Elliot Moss
A bouncy and upbeat version of The Beatles classic, Can’t Buy Me Love. That was Ella Fitzgerald. This is Elliot Moss on Jazz FM with Jazz Shapers, the place where you can hear the very best of those people who are shaping the world of jazz, blues and soul alongside their equivalents in the world of business, a beer moth from the business world, a Shaper no less. My Shaper today is Giles Andrews. He is the co-founder and executive chairman of Zopa. Europe’s largest peer-to-peer lending platform and if you don’t know what a peer-to-peer lending platform is you will by 10.00am I promise. Lots coming up from Giles today. In addition to hearing from Giles you will be hearing from our programme partners at Mischon de Reya, some words of advice for your business. And on top of all of that, I promise you a punchy and proud mix of music from the shapers of jazz, blues and soul including Rebecca Ferguson, Albert King, Marlena Shaw and this from Billy Taylor.
Billy Taylor with the incredibly famous I Wish I Knew How It Would Feel To Be Free. Giles Andrews is my Business Shaper today here on Jazz Shapers and as I said he is the executive chair and also co-founder of Zopa. I love the name. Not to be confused of course with the property search company which sounds remarkably similar.
Giles Andrews
We were first with our name.
Elliott Moss
Good I knew you would say that, I knew I would peak your interest straight away. Giles thank you so much for joining me. So Zopa, tell me in a nutshell, what is the elevator pitch to someone who has never heard of peer-to-peer funding?
Giles Andrews
Peer-to-peer lending is effectively creating a market place where people who have some money which otherwise they might buy an investment product with or put in a bank and buy a savings bond, and connecting those people with people who want to borrow money and by connecting them directly on our market place and not going through a bank, everybody gets a better deal. So the investor gets a better deal than they would by sticking money in a bank and the borrower borrows money more cheaply and more fairly.
Elliot Moss
It’s a genius idea.
Giles Andrews
A very simple idea.
Elliot Moss
A very… as all the best ideas are I guess. How many people have benefitted from this since you opened your doors back I think it was in 2004 or so?
Giles Andrews
So we launched the business in 2005 and we have just lent our billionth pound.
Elliot Moss
Wow.
Giles Andrews
And we have helped about two hundred and twenty thousand people. So about two hundred and twenty thousand people have either got a better return or got a better loan.
Elliot Moss
Now the experimental psychologist which I believe you were post-Oxford. Did you ever think you would be running a business that had lent a billion pounds or indeed you set up a business before that and sold it as well – what happened? Where did the desire to understand the brain become a desire to understand the commercial opportunities in front of you?
Giles Andrews
Well psychology was an interesting choice. I read science at school and didn’t enjoy it very much and thought what’s the most different thing that I can do that isn’t biology or chemistry and I sort of did some research and it turned out that if I did psychology I could write a little bit, I wouldn’t say I was a mad keen essay writer but I was keen to get out of the lab and I really enjoyed psychology but it was never going to be a career. I never wanted to be a psychologist. I think some interesting people lead you to want to study psychology but I wouldn’t say it was an all-consuming passion. I also wasn’t the kind of person who woke up in the morning thinking I want to be an entrepreneur. But I had a sort of somewhat childish passion for cars and I remember talking to friends and family and saying ‘what an earth am I going to do with my life’ because all my friends are being told to go and become consultants or lawyers or bankers or something truly horrific like that and I knew I didn’t want to do any of the above and I actually talked to my brother who was an accountant and hated being an accountant and I said to him ’Well you picked accountancy because you didn’t know what you wanted to do so is that a natural thing for people who don’t know what they want to do? Shall I go and become an account’ and he looked me in the eye and he said ‘If you become an accountant I will never speak to you again. There must be something that you really enjoy doing and try and exploit that’. So I thought well I like playing with cars so why don’t I try and get a job in the motor industry.
Elliot Moss
And we are going to hold it just there because we are going to hear all about what happened next and how that led to I believe a business that was turning over around two hundred and fifty million quid and some decent profits too. Time for some music in the meantime, this is Rebecca Ferguson and Get Happy.
That was Get Happy from Rebecca Ferguson, another cover and it has been done by loads of people, Frank Sinatra, Billie Holiday, Ella Fitzgerald, you name it, they’ve done it, a phenomenal song and I am talking to Giles Andrews today who said he absolutely didn’t want to be unhappy, didn’t want to go and become an accountant, who can blame him – nothing against accountants, they are wonderful people – but you didn’t want to do that. You loved the cars themselves and you ended up I believe co-founding a business called Cavadale. Cavadale is that how you say it?
Giles Andrews
Cavadale.
Elliot Moss
Cavadale. Which then went on to I believe be sold.
Giles Andrews
Yeah so a group of people took control of a shell company that was listed on the main London stock market in the depths of the ‘90s recession so 1991, with a view to acquiring car dealerships at a time when car dealerships were going bust. So family businesses that had been around for a while had typically over invested in the boom years of the late ‘80s and got themselves into trouble in the early ‘90s and that was a grand plan. I mean it was a sort of timing was, was fantastic, the only problem with their plan was none of them knew anything about cars and they came across me who at the time was sort of in my mid-20s and running car dealerships for a national chain which still exists actually, a company called Lookers and looking to do something sort of more on my own and I was if you like, the car guy in the team and was given enormous freedom as someone… I think I was 25/26 years old… and we set up a business and we went round acquiring businesses and over the next five years built up a chain, ended up I think thirty one dealerships and we were turning over about two hundred and fifty million pounds and represented most manufacturers.
Elliot Moss
Wow.
Giles Andrews
And had an enormous amount of fun and timing, as in everything in life, is everything and towards the end of the ‘90s it became clear that the market was pretty strong and it was a good time to sell the business.
Elliot Moss
And you had skin in the game as well at that point or were you an employee?
Giles Andrews
I was an employee but I was the first employee if you like so I had a reasonable chunk of equity.
Elliot Moss
Sounds good doesn’t it. Not too bad for your first business and you weren’t… what age were you when you actually sold the business?
Giles Andrews
Thirty one.
Elliot Moss
Okay.
Giles Andrews
And disappeared off for a year and…
Elliot Moss
Did an MBA.
Giles Andrews
I did. I had actually… so having once upon a time studied and used part of my brain in the eleven or ten years that I had been working I had sort of… it had been a very trading type occupation and I had a sort of hankering to sort of see if my brain still worked and go and study again and I had a, I had a sort of bet with the chairman of the company who’d been to NCI Business School in France, I won’t say many years before, he wouldn’t thank me for that, but a few years before and we had a bet that if we ever were successful in our mad venture in cars and if I could get in, then he would support me to go to INSEAD which all happened and I had one of the best years of my life.
Elliot Moss
And find out what happened after that very shortly by staying with me here on Jazz FM with Giles Andrews who is my Business Shaper. Latest travel first in a couple of minutes and before that some words of wisdom for your business from our programme partners at Mischon de Reya.
You are listening to Jazz Shapers every Saturday morning I get the chance to talk to someone who is shaping the world of business, an entrepreneur, a co-founder, someone who has gone and done something. If you have missed any of those programmes iTunes is your destination, put in the words ‘Jazz’ and ‘Shapers’. If you are flying in the future with British Airways you can even relax and listen to some of the best interviewees on there as well or Cityam.com if you have missed a couple of others also. Giles Andrews is my Business Shapers today, he is executive chair and co-founder of Zopa. They are the peer-to-peer lending platform and they have just lent, if you were listening earlier, just over a billion pounds over the last ten years or so. Amazing stuff. Now we were at the point where you went to INSEAD Giles, where you had sold the business, you had taken… you had some equity in it, you were a young man, not that you are not young anymore but you were even younger then and you had a break. I mean I believe you set up a consultancy where you could advise start-ups and things like that.
Giles Andrews
Well I went back actually after INSEAD and some of us who’d embarked upon our car experience got back together, the company still existed so a holding company remained after the sale of the car business which at the time was sort of 90% of what the holding company did and a number of us got back together again and I always think that entrepreneurs learn more from their failure than their success and the next period was not a great success, in fact we all sort of partly fell out with each other and I ended up leaving the business and as you say, setting up a business on my own with the intention of remaining on my own and doing a bit of angel investing and helping start-ups raise money with the incredibly fortunate piece of luck that I managed to sell a piece of consultancy service to a very major retailer who was at the time investigating car retailing and I persuaded them that I knew more about car retailing than they could hire from McKinsey or BCG or something like that and sold them a six week piece of work that turned into a sort of intermittent two or three year project which was fantastic and met some great people and having that if you like, as a, as a back drop allowed me explore other things on my own and as I said, do some angel investing and help some start-ups raise money.
Elliot Moss
And apart from that obviously you enjoyed that consultancy but you were looking at a number of businesses, it sounds like back to the idea of you not being a consultant, not being an accountant, not being a lawyer and those other things that probably what you enjoyed the most was being super involved in one thing and I imagine that one thing when it came along and it was called Zopa was something that really kind of got you interested. How did that… was it a chance meeting with that group of people?
Giles Andrews
So I was looking for a project, you are right and one of the guys who came up with the original idea of Zopa was a friend of mine called James Alexander who I had been to India with six or seven years before and he had been part of a group of people who had left the on-line bank Egg, a group of people led by someone called Richard Duvall and about ten of them left Egg at the same sort of time towards the end of 2003, early 2004 and set up what they called an incubation unit if you like, to explore ideas predominantly in financial services because most of them had a background in financial services.
Elliot Moss
And this idea of peer-to-peer, how did it happen? Did they suddenly say ‘Oh I know what it is, that’s what’s missing’, I mean that’s a very big idea to have.
Giles Andrews
So the youngest guy on the team was a guy called Dave Nicholson who’d worked in the strategy team at Egg and he came up with the idea of peer-to-peer lending and called amongst other things, Ebay for money in its sort of early iteration. In fact the working title for the project was Rialto which is a bridge in Venice linking two market squares and it was a very very simple idea, connecting people who had some money who otherwise might invest it with people who would want to borrow it and the team, some of the team were really behind this idea, others weren’t. So the team was beginning to fracture and it ended up with three people thinking this is something we want to do and were unclear originally as to how to raise the money to get the business launched. So I got a phone call from my friend James saying ‘Giles don’t you help start-ups raise money, you know, would you like to come and talk to us, maybe you could give us a hand’ and I think we were, you know, everyone was pretty unclear, is this a business that we could go out and range angel funding for, you know, a few million pounds or is it a business that we should try and get backing from a big corporate, that was one of the plans, in fact the team approached Betfair which I suppose in some ways was a similar business and looked to Betfair saying should the early Zopa partner with someone like Betfair and actually my suggestion was we should try and raise some venture capital funding for it so we should just build a business plan that was fundable by a venture capitalists and that’s what we did.
Elliot Moss
And find out how that happened for them in the first few years. In the meantime though, a bit of music. This is Mr Albert King with Born Under A Bad Sign.
Albert King with Born Under A Bad Sign. Giles Andrews has been talking to me about how Zopa happened and we were at a point where it’s all about raising money and you went for some venture capital. I often get asked the question, you know, how does it… how does that work? How do you have a credible story that people buy in to that then allows them to part with money, hard earnt money, someone’s hard earnt money, not your hard earnt money but someone else’s, what was the, what do you think looking back were the reasons why I think you raised over thirty five million quid?
Giles Andrews
Not all in one go.
Elliot Moss
As I imagine, not all in one go but over the period of time that you’ve done it, tips from the top Giles. Just a couple of things – the do’s of raising money – what would they be for you looking back?
Giles Andrews
So the irony was none of us had ever raised venture capital before that point so I had raised money on the public markets in my Cavadale days but none of us had ever raised venture capital so we were pretty naive but now looking back with hindsight, what is it that venture capitalists value in businesses and the economics of venture capital are such that they need businesses to be extraordinarily successful, you know, one or two of their investments to be extraordinarily successful so they back big ideas. So you can go and present and dispirited people sometimes come to me and say they are failing to raise venture capital, they’ve got a great idea for a business and they can’t get venture capital funding for it and typically that is because the venture capitalists don’t think it could, not will, but couldn’t necessarily bring enough so no matter how good a business it is, it can’t make them the sort of hundred x return that they want something to make them. So every business that gets venture capital money has to have some chance, it might be a very small chance, has to have some chance of being a genuinely big, potentially global business. So they back big ideas and Zopa was a big idea so no-one had ever done it before, there was a lot of questioning around if it’s such a clever idea why has no-one ever done it before and I think we had some quite good answers to that around how it was only recently that technology could be used in a manner that was cost effective enough to be venture fundable. So Egg had been built at a cost of over a hundred million pounds. That’s not a cheque size a venture capitalist would invest in but we came up with a credible plan to build it for an amount of money that could be financeable by venture capital.
Elliot Moss
And then just looking forward a little bit obviously, one of the key challenges for a new entrant into an old market is confidence, especially when it is about money and I know you talked before to various people about one of the hardest things to do was to establish confidence and what happens if it all goes wrong. How do you address that fear, how do you get people over the hurdle at the beginning to actually part with their money?
Giles Andrews
So yeah you are right, it is all about confidence and trust and I think one of the overarching characteristics I am sure of many of the entrepreneurs you meet I think is one of optimism.
Elliot Moss
It certainly is.
Giles Andrews
So we optimistically believed we could build trust in our brand new idea because Ebay persuaded people to trust them, that you could send the parcel through the post to a total stranger and even in days before PayPal there was some reliance on money coming back again so we thought well what would be different about money. But we recognised it would be hard to build trust so we thought to ourselves well why are banks trusted and therefore how can we compete with that and it was quite clear to us that banks were trusted then, bearing in mind we are talking pre-crisis, for being incredibly big, solid institutions with you know, big vaults in the basement and big tower blocks in Canary Wharf but they weren’t necessarily trusted to have the best interests of the customer at heart and they weren’t necessarily trusted for being simple and easy to understand and they didn’t explain themselves very well, they didn’t explain how they made money so we thought well we can’t, we can’t compete with tower blocks in Canary Wharf or vaults in the basement so the one thing we can compete with is transparency and just make it really clear how it works, how we make money and therefore how our customers can engage with us and how they can get a better deal. I think we thought perhaps naively and optimistically that would be enough and the biggest lesson was in the first couple of years or so of the business we had this business that genuinely offered people better value but it was very very hard to get people to trust us.
Elliot Moss
We will have our final chat with my guest today, that’s Giles Andrews plus we will be playing a track from Marlena Shaw, that’s after the latest traffic and travel here on Jazz FM.
Marlena Shaw with California Soul. Giles Andrews is with me just for a few more minutes and Giles we were talking about building trust and I’ve talked a little bit about or rather you’ve talked a little bit about venture capital and raising it and the need for a big idea. It’s been ten years now, always a good pause for reflection, I mean a year is okay, three and five but ten is a significant slug of your life. As you look back and then I want to ask you about looking forward, where has it felt like it was really tough and you thought ‘Dunno about this, great idea but not going anywhere?’
Giles Andrews
So it felt really tough in sort of 2006/2007. We actually had a tragedy within the business, Richard Duvall, the first CEO and leader of the business died very suddenly. Which apart from, obvious tragedy to his family and friends was tough for the business as well and we at the time were trying to get established in the United States with limited success and we were trying to build trust in the UK and frankly while the business was growing, it wasn’t really growing fast enough to satisfy our needs as a team or the desires of our investors so I would say 2007 was… 2006 when Richard died, going into 2007 were the darkest hours of the business.
Elliot Moss
And from those darkest hours, how does one bounce back because you are here, you are telling the story, there’s a smile on your face, a glint in your eye but seriously, how have you managed to get through those times and why is the business now flourishing.
Giles Andrews
So I think… I mentioned earlier that entrepreneurs should learn generally more from their failures than their successes but the other point which entrepreneurs must remember is that life depends a lot on luck and at Zopa had some very bad luck which I just described but we also then went on to have some very good luck and I think we rode that luck well and maximised the opportunities that it brought. So we took some pretty tough action on the business in those dark times and cut costs dramatically and sort of went to our venture capitalists and said you know, we are going to have to pause for a while, this isn’t going to grow as fast as you, we or anyone else wanted but let’s at least get the business into a mode where it can survive. So I think that was an important decision to make. It meant we parted company with a lot of people who had become friends, some of the people who founded the business but I think it was absolutely essential to guarantee the future of the business and then having done that, we walked into the credit crisis and of course none of us, none of us were clever enough to have foreseen it but it was enormously helpful. I mean I say that without trying to sound like I am gloating at the misfortune of many people but the crisis was enormously helpful to us and it was helpful on two dimensions really, one that this trust issue we were talking about earlier suddenly became easier because the banks became villains rather than businesses that people didn’t really like, they became businesses that people actively disliked and when you have pictures of people queuing up on the News At Ten to take money out of Northern Rock or Bradford & Bingley or you know, institutions like that, then suddenly the idea of putting money into this new innovative business called peer-to-peer lending became less of a step and we were able to tell a story about how although we were only three years old and we hadn’t been terribly successful, the one thing we had done really well was lend the money we lent and it had all come back so we could, we got a great opportunity in the media to tell a story about this innovative upstart actually being more conservative, more sensibly run, more prudently run than the big institutions and that was a turning point and that was, that meant that the sort of trust issue by no means solved overnight, was on the way to being solved and at that point with a low cost business and you know, steeply growing numbers I thought this is a real business and this can work.
Elliot Moss
Thank you so much Giles, you have been a great guest. Just before you go though, I need one more thing from you, it’s your song choice and why you have chosen it.
Giles Andrews
I have chosen I’m Still In Love With You by Al Green. I think Al Green has the most extraordinary voice in the soul cannon if you like and without wanting to embarrass her too much, it’s a song that means a lot to my wife and I.
Elliot Moss
Fantastic, well here it is just for you.
That was All Green with I’m Still In Love With You, the song choice of my Business Shaper today, Giles Andrews. One of a small group of people who are genuinely pioneering in the financial services world, someone who fundamentally understood the importance of trust in that business and helped Zopa create exactly that with consumers and someone who was really humble, he talked a lot about timing. Well actually I think it was a lot down to his own ability to lead a business. Really good stuff. So join me again, same time, same place, that’s next Saturday, 9.00am for another edition of Jazz Shapers. In the meantime though stay with us here on Jazz FM because coming up next it’s Nigel Williams.