Time is Money
Tech entrepreneur Iain Reed says the best business angels are those who can invest their time as well as their money.
18 June 2014
Former investment banker Iain Reed and business partner Robin Hammond set up their Hong Kong-based financial software company, EFA, in 2003. While they spent 18 months developing their software product, it also took time to build the company’s reputation.
Based on his experience setting up his business, Mr Reed now counsels other would-be entrepreneurs, as President of TiE HK, the not-for-profit global entrepreneur support network, and Vice Chairman of the British Chamber’s Angels Committee.
Tell us about your experience launching a start-up.
Ideas are easy; it’s all in the execution. Robin and I were new entrepreneurs: we’d both come out of investment banks, and we knew how to write code, but we’d had no experience running a software company. It took us a year to get to the point where we could even show our product to anyone, and another year to iterate it, based on feedback from potential customers, bringing us to a minimum viable product – now a key lean start-up concept, which is about getting to market as quickly as possible. Finally, we pitched the product, and one Malaysian bank loved it. But the IT department wouldn’t buy from us as we were a two-man company. “Where’s your team?” they asked us.
How did you get your break?
We discovered that a friend was running an IT project at HSBC in Hong Kong. He came to me in February and said, “Can you build a product by May?” We did this as a software consulting project, so while banks wouldn’t buy our software, they would use our expertise. That was when I realised that the way into banks was the consulting route. We had our foot in the door and a bunch of money. We could then go and hire staff, so we built our team.
What happened next?
Nomura was our first customer for EFA’s licensed software service, and after that, things started getting easier. We were being seen as a serious company. The business grew quite strongly, and all was going very well until 2008. We had 12 customers when the financial crisis came and, suddenly, our pipeline stopped. One customer, MF Global, even went bust. This was a wake-up call, which prompted us to rethink our strategy.
The British Chamber’s Angel Programme didn’t exist when we started, but it was beginning by then, and my co-founder did a pitch: this started our own journey towards getting outside investors. While we didn’t get an angel at that breakfast presentation, the process opened doors. It was an integral part of our fund-raising.
What would be some of your key advice to would-be start-ups?
When you’re selling B2B, the first customer is the hardest. If a customer is spending US$100,000 on a product, they want to see who’s behind it. The second question I always ask an aspiring entrepreneur is: “Who is your team?” (The first being: “What problem are you solving?”) I’ve also found that many entrepreneurs are not very good at doing financial projections, so I sit down with them and help them with that. It’s why we founded TiE in Hong Kong in early 2012 – to match entrepreneurs with mentors. And now we have 38 mentors in the group, which also provides mentorship to the BritCham’s Angels Programme.
Cash management is another common mistake. It’s great if an entrepreneur gets an angel investor, but they need to manage those funds wisely in order to achieve sustainability. If you can find an angel who has experience in doing what you’re doing, or even in the same industry, then that is very valuable. The best angel investment is “smart money,” from a successful businessman who will put in not only capital, but their time and experience. Time is more important than money.
Where is your company at now?
We continue to grow. The financial crisis taught me that we needed to diversify our business, so instead of being focused only on investment banks, we have spent the last three years looking for new opportunities. We’ve developed EFADRIN performance-enhancing software, our second software programme for hedge funds, launched last year, and we’ve already got our first customer – Seres Asset Management.
Our team is now about 30, spread across our head office in Hong Kong, a development team in Vietnam and a couple of consultants in London and Singapore. I’m now Chairman of the group, and I take on a more strategic role, looking for new opportunities in business.
In your experience, what is Hong Kong like for start-ups?
Hong Kong is an ideal place for start-ups to launch. Bloomberg rates Hong Kong as the easiest place in the world to set up a business. And the Heritage Foundation consistently ranks Hong Kong as the world’s freest economy. Hong Kong has incredibly good infrastructure and is truly an international city. It’s very easy to connect with the right people in Hong Kong and to get validation for what you are doing. I’ve seen people come from the UK, and say that within two weeks, they’ve met everyone they need to meet. There is no way you could do that in London or New York.
- Hong Kong