Ep290: James Mulvany – Angel Investors Should Invest in What They Know

Andrew Stotz 00:00
Porter Hello fellow risk takers and welcome to my worst investment ever, stories of loss to keep you winning. In our community we know that to win in investing, you must take risk but to win big, you've got to reduce it. This episode is sponsored by a Stotz Academy which offers online courses that help investors, aspiring financial financials and professionals, business leaders, and even beginners to improve the finances of their lives and their businesses. Go to my worst investment ever.com right now to claim your discount on the course that excites you the most fellow risk takers, this is your worst podcast host Andrew Stotz, and I'm here with featured guests. James Mulvaney. James, are you ready to rock?

James Mulvany 00:53
I'm ready, Andre, this is very exciting.

Andrew Stotz 00:57
By the way, for those people who are listening and not seeing this, you got a cool picture over your shoulder, and it says, Love goes a long way. That's beautiful. That's truly beautiful. I love this. That's so true. Anyways, so maybe, let me just tell the audience a little bit about you so that they get to know what you are doing. James Mulvaney is a successful entrepreneur and over the past 10 years has built multiple internet companies, including podcasts CO, and radio.co, plus a property portfolio and has made a range of angel investments in startups. Having actually never had a job in his life. He started his first business when leaving school. James, take a minute infinitely further tidbits about your life. Well,

James Mulvany 01:53
I mean, firstly, thanks very much for having me, Andrew, it's great to be here. I'm quite excited to talk about some failures. Because I think a lot of podcasts we always talk about successes. But yeah, I'm kind of suppose what you call a self made entrepreneur, really, I've been doing this now. And 15 years when I was 16, I started my first business. And, you know, I love every day, I still haven't got bored of it. And, you know, over the sort of past few years, I've spent time not only building businesses, but a range of different investments. So I have, you know, investments in sort of stocks and shares through different financial advisors and wealth managers. As you mentioned earlier, I've got a small real estate portfolio, which is quite exciting. That's something I've recently got into and also done a few angel investments. So but primarily My passion is always been such great software companies and building businesses.

Andrew Stotz 02:43
And and what is it that you would describe as kind of your core strength or your uniqueness in that, you know, in the space of business?

James Mulvany 02:51
I think it's, you know, creativity and just a passion and drive to sort of make things work. And I'm, I really consider myself a problem solver. I think that's what I like to do. You know, I think business is never plain sailing, you know, you have your ups and downs, you have good years and bad years, just like any job, right? But you know, it's just how you kind of overcome those obstacles and solve problems that that kind of makes a difference between, I think, a good entrepreneur and a bad entrepreneur.

Andrew Stotz 03:17
And you said something at the beginning where you were saying about how you know, you still like it to this day, you know, you love what you're doing. And there's a lot of people that when they experience the world of entrepreneurship, they, they realize that the pressures are much more than they had expected. And you know, things come out of left field, and you know, just so many ways that you can get wiped out. And I just curious, like, what is it about you, that keeps you going? Or, you know, how do you keep yourself going through, you know, a lot of turmoil?

03:49
That's a good question.

James Mulvany 03:50
You know, I started when I was really young, I didn't have any formal training. So I never went, I went to university, but I didn't do any, like business degree or anything like that. So I haven't got like an MBA. So I kind of just been learning on the job, you know, and like, I kind of grew my business whilst at university, I graduated, I was a stage where I could start making some hires. You know, that was the first sort of wake up call where I was like, wow, this is scary, because now I'm not just responsible for my own sort of well being and my living, I've got to pay these guys at the end of every month, and I can't pay them, then you know, what's going to happen? And I think that was kind of like, first Reality Check really went out when I sort of, you know, the business grows that point. You know, since then, obviously, you know, you have your challenges, you have your ups and downs. I think you've just got to, if you sort of think of things as a failure, like, again, I've had businesses that I've launched, haven't worked out, and God is just constantly learning from your mistakes. And I think that's kind of what drives me in a sense, you've always got to, I find it immensely satisfying. When you get something, it starts working, you know, and you've put so much time and energy into creating it and developing an idea and launching it taking it to market and then that feeling you get when it starts actually working like you'll like Wow, these people are actually paying money for this, this this thing that came out my head effectively. I think that's probably what, what keeps me moving forward and keeps me going. You know,

Andrew Stotz 05:10
it's interesting, because, you know, in my world of finance, what I do is I measure the competitive position of companies across the world. Yeah, and, you know, try to understand their financial position. And when you measure the financial performance of companies, and you try to benchmark companies against each other to think, which ones have a sustainable competitive advantage, it naturally leads to the question, how did they do that. And I was giving a lecture last night, and I was talking about some world class companies, and they have this ability to get a very high price relative to the cost of what it takes to make that product. And then we talked a lot about kind of the value that they brought, whether that's reputational, or, you know, like Louis Vuitton bags, as an example, can get a price way above the cost of actually making them. But in the end, when I talk to my students, and I was consulting with two different groups, and one of them that they both had pretty good, you know, CEOs, and pretty good management teams. And the individuals on the teams were really good. But one of them was losing money, and one of them was very successful. And it really made me think, like, what is the kernel? What is that, that thing that builds competitive advantage. And I think that, you know, it is that spirit, within a management team, a spirit of cooperation, number one, because you can never get to sustained success, constantly competing with each other in the same company, but also that excitement, of bringing something great to the market and seeing it and being charged by that. And these things are very intangible. When I was younger, I thought that the things that I could measure were the tangible things, and they were the value, but I realized now that finance is just a mirror. But the actual things that are creating value, are the things that you're talking about, which is the passion, the excitement, the human element.

James Mulvany 07:09
Yeah. And I think you make a really good point there, you know, you've got to make sure that your team on onboard, when you're launching an idea, they've got to, they've got to, they've got to share that same passion. And it's your job as a co founder, director, whatever, to impart that on your, on your management team. And also, you know, um, you know, we're not a huge team, I have about 35, you know, employees in my businesses, and, you know, it's just make making sure that, you know, you're, you're in touch with everyone, and trying to sort of spur that kind of enthusiasm on, you know, even on sort of a lower ranking, so to speak, right up to kind of the senior management team. But yeah, I think just just getting everyone on the same page is so crucial.

Andrew Stotz 07:52
And I was lucky enough to have a mentor come along in my life, when I was about 25. He was 90 years old at a time. And he was really the father of the quality movement, Dr. W. Edwards, Deming. And when I listened to him speak, it just was magical. But one of the things that he talked about is that you can never build sustainable success. If you're if you're incentivizing your managers to compete against each other. And the idea of like, individually incentivizing them through KPIs and all these things that are done in big companies, the beauty of a small company in a startup is that you really have common goals, and you feel an obligation, each one, you know, individually to it. And I suspect that's why innovation really comes from small companies rather than big ones. Hmm.

James Mulvany 08:45
And also, you know, it's funny because like, even with huge companies, so if you look at McDonald's, I've got lots of friends who started out working in McDonald's, and they look back at it and have like, really good memories. They loved it. They love working for the company, you know, even if they're just you know, on the backline flipping burgers or whatever it it's just, they've obviously got that part of their business, right. I think that's quite quite interesting for such a huge company anyway.

Andrew Stotz 09:06
Well, we have my best friend and I have a coffee business in Thailand called coffee works. And it's a factory and it's a b2b coffee roaster. And we've had them for about 25 years, and let's say we have about 100 staff. But Dale started at the age of 16 or so working at McDonald's, and he just has so much respect for their systems and their trainings. Yeah, very, very impressive. Very impressive. Well, that's a great intro, and I'm glad to get to know you and but now it's time to share your worst investment ever. We can't go on with all that fun stuff for too long. So since no one ever goes into their worst investment thinking it will be tell us a bit about the circumstances leading up to it and then tell us your story.

James Mulvany 09:50
Alright, so um, you know, this is probably going back about four or five years. You know, I just it was a probably about a year After launching radio CO, you know, we thought we'd had a very good first year, I had some profit, I was thinking, Okay, how can I invest this. And you know, I've been very much engaged with the startup scene in the local area, over the, you know, the subsequent years gearing up to launch and everything we'd want to, we'd won an award, and I kind of was like, you know, a lot of these startups were pitching for investment, you know, I was really in a privileged position that when I launched my business, I didn't have to take on investment. And, you know, it was kind of privately funded. So I was thinking, right, I'm kind of want to leverage my knowledge and my skills as an entrepreneur, and invest in some other businesses. So I started going along to various different Angel pitching events and sitting and it was interesting, for my perspective, networking, meeting a lot of entrepreneurs who, who were kind of well well beyond the process than myself, that they kind of exited their businesses, they were sitting on lots and lots of money, and they wanted to invest that. And again, you know, fascinating characters. So it was really good for networking from that perspective, as well, you know, meeting some really successful entrepreneurs, but I was like, sat in the room, you know, I'd been to a few pitch events before, but I never sat on the side of like, I'm here to invest my money. So, you know, one of the things that is kind of quite common in ANGEL circus is the idea of having a syndicate, which is when obviously, maybe five or six of you get to go invest in businesses. So I very quickly found myself involved in a syndicate with some really top notch guys, we made a few investments. And, you know, it was one of these things where I didn't really know what I was doing, because I was kind of completely new to this, they sort of saw me as like, Oh, he's the IT guy, you know, he knows how to build mobile apps and software. So any investment that kind of had that element to it? I was sort of responsible for sort of giving like, yeah, okay, I think this is a go or no, and obviously, they would have their own opinions and everything too. But ultimately, they were like, yeah, you any investment we make in and it kind of focused company, you're going to be the one who's going in and sort of like, you know, mentoring them and managing it, which was fine, I didn't have an issue or not. So we had a few different pictures, I'm trying to think of them. And one of the ones that stood out the most was was the concept for a augmented reality game computer game, you know, like, this was, say, 2016, I think and there was loads of, at the time hype around these, these, these goggles that, you know, you kind of play games, and, you know, Facebook just launched Oculus on Google, or had one I think, and Microsoft will bring, so there was all of this kind of, you know, buzz around that. And it's interesting, because now looking back at it four years later, really, these devices, just they haven't taken off at all. But we were like, yeah, this is going to be a huge opportunity. If we can be like, one of the first, you know, these guys can be one of the first companies to market with an augmented reality game, that's a decent quality caliber, you know, we're going to, we're going to be rich, we're all of we're gonna make huge amounts of returns on our, on our angel investment at that early stage. And this company wanted to think, I think they wanted 70,000 and as a sort of like a, you know, an angel round, so we put in, like, I think 20, maybe 25,000 each, it's between five or so yeah, 75 k, something like that. And, you know, for me at the time, I was what 2028 29 and, you know, so 25,000 pounds, quite a lot of money. And, yeah, I was like, Okay, I kind of set aside, you know, sort of a chunk of money to invest, I think it was, in total, I made like three or four investments all around that same level. But you know, this one seemed really exciting, because it was like, you know, put cutting edge technology, augmented reality, etc. and the team behind it, there was three guys, they all seem solid. So one of them was, you know, computer games producer, he worked on big game, big name, games, etc. One was a designer, and one was like the developer or programmer. So it seemed like an ideal team, they come up with a solid concept. And they have the skills to sort of bring it to market. So he put our investments in, you know, did all the GDL sorted out all the paperwork, and they were based in sort of CO working space, which they got for free, which was a good start was like really brilliant, and paying for office space here, which was actually in a in a bank. And so you know, the other side of town, so I go across to them over that sort of first year. And, you know, I'd be the one who basically was keeping an eye on it, and reporting about the other investors and occasion we have meetings now. To start off with, it was great, they seem to be producing this game, and coming up the concepts and, you know, again, perhaps the first boiling point is the the industry of computer games is totally different to the industry, which I work in, which is software as a service and kind of building web apps, etc. So I really have no idea about how the games industry worked, which probably was a bit of a, you know, a weak point to begin with. And the I think the concept was good, but they then quickly realized probably, this was only a couple of months after we've made the initial investment that The augmented reality wasn't necessarily going to be a goal, or I think there was a couple of devices, I think Microsoft announced that they weren't going to be releasing whatever it was called their device. I don't even know if they have in the end. But they basically said, you know, we're maybe going to hold the launch. But so immediately, they were like thinking, Okay, maybe we don't make this is an AR game, maybe it should be, you know, just a regular computer game. So they were sort of thinking, Oh, do we need to pivot? I said, Yeah, maybe that's a good idea, we want to try and get something out, we don't want to end up just with this kind of concept that no one can actually use. So that was kind of, you know, failing point number one, and I kind of at that stage thought, yeah, it's fine, we can still do something with this, you know, at least they're, they're adapting to the market change. And perhaps, you know, I think they were basically saying, you know, this augmented reality thing, maybe is not going to be as big as perhaps we thought, or it's going to take a couple of years before it really gets to that point. And the the sort of second failing point was, one of the guys who was part of the team, then sort of seemed to, you know, and again, this is common in startups, he kind of had fallen out with the two other guys. So he was, I can't remember exactly what he was doing. But I think he just he went off to, it went off with a girlfriend to another country or something. And they kind of, they couldn't get hold of him. And, you know, he kind of and was kind of sort of getting in touch. And eventually he sent them all the stuff he'd been working on. And at that stage, we were like, okay, we need to get rid of him from the business. And we were trying to get him to resign as a director of the company and basically forfeit his shareholding. And, you know, he was just, he just went off the radar, like, we couldn't get hold of it. And we were at the stage when, you know, myself and the other investors were getting quite furious with the situation because of like, you know, we thought you knew this guy, we thought he was trustworthy. And, you know, this is kind of part of your pitch is the three of you are going to work together. And of course, now this guy's gone off and doing whatever, he's got bored of the idea effectively. So that was kind of the second downfall. And then, you know, this, at this stage, we will probably year into the, the sort of the initial investment, they were starting to then run out of money, of course, which, you know, happens to a lot software companies. And at this stage, we were saying, right, you know, this is on your head to go and raise more money now, like, you need to go and sort of hustle. And the director of the company, you know, from our perspective, as investors, it just seemed that he was like, unable to do this or scared or apprehensive, I don't really know what because by this stage, they, you know, they put together, it wasn't like a fully functioning game, but it was, it was a concept that they could demonstrate, you know, they have visuals, it's something that, you know, you could see as an investor look pretty, pretty darn good. You know, and I thought that, as I say, it was a solid, solid concept behind the game, you know, it would would have been, would have been a goal, or if they had the right investment, but, you know, that was kind of leaning towards the final nail in the coffin. You know, we probably gave them a few months, and at that stage, I think they'd hired a couple of extra people, and they had to let them go, just so they could kind of preserve what funds they had left. And yeah, they were sort of very, very swiftly running out of money. And at that stage, you know, we were sort of, we were chasing up with them, like every other week going into, you know, I was going in and out every couple of weeks and saying, right, how's it going? And I think at that stage, you know, it was really frustrating because I, I didn't really know what to do. Because my lack of experience, specifically with how the computer game development cycle works, and the fact that you have to, you know, there's different terminology, so you obviously have to sign it to, obviously, when you're releasing music, you know, there's kind of almost like a record label, you know, a studio, I think it's called, which has to learn and it has like distribution partners and stuff. And I really just didn't understand this process at all, like, I'm used to just building software, putting on the internet and then sort of focusing on marketing it. And there was these these steps in between the kind of building the software and then selling it to consumers, which I just hadn't hadn't experienced before. So I kind of was completely felt like I was out of control, you know, the situation I was out of my control, I couldn't advise them on what to do. But they supposedly spoke to Sony and they spoke to, I don't know, whatever other games companies that they talked to, and eventually just got to a stage where the funds have really dried up. And and, and then very Unfortunately, the main director had it actually became quite ill, which was obviously just one of those things. And you know, that was it, they ran out of money that they had very little to show for the money we put in there was obviously no assets involved in the company apart from like, you know, three grands worth of computers or something. So, that was it. There we go. I was 25 grand down and, and that was my, my sort of first failed angel investment which was which was quite painful.

Andrew Stotz 20:00
Yeah. So tell me what lessons you learn from them?

James Mulvany 20:05
Well, I think, you know, part of partly is gonna be, you know, if you don't understand the industry, I was I was very much thinking, Oh, it's computers, I know about computers, I know about building software, therefore, I'll be able to offer a lot of value to this business. So I think if you're going to make an angel investment in either needs to be in an industry where you actually, you know, you're completely convinced that the money going in is good hands, they don't need any kind of mentoring or hand holding from you. So it's very much just like, a hands off investment. Or if you're gonna make a hands on investment, it needs to be something that you understand for sure. Like, and I just as much as I thought I would understand building computer games, because how different can it be to building software? Actually, I had no idea.

Andrew Stotz 20:53
All right, what else? Anything else?

20:58
Um,

James Mulvany 20:59
I think that was really the main learning, you know?

Andrew Stotz 21:02
Yeah. But at the same, yeah, that saying stick to your knitting.

James Mulvany 21:07
Yeah. Stick to your knitting. You know, I, in retrospect, yeah, that's, that's exactly, I think it was two, I think I was also really like, sold on the idea initially, not just me, at probably on the other investors, about the whole augmented reality AR VR thing, and I was like, shiny new object, this is going to be the next big thing, you know, it's a bit of a gamble. But the payoff will be huge, because there's going to be so much hype about that. So I suppose that's probably one of the other learnings is, you know, maybe don't invest in stuff that's, or don't, you know, if you if you're gonna invest in stuff, that's kind of like really volatile, potentially, you know, be prepared to lose, it could win big you can lose, of course, just like any investment, but you know, particularly with something like, that's kind of cutting edge in new like, like AR

Andrew Stotz 21:52
Yeah, yeah. So let me summarize some of the things I took away from it. The first thing is, you know, I think there's a real, there could be a strong argument to say in angel investing, if the company starts to pivot, stop the business. Hmm. And I know that sounds a little weird, because I have the lean startup and all that stuff about pivoting and stuff. Yeah. But you know, you got to have a lot of money. And I and I, as I call it, at that point is chasing the revenue, you just end up, you know, and if you end up chasing the revenue, you've, you've lost what you originally planned to do. And the original investors did not come in, to invest in the skills of this management team to find something. They invested in the skills of this management team applied to this idea. So pivoting is an interesting point in any startup, that really is a point, from an angel investors perspective, I think it's a time to take stock. A good way to think about that in the stock market is to ask the question, Okay, wait a minute, if I didn't invest in these guys, and I've come across them today, and I've heard this new idea they've got what I put money in. And that kind of Zero Based Thinking helps you to think, you know, clearly, the second thing that I have learned is that there's a difference between starting a new business, and a never before seen business. You know, a new business could be a restaurant. You know, it's, it's okay, you've got your spin on it. But you know, nobody's going to say, Hey, how's it how's a restaurant gonna work anyways? Well, no, we know, restaurants work. You know, the point that you're making about that, at the end was, you know, kind of this point about, be aware, when you're investing in completely new things, because it brings on a huge level of risk. That, yes, it must be taken, and people want to take it, and it will occasionally be successful. But it definitely brings in a lot of a lot more risk. And I think the third thing that I would say is that I remember. I remember working for a boss many years ago, who was really good guy, and he had really good analysts on his team. We were a research team. But he never was able to get the team to work together. And he hired individuals, and they were very good and they did their thing. And then later, what I learned is that to be successful in research, where I built research teams, what to be successful in research, really, what you just need to do is stay together. You don't need to be amazing, because the amazing guys crash and burn and they quit the other place or this place. But just to keep a team together and treating each other well, is really a huge part of success. So those are three things I take away from anything you'd add.

James Mulvany 24:53
Well, I was going to tell the other story about my failed financial advice.

24:59
Tell it

James Mulvany 25:00
Yeah, so, you know, you know, a lot of entrepreneurs, I've very much like when I was starting investment when I was about 25. So I was like, right, I need to start getting a pension together, I haven't got a pension. And it's a good age to start investing and 25 very, very young got lots of years ahead of you. So I went in and started putting a found a wealth manager, selling putting some investments in. And probably a year later, I said, Oh, I kind of want to diversify. So I then he introduced me to another wealth manager, just because I thought, well, I don't want all my money, just with this one company, I kind of want to spread it around. So the second company that I was working with, I won't name them, but you know, it was a prestige wealth management company, you know, they had a good reputation, very old fashioned kind of approach, and, you know, quite sort of, sort of well known in the UK. And so over a space of a year, I invested quite a big chunk of money with him. And you know, how to catch up meeting six months in, it was fine, how to catch up meeting a year later. And the guy turned around to me and said, you know, normally in these kinds of meetings, you'd be wearing a suit. And either entrepreneur working software, like I've never really worn a suit ever, apart from maybe like the odd wedding or whatever. You know, so it was kind of a bit of a kick in the teeth from this guy who's supposed to be managing my money and obviously taking, you know, a fair commission from every penny that I put in. So of course, within 24 hours, either, I'd said I wanted to withdraw that money and move it elsewhere, because I was no longer going to work with them. But like, I just couldn't believe it. I was like, goodness me like, yeah,

Andrew Stotz 26:41
this is a couple of things about that. You know, I mean, the first thing is that you're smart to just walk away, just stick around for some of that abuse. And if it doesn't, you know, it doesn't make sense. It doesn't make sense. But I had a few good comebacks for you, you know, you could have said, Well, I was gonna buy it with the profit. You made me.

James Mulvany 27:01
Yes, I would have been kissed.

Andrew Stotz 27:02
Yeah. Well, I would have said when normally within one year, you know, people would be making profit for me. But I your gentle man. Yeah,

James Mulvany 27:13
exactly. Well, let me go. I just, I think I just I was so I was I was I've never been in a meeting where I've had a comment like that thrown at me. Yeah. And it was just me and him. And I was just so baffled by it. I just don't think I even knew how to react. I just walked away and said, okay, screw you. See you later, you know? Yeah. All right.

Andrew Stotz 27:30
So based upon what you learned from this story, and what you continue to learn, what one action would you recommend our listeners take to avoid this whole Angel mistake?

James Mulvany 27:41
Well, I mean, you know, it is going to be risky business doing agent investments. And I think there's no, there's no Surefire answer to that. Of course not, you know, I've had another agent investment, which seems to be doing really, really well. It's grown from strength to strength. But, you know, there's, it's just a case of, I suppose, I suppose, just if you've really scared of it, just don't go into something you don't understand. Like, that's, that's basically it. If you go into something you're not 100% sure on, you're gonna have to be prepared to, to lose out. But of course, with like, angel investing is tremendously can be tremendously risky, you know. So

Andrew Stotz 28:18
I'm curious if, you know, you mentioned something in the beginning of the story about how these well respected guys within the syndicate, you know, said, Hey, you should do this, you know, you've got the qualifications. And you said, do yourself, you said, I'm not really qualified for that. But you know, since they asked me,

James Mulvany 28:36
oh, I think at the time, I don't know, I think I probably thought, Well, how different can it be? games versus building software? I think they were kind of saying that to me, as well. So it was just like, you know, it ultimately, I suppose maybe we could have gone and actually fat seen if there was an angel investor who had come from that industry, you know, that would have been good. It Again, I think the thing is, with angel investment, there's a lot of them are very much just like they consider themselves business experts on all manner of things. And a lot of them are, you know, they have a lot of experience in a wide range of experiences across different sectors and investigated different kinds of companies and also running their own businesses. But ultimately, you can't know everything about every industry. You know, that's, that's the long short of it.

Andrew Stotz 29:21
Exactly. All right. Last question, what's your number one goal for the next 12 months.

James Mulvany 29:25
So we've just launched a platform called matchmaker.fm, which is basically a matchmaking service for podcasters, and guests. So if you're interested in getting featured on more podcasts, sign up as a guest, or if you've got a podcast, you want to book more guests, you can sign up and find lots of interesting people on there. And we've just hit I think we're about to hit 13,000 users, okay. And that's been in the first eight months. So we launched this in February 2020. So growing really quickly, I want to try and get 100,000 users over the next year.

Andrew Stotz 29:53
Fantastic, exciting. And I just signed up today, in fact, before this call, so I'm looking forward to it. flooring and learning? What? Yeah,

James Mulvany 30:01
let me know how you get on.

Andrew Stotz 30:03
Yeah, definitely. All right listeners, there you have it another story of laws to keep you winning. Remember to go to my worst investment ever.com to claim your discount on the course that excites you the most. As we conclude, James, I want to thank you again for coming on the show. And on behalf of East Arts Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

James Mulvany 30:32
Hey, just go out there and go out there and succeed.

Andrew Stotz 30:36
Do it. Yeah, well, that's a wrap on another great story to help you create, grow, and most importantly, protect your wealth. Fellow risk takers. This is your worst podcast host Andrew Stotz saying. I'll see you on the upside.