We all enjoy a bit of TV drama from time to time, don’t we? Well, I would also wager that we property investor types have had the odd snigger or even wow moment whilst watching the funding pitches on Dragons Den. Well, today we have a guest that has access to some real life dragons…well, angels actually. A sub-group of Angels Den, which provides funding solutions to businesses, has emerged specifically to fund property investments and developments. It is called Property Angels Den. No doubt we can find property angels through other means, but for now, let’s understand a little more about how Property Angel Finance could add yet another dimension to our property financing repertoire, as we get the low-down from subject matter expert, Ray McLennan…the man that can connect us to the angels.
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To receive a copy of Ray’s Property Angel Finance FAQs, send an email, quoting The Property Voice to raymond@angelsden.com
FAQ 1 "Is Angels Den Like Dragons Den?"
FAQ 2 "How Do I Pitch to Angels?"
FAQ 3 "How Do I Find a Business Angel or Investor?"
FAQ 4 "How Do I Successfully Follow Up Interest from an Investor?"
FAQ 5 "What Other Sources of Finance are There?"
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If you fancy pitching your next property funding project to a flight of angels, then why not reach out to Ray McLennan from Property Angels Den where over 1,000 high net worth investors with an express interest in proprty funding hang out...or whatever else angels get up to!
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Transcription of the show
Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.
We all enjoy a bit of TV drama from time to time, don’t we? Well, I would also wager that we property investor types have had the odd snigger or even wow moment whilst watching the funding pitches on Dragons Den.
Well, today we have a guest that has access to some real life dragons…well, angels actually. A sub-group of Angels Den, which provides funding solutions to businesses, has emerged specifically to fund property investments and developments. It is called Property Angels Den. No doubt we can find property angels through other means, but for now, let’s understand a little more about how Property Angel Finance could add yet another dimension to our property financing repertoire, as we get the low-down from subject matter expert, Ray McLennan…the man that can connect us to the angels.
Richard: Well, hi again everybody. I’m very pleased to have with me, a very special guest today, its Ray McLennan, hi Ray, how are you?
Ray: I am absolutely fine, Richard. Thank you for the invite.
Richard: No problem at all. Thanks for joining me today. As you probably know, we are in the middle of a series on creative and alternative financing in property. We have had a couple of weeks, where we have been talking about some of the more traditional financing methods that people have been used to, like Buy to Let mortgages, bridging finance, commercial lending, that type of thing. But some of the alternative stuff, is really what I want to get into, and indeed, not just what else is out there, but equally what is the practical application for property investors and developers. And you have been on my radar for quite some time; why don’t I just cue you up, why don’t you just tell us a little bit about yourself and I know you have got an interest in Angel Finance, but just tell us a bit about yourself, just to help set the scene and then we will take it from there if that’s ok?
Ray: Sure, first of all, I do have property of my own, I have got 30 properties that I have invested in. My background previously...I have always been self-employed, my whole life. I have owned a variety of businesses including restaurants, a wine bar—and imported wine and imported beer, and then I was a corporate lawyer for a while…which was the only time in my life where I actually had a title, and the only time my wife could actually tell people what I did. So, that’s kind of, where I came from. About 5-6 years ago, I was doing a talk in London to lawyers, about how to grow a business—I’m a great fan of Michael Gerber, The E-Myth; Four Ways to Grow any Business, and I was applying that to legal firms with some success. And in the audience, was a chap called Bill Morrow, who had recently founded the company Angels’ Den and for those of you who have seen, or watched, Dragons’ Den, Dragons’ Den is the pantomime version of what we do for real. So, we have a variety of Angels, and those Angels invest in a variety of businesses, covering the whole spectre. And, Bill always said to me, we are not interested in investing in property, because they had made money in property. They were interested in investing in Enterprise Investment Scheme deals and the like, start-ups and so on. He didn’t think there was ever any point in putting any property deals to people. But, a couple of years ago, I had a property deal that I was doing and my Joint Venture partner, was unable to come up with the finance, he was in a chain in London, and the house wasn’t going to sell. And he gave me a couple of weeks’ notice to say, sorry you are going to have to raise this money on your own. It was a substantial chunk, and I turned to Bill and said, I have got a couple of weeks to raise £500000, can you put it out to the Angels? He said well they won’t go for it but ok. So, we sent out a one-pager, and the bottom line was…we had the money in the bank, in under a week. So, there clearly was an appetite. Then, Bill said, we should create Property Angels, then. And you are to run it. And that was a couple of years ago, and that’s what I have been doing ever since. Great fun, we have got lots of investors, in Angels’ Den, when we last looked, it was 18000, active investors. But they don’t all go for property. At the moment, we have under a 1000, who will do property only. But, that number is growing on a daily basis. So, for the last couple of years I have been pulling together Angel Investors, property people and matching them up. That’s really what I have been doing.
Richard: It’s kind of a dating agency type of concept, for raising money for property.
Ray: Yeah, it is. But, it’s great when you have been on both sides of the fence, you know you have advanced money for property and you have also had to ask for it. I think I have more of a working knowledge of how these things work. But, the more important thing was, we developed a system that…when you ask an Angel Investor, or investor in property, what do you want to see in a deal—we follow a thing called the CREST model, which is Credibility, Return, Exit, Security and Trust. So, those are the things they are mainly looking for. Then we have 17 questions that they ask, and I’m afraid I don’t have an acronym for that, but I will come up with one, I’m sure. So, there is 17 questions that they will ask you, and the proposals that we put to them, have to answer those 17 questions. And if they do, what we discovered—I’m quite one for analysing these things, but, just to put some figures on it, if you make an application for funding, generally, so man on the street, wants to make an application for funding, the stats are usually 1 in 20. So, 1 in 20 will get funded. Using our process, we have narrowed that down in some cases, to 1 in 5. I thought that was quite—I wasn’t particularly blown away with it, until I spoke to some brokers. And they said, 1 in 20 is quite normal, we would be happy with that. For every 20 deals’ we get, one them will get funded. I thought that was outrageous. But apparently, that’s the industry normal. There you are, what did I know. But we have managed to create a nice little system where, the person seeking the funding, follows the system, then we reduce the odds of being rejected, and increase the odds of getting funded. And that’s really what it’s all about I suppose. Playing the odds.
Richard: Yeah, I’m sure that is what it’s all about, trying to get a match, as you say. Someone getting a return on their investment, somebody getting the fund they need for their particular project. With Dragons’ Den, as you said the pantomime version, and I know its not exclusively, but it’s often, the majority of cases at least—its offering an equity type of investment. They normally put money in, they get a share of the business and so on. I know there is other types of deals and the Shark Tank, is the American equivalent, you know they come up with licensing alternatives, and perhaps they will do some of working capital, lending facility as well. They have got a number of tools that they can play. But, in terms of the Property Angels’ Den is it an equity or a debt play, or is it a mixture…how does it fit in effectively, in terms of the property financing landscape for property investors?
Ray: Right, ok. Well, first thing is first, when someone comes to me looking for funding, I always try and work out, what would I do if it was my deal? Angel investment and equity investment is not cheap, it’s not a cheap way of doing it. But, quite often people will say, I can’t get a loan or I can’t borrow the money from the bank, or there is usually some reason why they have landed with me. And I always encourage them to take a look again, because, some banks are lending, some banks are not, some banks are lending quite a lot, and other banks are not. And, lending at the moment is relatively cheap, you know, we have had some people that have managed to get Development Loans at sort of, 4,5,6 %. 8% would be quite normal. But, an Angel Investor is going to want more than that. And if you are doing an equity deal, or a Joint Venture, then you could possibly be exchange half the profit. Which can work out to be a great return for the Angel, but not necessarily for you. So, I always want to encourage people to look at the alternatives. Because, we are one of many options for funding. So, step 1. Angel Investors, will look to do a—well they will want to balance their portfolio, and in that case, it might mean that they are happy to do a short-term loan. So, if there is a property deal that requires money for 6 months, 9 months, 12 months, up to about 18 months, would be the definition of a short-term loan, then there is quite a few that will look at that and will do it. And we have done a load of these. And then there are others, who do want equity, and there are others who will do what’s called a Prudent Call Option, which is they will buy from the company at one price, and you them back at another price. So, that a kind of hybrid. It’s not really a loan, but it’s not equity either, but for tax purposes, some Angels want to do it that way. So, there is a number of ways of getting the funding. It really, kind of, depends what the deal is, and it depends also, if the Angel has the cash or, if they are ready to move now and so on. So, there is a whole load of reasons why we would look at it. So, it’s never one or the other, I think its whatever fits. But in terms of answering your question, at the moment, it’s probably about 50/50. Half the money we are doing is in short-term loans, and half the money is in equity. Something like that, if that answers your question?
Richard: Yeah…it actually does and I think what I’m getting at actually for the listeners, how could they potentially consider using Angel Finance as an option, to have a debt or equity play or some sort of hybrid, I think helps people to frame that. But also, you also rightly say, its having a mixture of different financing options available, I daresay many people listening to this won’t be aware that there is Angel Finance specifically for property investors.
Ray: Yes, there is! We also do—the other version that I haven’t even mentioned is crowdfunding. Now in terms of crowdfunding, most people might be familiar with Kickstarter, Crowdcube, if you Google them there is lots of them there. And one of the first to do that in this country was a company called BrewDog, an Aberdeen based brewer, they brew ale for punks, and they like to be contrarian. They were turned down by their banks, so they turned to their customers and said, we want to grow this business, would you like to buy some shares in the company. And they raised a phenomenal amount of money crowdfunding. So, Kickstarter and Crowdcube, these companies, what they will do, is they can offer equity or they can offer rewards or they can just ask people to fund a business for the hell of it. And you can have people looking for funding, who might want to raise £500000, and will get £500000, but it will be in £10 from John down the pub, or £50 from Auntie Miriam, that sort of thing. We do crowdfunding, but the crowd we have are high net worth individuals and sophisticated investors. And their minimum amount, tends to be much, much higher than that. For example, we had a property deal in Cornwall, that was £1000000, that was funded by 11 people, so that the extent of our crowd. So, it’s not going to 30000 people, or 15000, which is administratively a nightmare to manage. Our crowd tends to be small. And there are property crowdfunding options out there, there is quite a few of them, where you can put your property on and raise money. Or, if you want to invest in property, you can go there as well. So, that’s another option that we do as well.
Richard: I didn’t realise you also did crowdfunding. You won’t be surprised to know, I’m covering crowdfunding as part of this series. So, in fact, tomorrows episode that goes out is specifically about form of Peer to Peer lending, rather than crowdfunding per say. It’s a bit like what you have just described, just a small collection of private individuals, rather than a large crowd. But, we will be covering that. So, I’m fascinated to know you even do that.
Ray: Yeah, absolutely, if you need any names or contact numbers of people that are in that space, please let me know. I’m quite happy to point you in the direction, you can speak to my equivalent in the crowdfunding platforms that do property.
Richard: Sounds good, I might well do that. In terms of understanding how it works then, let’s go back to the core of Angel Finance. People have probably got in their mind, walking into the Dragons' Den, the Dragons with their pile of cash, interrogating you, while you just do a pitch from memory, you know, the TV show…but what’s the reality? How does it work, from a general industry perspective? You can talk about how you work, but I think from a general industry perspective, how would it work for someone?
Ray: Ok. Well, Angels' Den has been very successful by doing what’s called Speed Pitching. And Speed Pitching, is where you get however many Angels you can into a room, 20, 30, 40 or 50 into a room. So, that room might be in a lawyers’ office in Central London for example, round tables, or square tables, you will spread the Angels around the 5 or 6 tables, and then 5 or 6 companies would come in to pitch. And they do a 3-minute pitch and then 3-minute Q&A. So, before they get to that point we do pitch training, we go through it with them, you know, we say here is what to say, be yourself, have a checklist rather than a script, bring in products if have got it. So, entrepreneurs would come in, and they would sit down and say ’Hi, my name is…I’ve got this idea, here are how many customers I’ve got, with your help and your money, I can double the customers and we will all make lots of money and it will be great fun…Any questions?’. So, that’s it in a nutshell. And then the Angels ask questions back and forward, how did you come up with this idea, who is your best customer, what’s your average spend, etc. Great, that’s fine. And they have a bit of paper in front of them, and they note down whether they’re interested or not. So, the Angel writes down, next other company name, ‘I’m interested’, ‘I’m interested but won’t invest’—so, I’m interested in mentoring, or helping, I have contacts… ‘I won’t invest, but I know someone who will’ or ‘This is not for me’ and then a remarks column. And then what we do is, at the end of it, we would gather in all those bits of paper and say to the company, ok, you have got 6 notes of interest or 10 notes of interest, or whatever it happens to be. And then, we match them up, we just allow the entrepreneur then to deal directly with the Angel Investor, to strike the deal. So, that’s how Angels' Den started. With Property Angels' Den, we do something similar, except it’s a 10-minute pitch with a PowerPoint presentation. So, someone who is pitching to get funds for their property deal, they are generally looking for much more, maybe £500000 for a commercial conversion or something, or they want to buy 4 or 5 HMOs and need a £1000000, or something like that. And they will come in, we give them a template, which shows, basically a ‘Presenting to Property Angels dummies guide’. So, you can drag and drop pictures in there, you can drag and drop maps in there, and then it will say ‘Answer this question’, where is it, who is the borrower, how much are you borrowing, what’s the exit, what’s the security etc. Again, prior to people presenting that, I go through it with them. So, we would share the screen, we would do a Skype call, and they go through their PowerPoint presentation, its only 10 minutes, and I say that’s great, that works, or there is too many words on the page, or leave this out, or you forgot to mention an important point and so on. So, there is coaching and guidance. Nobody ever thrown in front of them, without being prepared. And because I have invested, and because I know what our Angels will look for; I ask all the hard questions in private. Now, a note about Dragons Den, quite a few of the companies that we either have rejected or have not accepted, have ended up on Dragons Den. And that’s no surprise to me, because sometimes the people will come to us and they don’t know the numbers, or they don’t do their homework, or its clearly a product that we can’t support, and we will say sorry. And they go and apply to Dragons Den. And the TV companies are on the lookout for television, for pantomime effect, so, when someone comes out with a clearly ridiculous concept, that makes good tele. People want to watch and throw things at the TV, or they want to get an emotion that’s neither good or bad, or oh my god, how could they possibly come up with that. But, that’s what they do, it doesn’t happen in real life. If you have got a deal, we will expect you to follow the checklist that we give you. And I always look at it…is it something I would invest in? If it is and I like it, chances are goo the Angels will like it. But, if something that’s clearly ridiculous, we would try and steer someone on a different track. So, in that respect, that’s how it differs. Angels' Den they do a 3-minute pitch, Property Angels' Den it’s a 10-minute pitch. And then a Q&A, and in fact, drinks afterwards.
Richard: Social as well. I think the fact that you have the period of time to pitch and you have the PowerPoint presentation to rely upon, you don’t have to remember 5 years’ worth of trading history or something!
Ray: In real life, no-one is interested in that. They are not even interested in the 3 years’ cash flow, because everyone in business knows it’s going to change, things are going to happen. They just want to know that you have got a fairly, good idea of where you are going. They are really interested in—when I mentioned the CREST model, the creditability, they are interested in the creditability of the project. Because in property, a lot of our investors are property people and they will look at a commercial conversion and think to themselves, well actually, there is quite a bit of profit in this, if he makes a complete mess of it, or they go bust, or the builder goes bust, or anything like that, I can step in and take this over. Because I can touch it, feel it, walkaround in it. So, the question is, you are safe as houses is true, and in property, it’s not a question of will you make money. The question is how much will you make if it’s done right. Whereas, if you are investing in a start-up, it can be very much hit or miss. That’s why there are such good tax breaks.
Richard: The VC hit rate is pretty poor, but when they win, they sort of strike out pretty big. But, property as you say, there is a lot more assurance in there. There’s an underlying asset for a start. Touching on it a little bit, because, the difference between say Venture Capital Equity and this sort of thing, and I know you straddle debt and equity, but realistically, would a property investor or developer, expect to get 100% of their project costs funded this way? Or is it more of a mezzanine approach, a mix and match, put some skin in the game yourself, get other factors, how would that work? Would you necessarily, or would any investor, come to your Property Angels' Den and get 100% funding? Or is that not realistic?
Ray: It has happened and can happen. And, depending on the project and depending on what it is, yeah it can happen, absolutely. I mean the last one for example, was a DOA, £150000, chap came, he said I need £850000 completely to do this whole thing. And I said, well how much have you got to put in, he said nothing. Why have you not got anything to put in? He said because it’s all tied up in other projects and I am waiting on them completing and there is nothing more I can do in project number 1 and 2, but once they complete, I will release the money from there. But at the moment, I have not got anything and I don’t want to lose this deal. So, it was a commercial conversion, so, I would in the first instance, go to a Development Finance provider. Now, for example, The Funding Circle, everybody knows The Funding Circle is there, and The Funding Circle can provide development finance. So, the deal is £1000000, The Funding Circle might turn around and say well we can provide £800000 of the money that you need, as long as you can come up with the other £200000. So, now it’s a different pitch to Angel Investor, you are not going to an Angel Investor, looking for a £1000000, you are going to an Angel Investor and saying, The Funding Circle have looked at this, here is their terms sheet, they are prepared to put up £800000, all I need to do is find £200000. That’s a completely different approach. And then, an Angel Investor can say, right, well, if The Funding Circle have crawled all over this and done their diligence on it, then I am quite happy to pledge £100000, and then you can find someone else you will pledge £100000, and then you have got your money. So, in that respect, the developer gets 100%. Now, what’s in it for the developer, what’s in it for the Angel? Well, if it’s £1000000, and then the GDV is £2000000, and there’s for arguments sake, £500000 in profit, then they will split that equally. So, the developer will make £250000 and the Angel will get £250000 and the Development Finance provider gets their interest and their fees and costs and all the rest of it. And everyone is happy. And the building has been developed and now the developer has £250000 to play with. But, he has a relationship with a couple of Angel Investors, who will want to do another deal.
Richard: Yeah, that’s what I was driving at really. So, if you talk about 100% finance anywhere, it’s going to be 1. Hard to get and 2. Very expensive. So, what you have got here is a mix and match approach. You have got an element of debt and a top slice effect, effectively, of the equity stake and that’s where you probably come in. So, it’s more raising the equity gap, I guess, is probably the right sort of, pitch.
Ray: Bear in mind, what you have got usually, is a developer who comes to us and says I have an option on a building that’s not on the market, so its not being advertised. I can buy it at 10-15-20% below market value, because the person wants to move quick. So, the developer is bringing his skills, knowledge, experience, enthusiasm etc. to the table, so, he is not bringing nothing, he is bringing the deal. He just needs the money, and there’s lot of it, plenty money. So, to then say to an Angel Investor, well actually, you are buying this below market value, we are buying it in an SPV, a Special Purpose Vehicle, which a company set up specifically to buy it, you Mr Angel Investor, can own all the shares in it. But, you have an agreement on deal, set to one side with the developer, that you will split the profit. So, if he messes up, you own everything. The SPV, will get the money from the development finance provider and the developer, he will put in his sweat equity to make it all happen, while you just sit back and watch the building develop. So, that’s a win/win, that’s a JV and that can be funded 100%. And if the developer then, in this particular case, half way through the project, he will be able to buy back some of those shares from the original Angel Investor. So, the Angel Investor is putting up £200000, but after 6 months, the developer will be able to give the Angel Investor back £100000, to reduce his exposure. So, it can work and the do work. And there are deals out there, that are being done like that. I had a conversation yesterday—I’m not really sure if I should tell you this, but I’m going to anyway…I was just about to name the bank, but let’s just say a major bank, a major well-known high street bank, phoned me yesterday and said…we understand you are doing some quite good stuff, why aren’t you sending anything our way, and I said…forgive me Mr Banker, but let’s deal with the elephant in the room, you are not lending anybody any money. And he said…well we are. And I said…no you’re not. And he said…well we are. And I said…well you are not, you think you are, but the perception and the word on the street is that banks are not lending. And what you will do is, a developer will approach you, you will make all the right noises, and you will say send me everything, and then after 3 months, it goes to your risk department and they say no. And then they are left high and dry. So, he went…well that’s not how it works. I said well that’s the word on the street. So, if you want to change that, then you are going to have to fundamentally do something with your marketing department, or something. So, he said…well can you come and speak to all our property guys and tell them this. And I said, I will happily come along as long as you meet my fee, which is £5000 an hour. And he went off to consider it. So, you never know. But, I think a lot of developers are coming and saying, I need 100%, I went to the bank and they said no. because it doesn’t get past first base in that case. The guy at the counter will just simply say, no, we don’t do 100% lending. And in that circumstance, they don’t, but they could have funded 80% of it. But, I said that to the bank, you could fund 80% of this, and I will get Angel Investors to fund 20%, and he went, whoa, why are we doing business then? And I said, let’s talk about it. Pay me £5000 an hour and I will tell you how to do it. That was left, there is a perception out there, it’s not strictly true, but, I suppose, I will say it here…when the taxi driver starts to give me advice, or starts to tell me that he is getting back into Buy to Let, or he is getting back into property, that’s when I will stop. And at the moment, taxi drivers are saying you can’t make any money in property, nobody is lending, fantastic. If that the case, and that’s what taxi drivers are thinking and telling everyone, as long as they keep saying that, there will be money to be made in property.
Richard: So, Ray, you made a good point in that story, the conversation with the bank. One of the points I really wanted to pick up, was timing. So, forgetting the saga, with the high-street bank etc. but how long should an investor expect a project to take before it got cash in the bank, from cradle to grave, engaging with Property Angels, for example?
Ray: Yeah, I mean, it depends on the property itself, and it depends who we speak to. But we have made a phone call, on receiving a deal, and called up an Angel Investor who has the cash and it’s as quick as the lawyers will take to get it done. And in some cases, that can be pretty quick. I don’t think I have seen in it done in any less than about 2 weeks, but, you are usually looking at about 4-6 weeks. We have had short-term loans of £50000, £150000 and so on, which we have spoken to someone on a Monday, spoken to Angel on the Tuesday and they have had the money on a Wednesday/Thursday. But that’s unusual, but can happen. But, for the larger deals, the commercial conversion deals you are looking at certainly a couple of months anyway, to getting that done, and then however long the deal takes. Commercial conversion deals, some of them are taking 6-9 months. There is one in Gloucester, which is a commercial conversion, which is due to take 7 months and they are rattling on with it and everyone is happy.
Richard: When you say 7 months, is that the actual conversion project, or the funding?
Ray: Yeah, that’s getting keys and striping out the building and then building it back up again.
Richard: But, you are somewhere between 2 weeks and 2 months effectively, to get the funding?
Ray: Yeah. There are some out there that are taking longer. But, if we get all the information, we can get a decision in principal, pretty quick. The time-consuming part of my job, is people giving me the information. So, I will just simply say, have you got a RICS valuation, have you got plans, have you got planning permission, can we see the planning permission, can we see this, can we see the terms sheet, can we see…? Gathering that information is time-consuming and I can’t really do anything until I have got it all. The crowdfunding thing that we did only took a matter of hours, but it took a couple of months to get all the information onto the platform. Then once it’s on the platform, it can be funded pretty quick.
Richard: Yeah…that’s kind of leading me onto another question that I had really, is that how could an investor or developer, get themselves ready, because you need to be ready to be funded. So, it’s going to be different let’s say a Buy to Let mortgage, where you need your payslips, and you need your bank statements and some details of the property. So, generally speaking, what would an investor need to do in advance to successfully pitch, generally speaking?
Ray: Ok, there’s a couple of things here, one is…if they have a property, if they have identified a property and they want to pitch, then that’s different. If they don’t have a property but they want to pitch for funding, then that’s what’s called a Hunting License. And we are working with a number of providers, and lenders and family offices, to try and secure a Hunting License for people. Now, how a Hunting License works is…you are a developer let’s say, and you have developed projects, I don’t know, let’s say between £1-5 million, so at any one moment in time you might have a project on the go. You don’t have another project in mind, but you would quite like to get the finance organised for it in advance. That’s what’s called a Hunting License. So, you would come to us, and we take a look at what you have done, the kind of projects you are quite good at, what previous projects you have landed and what profits they have been, and so on. And then look at the assets that you have, whether they are incombered or un-incombered. And then we can get the lender who would say…we can give you a Hunting License for up to £1.5 million. So, now go find something and when you find a property, come back to us and you draw down the money within 24-48 hours. So, that’s a very powerful tool for the developer to secure the next deal. Because, you can go into a Vendor and say…here is my proof of funds. I have got up to £1.5 million. And, the one that I’m thinking about right now, he went back and haggled the deal, because our fees, had to come out of that, so, we would charge a 2% fee, and that 2% fee, in this case, was going to be the guts of £50000, and he went back and negotiated a £50000 discount on the purchase price, to cover the fees. So, that was win for everyone. So, that’s the Hunting License aspect. And that’s something that we are still working on and is not completely ready yet. But, we have got 1 or 2 that have been eligible for it, but I’d like to extend that further. The next one is, if they get a deal and they come to us, we have a checklist. Simple as that. We will just say, here is the checklist, here is the items we need you to produce, go away and produce them, and then we can put this in front of the Angels. It’s nothing onerous, it is what is, as long we have got the information. We know what our guys will ask for, we have got a 17-point checklist, and we just need to answer the questions. Simple as that.
Richard: That sounds good. I guess, some of them have come out already, but what would you say are some of the benefits or Property Angel Finance?
Ray: The benefits of Property Angel Finance…well, it can be quick. It’s equity, you can establish long-term relationships with investors. Those investors have all got friends, who have got money, who are all looking to invest, so, when you meet one, you can tend to meet the others. And, yeah, you can achieve your objectives. You can get things done. You can get the Angel Investors who have contacts, skills and experience. They are not all just investors, sometimes they will come along and say…I know a great deal about this location, I know great deal about this building, I know a great deal about whatever it is they want to turn it into. Sometimes, we have had people looking to build flats, and we have had an Angel Investor say…do you know what would work here really well, is a hotel? Build that as a hotel, I have someone that will buy this from you, if you build a 100-bedroom hotel, instead of flats. Or, will rent it at a phenomenally good rent, and it does bring a different perspective. We did have a developer that was taking a look at something, and when he was given the option of a hotel and looked at the figures, he actually wanted to retain it, he wanted that to be his pension, if you like, rather than just buy it and sell it. He wanted to keep it, and this was an option he didn’t realise existed until he had spoken to an Angel. So, that’s the benefits I daresay.
Richard: Do you think there are particular types of property project, that would lend themselves particular to this type of solution?
Ray: Well, we have done all sorts of things, Quarries, Trout Farms, what else have we had…Hotels, Pubs, Pubs being converted to HMOs, Offices being converted to Flats or Serviced Accommodation, all sorts of things. If its property, heritable property, as in you can touch it, then everything is up for grabs as it were. The only thing about property is, you make money buying it, you don’t necessarily make money selling it. So, if its property, and it’s a reasonable price and you can do something with it, you can add value to it, then its win all round. In terms of what’s doing well at the moment, I would say what’s doing well at the moment is…commercial conversions, in England and Wales, commercial conversions are doing really well, because you don’t require, Permitted Development, yeah, you don’t require planning permission. We don’t have it in Scotland, Scotland is also being affected by Nicola Sturgeon and her request to make Scotland independent, that’s putting some people off, English investors, for example. But then, some of them are actually seeing an opportunity and going, well actually…there is a lot of opportunity, there are less buyers around, I’m coming to Scotland. And the Brexit thing, that was a storm in a teacup, it kind of lasted for a couple of months. In fact, a lot of our investors said the day after Brexit, you know what, I’m going on holiday, I will see you in September. And, July and August were terrible for trying to get deals done because everyone just decided to go away and let the storm calm as it were. Thing are picking up now, commercial conversions are doing well, there is no doubt, there is a big shortage of property across the whole of the UK. I can’t remember what it was, 350000 are required. The definition of a household is…a person looking for a house. So, it doesn’t necessarily mean a husband, wife and kids, it could be a single person. There is a 350000 shortfall, and what did they build last year? 151000. So, the supply and demand that there is, Economics 101, means that there isn’t going to be a property collapse any time soon. We never seen in Scotland, we certainly never seen it in Edinburgh, which is where I live. It does happen in other parts of the country, that if you get a boom, you will get a bust. But it tends to be very slow and steady up here, I did speak to one investor, who said to me...prices in Ireland collapsed by 60% and I said…well that’s because they were already over inflated by 100%, so what do you expect? Prices in Ireland now are actually quite good, Northern Ireland is a good place to invest right now. Southern Ireland is a good place to invest right now.
Richard: So, Ray, just conscious of the time, and you know its fascinating to hear some of these anecdotes and stories, and everything, but I’m just concentrating that we try to get it in a certain time. So, if I can move on to one of the questions I like to ask, obviously, we talked about benefits, but what about potential downsides, you might say there aren’t any. I’m sure there probably are, I’m counselling you as an industry expert, Subject Matter Expert. So, what re the potential things that, someone not so experienced in this field, raising this kind of money that is, should look out for?
Ray: Timing is the big one, you think something is going to take a year, it probably won’t. It will take 18 months. If you think it will take 18 months it will probably take 2 years…
Richard: Are you talking about the actual project, rather than the fundraising?
Ray: Well, you can raise the funds based on the fact that it’s going to be 1 year. If you don’t pay that money back after 1 year, you are into penalty interest. And that will just eat away at your profit, so that’s a potential downside. In terms of, downsides to getting the funding—having unrealistic figures, you know, not knowing what you are doing. But, you wouldn’t get in front of the Angel Investors if that’s the case, because we look at everything. If someone comes to me and says, I can convert this building for £50 per square foot, well, you know you can’t, there is no way you will. It’s going to cost you double that at least. And I have had people like that…’no, it’s definitely…I will get it done for £50’. And I’m like, ‘no you are not’. So, you have to go away and redo the figures, they go and red the figures and it doesn’t stack up. So, people adjusting their spreadsheets to make it work, rather than putting it what’s real, is something that we catch. So, it doesn’t get to the investors. When something gets to the Investors, it stacks up. What can let people down is, they say the wrong thing, or body language, or something. Its only happened twice, that I can recall, in the last 6 years, where someone has let themselves down badly, by saying the wrong thing. We do have, after they have attended and met Business Angels, they get a chance to have a drink afterwards…a glass of wine and some nibbles. We always say to people, don’t re-pitch, ask the Angels how they became an Angel, and if the Angel wants to ask you about the project, they will. And we had a couple of people who had too many drinks, and an Angels comes over and says…I’m out, I was in, but mark me down, I’m not interested anymore. And then we have had the opposite, people who have met over a drink and said…I wasn’t going to put any money to that project, but I really like that guy, put me down. So, it can happen both ways.
Richard: Alcohol, eh? That’s one of the potential downsides!
Ray: We provide quite good red wine and nibbles.
Richard: But apart from maybe, penalty interest on the commercial side. Penalty interest could kick in, I guess that’s the short-term loan type of arrangement. You talked about SPVs, potentially the Angel owning the shares in the SPV, there is an element of loss of control. I guess, by definition.
Ray: There is, but that can be managed by agreement. You can have Heads of Terms, you can have a Deed of Trust. You can manage that by agreement. Again, going back to Dragons' Den, Peter Jones will say, I will invest £100000 in your company, but I want 50% of the shares. We have had people who said, I will invest in your company, but I want 100% of the shares. But here is what I will do, if you reach the milestones, you say you will reach; I will return those shares to you, so that we will end up with 60/40 or 50/50 or 70/30 or whatever it happens to be. So, the control element can be—if someone is putting a lot of money into something, it can’t happen without the money, they do want an element of control.
Richard: No, I do understand it, I was just highlighting it really that, someone putting money in, is going to want something back. One of the things they probably want back is some kind of security. And the other thing they want back is some sort of control, or some sort of walk through arrangement in case things go awry.
Ray: Absolutely. They will quite often—what an Angel Investor will do in a commercial conversion for example is, they will put their man on the ground, they will put their quantity surveyor in. So, they might have pledged £1 million, but they are not going to write a cheque for £1 million on day 1. They will make £1 million available, and on day 1 what will happen is the quantity surveyor will come along, and you can draw down £100000 or £200000, whatever it is. Then at the end of the first month, you can draw down a further £100000, at the end of the next month you will draw down more. So, it happens in stages, so that’s how its controlled if you like.
Richard: Ok, good. So, thanks for that. I guess, drawing to some conclusions, or drawing to a bit of a close. We were talking before we came on air obviously, but I normally ask the question…is there anything special or unique that maybe you have available for the listeners of The Property Voice, that you could potentially share?
Ray: Well, I have a Frequently Asked Questions, which is the most common Frequently Asked Questions relating to raising Angel Finance. So, I have an e-book on that, which I am quite happy to let you have and that calls on things like, how do you pitch, how do I find a Business Angel, how do I successfully follow up interest, what other sources of finance are there? Those are the commonly asked questions. We have got 20 Frequently Asked Questions, but these are the 5 most common ones, and certainly the ones that everyone seems reasonably happy with to receive. So, yes absolutely, you can have that. If that’s of any use.
Richard: I’m sure it is. I have seen it myself. You kindly sent it over. What I suggest is, we are going to ask how people can connect with you in a second, but if people want to reach out to you and just ask for the FAQ e-book and reference The Property Voice. I think that’s important. If they reference The Property Voice when they do so, obviously, it will allow us to track if effectively, where this invitation has come from. People can do that, I have seen the book, it’s quite a few pages and they are very helpful. So, I think the other thing to ask is how do people get in touch with you then Ray? What’s the best way to reach out?
Ray: Ok. Well I have a website called Raising Angel Finance. Raisingangelfinance.co.uk or through Angels' Den, angelsden.com is the website, and if you go to About Us, you will see me there and all my contact details are in there. Or if you just contact anyone in Angels' Den, or submit any email or any question to Angels' Den relating to property, it will come to me. Or, Raising Angel Finance is just a separate site, where I have control over that and I can put things in there that are helpful and useful and so on. The Angels' Den website is very geared towards what you see on Dragons' Den, which is start-ups and so on. We are working towards creating a separate site, which is called Property Angels' Den. But, that’s in the pipeline, it’s not there at this moment in time. So, angelsden.com equally, I should point out that as well as people looking for funding, I often get a lot of people—I speak at events, I do things like this, people say well actually I’m not looking for money, I have got money, I want to invest money. I like what I’m hearing, I want to invest it through you. So, we have a mechanism for that as well. There is a website called becomeanangel.com, or people can simply email me, and tell me what it is they are looking for. Whether you have money in a pension, or cash available, or whatever it happens to be, we can certainly help. And, there is good returns to be had there. So, it’s both sides of the coin.
Richard: Would you mind just reading out your email address so people can just jot it down as they are listening in? Obviously, I will put it into the show notes as well, for people who want to visit that.
Ray: Sure, its raymond@angelsden.com
Richard: raymond@angelsden.com ok, fabulous. Absolutely great. You know, it’s been fascinating talking to you. You shared a couple of case examples, and that’s what I’m really driven at, practical application. I really appreciate your time and probably, for a lot of people, what is a new area, a new funding source. It opens peoples’ eyes I think and I’m sure you are probably going to get a lot of people reaching out to you for that FAQ book. And more. So, I just want to say thanks Ray, it’s been really good talking to you. Valuable insights, we have run out of time unfortunately, but just want to draw a line there and say thank you.
Ray: Alright, Richard. You are very welcome, thank you for inviting me.
Richard: You are welcome, take care. Bye.
Property Chatter
Interview with Subject Matter Expert: Ray McLennan.
Resources mentioned:
To receive a copy of Ray’s Property Angel Finance FAQs, send an email, quoting The Property Voice to raymond@angelsden.com
Once again, we have located another relatively new and untapped source of funding open to property investors and developers in the form of angel finance.
I know a couple of people that have successfully funded projects using Property Angels Den and lived to tell the tale, so it isn’t quite as scary as the TV programme pantomime versions make out.
I particularly like the idea of the pre-screen that Ray mentioned to improve the chances of success and, also the doing away with the ridiculous idea of a pitch without notes, as raising finance is not a memory test!
Ray mentioned that property angels can use a mixture or debt and equity solutions and of course there is also the additional route of crowdfunding available from a flight of angels too. So, if nothing else, you may have learned what a collection of angels is called for the next time you watch Eggheads 😉
Right, that’s me for another week and another piece of the property financing puzzle is in place. By all means do email me personally if you want to talk about anything from today’s show or more general in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net
Now all that remains is to say thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.