capital that is prepared to wait for an exit for around ten years, and most VCs need an exit in five years. So it’s just not a fit. Last year between January and May, we went and saw 50-100 VCs and pitched to them all. Mostly they sounded really interested initially, then suddenly you can’t get the phone answered or an email back from them. But you have to keep fighting – if you kiss enough frogs, you’ll find a prince.
The other challenge we had at Wealthify was customer acquisition. The market in the UK for online investing is tough, because financial education is really weak. We rank something like 15th out of 30 countries in Europe in terms of financial literacy and financial education. We also have very powerful traditional financial services companies who, despite their obvious and large failings over many years, are still retaining their clients very effectively, and it’s really hard to persuade those people to move. What these companies are really good at is creating enough fear, uncertainty and doubt in people’s minds that traps them where they are. So in the UK, we have a huge problem with people being trapped in savings and earning three quarters of a percent interest. With inflation being three percent, they’re losing upwards of two percent every year in real terms in their wealth, and yet they sit there for five or ten years with all their money in cash. In their minds, they’re saying to themselves – ‘I must keep it in cash because I’m saving for a big event like my wedding, or a car or house deposit, but in reality, evidence shows that those people end up leaving their money in cash for extremely long periods of time – longer than they ever imagined, so they’d be much better off investing it in a sensible way.
Investing your money is never without risk, but it’s not as high of a risk as investing in private business, P2P lending, a startup or Bitcoin trading. So of all the forms of investing that are available to you, with something like Wealthify, and some of the other online investing services, you can take your money out straight away, because it’s invested in very diversified, passive investment strategies. The statistical probability of you suffering a significant loss on it are very low. There is a risk of loss, but if you’re taking a long term approach to your investing, then you should enjoy returns that significantly outperform anything you get from savings or any other strategies.
People who struggle with VC investment usually go the ICO route. Do you think that might have helped you when you were looking for investment?
I have to say, I’m not at all a fan of cryptocurrency. I’m a great fan of the blockchain technology and its potential, but I think that the world is being led madly astray with Bitcoin and, whenever anyone asks me about ICOs, Bitcoin and cryptocurrencies, in general I advise them to steer clear of it, because I think it’s a market heading for disaster. There are opportunities for some people to make money, and some have, but that is part of the recipe for failure – when people become obsessed by hearing that someone else made a small fortune. It does not necessarily mean that you’re going to make a fortune too. So, personally, I think the risks outweigh the potential gains on it, like we witnessed when Bitcoin went from $18,000 to $6,000. If you were unlucky and came in at the top of that, then you’re not a happy person now. I hear stories of people borrowing money – using debt – to buy into that market – it’s crazy. So personally I avoid it at all cost.
What do you think the trend is for long-term investment – are customers becoming more educated? And are they more or less risk averse?
I think we’re in a difficult economic climate right now. We’ve got Brexit looming; we’ve had distracting factors in the world of investing, like Bitcoin, coming along; we have a massively exploding market, and yet so many people are still stuck in savings. So it’s a difficult market, but the sheer weight of the number of people launching products, and the fact that the big players have also launched services, is waking both the market and consumers up. We’re not quite at the tipping point where we’re seeing enough volume, but I’m very optimistic that that point is coming in the next year or two, once we get over some of the economic hurdles that we have coming up. At Wealthify, having taken Aviva as a majority shareholder, we now have the benefit of their marketing machine and their 15 million UK customers, to whom they are now promoting Wealthify very heavily. We’re seeing our customer base expand dramatically through Aviva’s support, as well as our own marketing efforts, like the ads on the tube (some of which were done by us directly).
What’s your growth plan for the next two years?
We are very motivated to work really hard for the business, and passionate to do so because it’s our baby that we’ve created and we want to see it flourish and succeed.