From £4 Million to Broke: This is Our Startup Horror Story
It’s time to make this story public. Jo and I have dined out on it long enough and I think we have told the people closest to the company face to face now. So we can now write about it.
Many of you will have known that Jo York and I ran a business for a couple of years called Reframed. I won’t go back over what Reframed did, but a lot of people thought it was cool, we had attracted some very high profile non-exec directors and mentors and around £500k in investment over the years.
Yet, a few weeks ago we had our penultimate board meeting. We didn’t know at the time, as it went brilliantly. Neither did we know that a month later we would be discussing giving our investors opportunities to save the company from going under.
At that board meeting we celebrated having £350k investment on the table at a £4 million valuation. Which was, at that time, considered to be the ideal round of investment for us.
Two weeks after that board meeting we had no staff.
Throughout this story I will remove most individual’s names and company names. Many people suffered from the fallout of what happened and that is their story to tell. A name I can’t really remove from the story is Simon Wood.
Simon Wood took up an office in the same building as us, on the same floor. He became known to us in the office as ‘the shouty man’ as you could always hear him on his phone in a Dom Jolly-esque way. He was running an advertising company, ran Adwords training, and we were told by others in the building that he was ex-Google.
Early on in his time in the building a member of staff got chatting with him and told him what we were doing. He mentioned that he was running a conference and was wanting to ‘Reframe’ it. So Simon became a client of ours.
He also wanted to speak with me about advertising — we had assumed that he was wanting to advertise on the site. But after a 15 minute discussion I found out that he ran his own ad network and was interested in managing the adverts on our site.
Up to this point we had been unsuccessful in getting adverts onto Reframed in a way we were happy with. We’d spent over £2k and 3 months paying someone to try and get it right.
Within 40 minutes of our meeting Simon had adverts displaying on our site in the way we wanted. Nice one! We had found our ad supplier.
We sat down with him and worked out the deals we would offer and how much capacity we each had to display ads and sell ads.
Simon took on the rest of the top floor of the building with desks and brought in staff to sell ads on Reframed.
Every day, many times a day, he would come in and interrupt us proposing one deal or another:
“Wonga?”, he’d ask.
“No, not on our site”
“Perhaps, in the right context. Not 100% comfortable”
“Virgin want an exclusive deal and will pay up front”
And so went our days of being interrupted by our ad supplier, but it was important to prove the financial model as we were going to raise investment on it — it was why we had delayed raising.
He had a quick turnover of staff, with only one or two that stayed more than a week.
One day he approached us and said he could see the way the business was going, he was excited about the partnership and that he would be interesting in investing. It would essentially be backing something that he had influence on the success over. He asked what the least amount of investment we would accept would be.
We said that we’d be willing to do the paperwork for £10k as it wouldn’t be a bad place to start the round, anything less than that would be better for us if he did it through the crowdfunding platform.
We hadn’t known that he had been running events and letting people know that he was an investor, having people pitch to him and things — we just knew him as the shouty ad guy so we’d never approached him for investment.
He said he had £25k he’d be willing to invest. Brilliant — great place to start. It’s how we started our last round, Steve Pankhurst (Friends Reunited founder) put money in and everyone followed. We knew we could get more investment off the back of it.
So we continued to go out to investors, only now could let them know that we had someone committed and that we were proving the financial model. That the ex-Google ad guy was so sure of the model we worked on together that he was backing us himself.
A few days later he asked us to meet with him. We sat in a room and he went through all the standard investor questions you get used to being asked. He talked about the info that his wife, Angela Wood, would need to invest. Up to this point we had nothing to do with Angela. But from about this point she was added into our Slack channel to talk about the investment.
At the end of the meeting Simon said that he had other investments, that he used the same legal team as us and that he had a meeting immediately after this one to pull some capital out of another investment.
He ushered us out of the meeting room and ushered someone else in. He said he had already invested in that company and that she was asking for more.
Later that day Simon came into our office and phoned the legal team we both use. He talked to them about investments and pulled more capital.
Simon now had £100k to invest.
We were looking for £350k total, so £100k is a big chunk and covered the ‘new money’ we were going to need to release funds from our current investors.
All looking good.
Interruptions continued for a while. Simon kept coming into our office with either questions as a client, as an ad-supplier, or as an investor.
We had been coaching him on investment strategy, on what our equity share meant, and what the ideal round would look like from our perspective.
I’m not sure exactly, but I think he said he sold a house and managed to find £250k to invest in us.
Next was an offer of £250k from him, at a valuation we were happy with. He kept trying to push the valuation up (better for us, worse for him), but we weren’t comfortable with it. We kept negotiating back down in order to protect his investment and give us somewhere to go valuation-wise in the future.
One thing Jo and I always do our best to do is be reasonable in business dealings, we look for a way in which everyone can win.
So, we got term sheets for the remaining £100,000 of the money needed from our current investors.
£350,000, £4M valuation
We were in a brilliant position. We had £350k offered (from Simon and Angela Wood, plus incumbents) at a £4 million valuation. This left us with enough founder equity to raise a proper next round, if the financial forecasts stacked up.
We had our board meeting on the Thursday and pretty much all high-fived — life was good.
The very next day, a good friend of ours took us to one side and said, “I have some concerns about Simon. He hasn’t paid any of his invoices. We were expecting around £25k from him”
Jo and I were not actually surprised. It had all been too easy, and raising investment is never this easy. So on some level, we’d been waiting for something bad to happen.
We went back to the office and immediately started doing due diligence. Jo did a remarkable job at maintaining a calm outward appearance and talking to Simon normally, while I furiously and angrily googled him.
It didn’t take too long to find a company in the name of Angela Wood and Simon Wood that had CCJs (County Court Judgements — i.e debt) against it.
I confronted him, he was surprised and impressed that I had found it. Said it was “no issue” and that he’d clear it.
I wasn’t happy, I could feel all the plans tumbling down. I went downstairs and spoke with an advisor, asked what they would do (I also had a feeling they knew the guy professionally), told them I was doing due diligence. They advised we asked for proof of funds.
So I did, I told him that CCJs are going to slow things down, that we need proof of funds.
Again, “No issue”, he would have to take a few screen shots because the money was in different places.
This was last thing on a Friday. We went home for the weekend not knowing if we any investment. I pushed him and pushed him over the weekend and obsessively did more and more due diligence.
It should have taken him an hour tops to get me the information and I needed. Without it, I didn’t know if I needed to go in on Monday and start raising investment again, with just couple of months runway. Or if we could still go with the £10k per month marketing budget plans.
On Sunday morning he said that he had discussed it with Angela and they thought it best to not continue with the investment.
Of course he wasn’t going to. By then I had managed to find 19 different companies, most of which dissolved, some of which with debts registered to Angela Wood, Simon Wood or Simon Wilson… which turned out to be his real name (Simon Matthew Wilson) [Edit: I’m informed he’s currently going as Simon Wilson-Wood / Simon Matthew Wilson-Wood].
The Ad Guru company he was trading as did not exist as a limited company in any of the countries he mentioned. It certainly didn’t look like he had any money.
Best guess is, he lives in a £75,000 house in Durham owned by his dad. The 19 companies ranged from catering, to Durham tours, to web design.
So — we had no round of investment. We had to go back in on the Monday morning and tell the team the round had collapsed. That we had to go back out to investors and had very little time to do it.
That week was fraught, as it was the week of a major conference that we were working with. It was the first time we were displaying adverts on someone else’s site through our system, but we couldn’t trust Simon — we had no guarantee that he wouldn’t try and display something malicious.
We had to rebuild the ad system from scratch to ensure that no one could maliciously inject adverts onto our system. It was too much of a risk to leave it in the control of Simon.
Once we got control over the ad system we realised that the adverts were affiliate links, i.e. not unique to us. The companies advertising had no idea they were advertising on our site. We had no relationship with them.
It slowly dawned on us that the financial forecasts we were basing the raise on were useless. It was based on information from Simon on adverts that were not real, and deals that did not exist. The financial model was broken.
The following Friday afternoon, while working out exactly how much runway we had left before we had to stop, we realised that we had not voided the invoices for the money that Simon owed us as a client…
Once we removed that we realized that we had until the end of the month.
So, we had to come back in on yet another Monday and deliver the news to the team that we could not afford to continue. That they needed to find new jobs, and the sooner the better. We informed the board.
Since then we’ve been making sure that we could dissolve the company solvently by covering the debt personally. It has unfortunately cost Jo and I quite a bit financially.
We (and thankfully our brilliant Chairman, who along with our non-exec have been amazing support) wrote off all the unpaid wages the company owed us. We would have gotten these back after the raise, and then covered any invoices left outstanding ourselves.
The whole thing was difficult to see coming from the inside. Simon had no way out other than failure. There was no way in which he could get any part of the business, as he simply didn’t have the money.
I didn’t consider that someone’s exit strategy would be failure.
So. What’s next for us?
Jo and I pretty much immediately incorporated a new business and started building again. You have to just take it on the chin and move on. The hard bit was telling the team they had no jobs.
The reality is, it’s not Simon’s fault that we didn’t have a commercial business. If we had, then raising investment would have been easier earlier. Yes, he absolutely didn’t help, and the whole experience wasn’t great to go through. But we’ll make sure the next business is commercially viable earlier.
But still, our business and team suffered at the hands of a fake client, fake partner, and fake investor.
Looking back there are so many things that we should have picked up on:
- He told us his middle name was Boudicca (it isn’t, of course). We have signed paperwork from him Simon B Wood.
- All his staff were apprentices (We didn’t know this at the time) and we have since heard that he would send them downstairs for a ‘time out’ if they had done something wrong.
- Oh — the phone call to the legal team from our office? Fake. he just pretended to call them.
- Angela Wood? We never met her, I know she exists as a legal entity. But it could have just been him on Slack pretending to be her for all we know.
- Ex Google? Not a chance, made up.
So what did we learn?
- It hurts to say goodbye to a team that you enjoy spending time with.
- We need to do due diligence earlier.
- People actually care about us and what we do (thanks for the support!)
- If something looks too good to be true then it probably is.
- If your gut instinct is that you don’t like someone and don’t want to work with them, then don’t.
We’re happy to follow up and answer any questions people have.
We’d not said anything publicly until now, not chased him legally or gone after him in any way. It’s not our style and we have too much to be getting on with. If he is damaged by the fallout from his actions then so be it, but it’s not my style to seek revenge. However, we’ve been encouraged by people close to us to make this public so that his name is out there and hopefully he cannot dupe anyone else. I think others affected will be writing about him too. So please, if you see his name (if he uses one of those two) attached to a project then tread carefully.
Also, look out for our next project! We’re pretty excited about it.