[00:00:00] James Pringle: welcome to riding unicorns, the podcast that celebrates high-growth businesses and the people behind them this episode is with Jeff Kaliski CEO of Cedars. See, this is one of the leading crowd equity funding platforms in the Europe. Thanks so much for coming on. Jeff.

[00:00:26] Jeff Kelisky: Real pleasure, James. Nice to see you again and thanks for the time.

[00:00:30] James Pringle: Great. So, can you explain to us your career today, what you've done and how you ended up at Cedars?

[00:00:37] Jeff Kelisky: my life started really as a tech guy from the very beginning. So I was a nerd back in the eighties when it was definitely not cool to be a nerd. and my, career trajectory was really starting, as a software guy, having a traditional career in corporates like IBM, consulting, period with HP Carney. again, working with, a lot of tech companies on that journey, until I did my first [00:01:00] startup which was MultiMap in the first internet bubble. and that was, typical, the six people in a windowless office in Covent garden, trying to, take advantage of what was happening at the time. Nine months later. The internet bubble burst and it was a global economic recession. and there was no funding available. So that was a fantastic time to have left a high paid consulting career. but fast forward and we made it it was one of the the best times looking back were really had to work hard on bringing like my consulting experience, my tech experience, my sales experience to get through that. so in the end, best time to take market shares during the recession, we did that, and by, 2003 with everything happening kinda collapsed in 2001, we had no competition in the UK. we had survived without doing any layoffs. we'd survived in the end by 2008.

[00:01:52] We'd grown the company to about 120 people, in the U S and Asia and Europe, and were acquired by Microsoft, where I [00:02:00] then was asked to run the local search and mapping division, commuting between London and Seattle, which was great for air miles. and actually it was a really great, uh, team, in Microsoft.

[00:02:10] So it was a fantastic time. after a number of years I left that Largely because of the commute. And then, did another transformation project to move a company from a traditional retail to a digital business and photography and leisure.

[00:02:24] and I was introduced to theaters really, at the tail end of that journey. And by the time I'd met Jeff Lynn, who was the founder of Cedars. I had now had three businesses where I stepped in where the fundamental mission was about introducing an entirely new product category.

[00:02:41] And when I met with Jeff Lynne and looking at the democratization of investment into private businesses, Through a platform as something that was quite, disruptive and, changing an industry that's not changed in over a hundred years, you kind of thought, what a great opportunity to apply my background [00:03:00] and experience to a domain that I hadn't really been in before.

[00:03:03] and a lot of the work that Jeff did at the beginning of his journey with Cedars, which was really back in 2009, 2010, I thought was incredibly thoughtful and really thought about scalability of crowdfunding from the beginning. And therefore I could work with, a sound founder and face business.

[00:03:23] James Pringle: Yeah did you get to meet bill Gates?

[00:03:25] Jeff Kelisky: I didn't get to meet bill Gates. Unfortunately I met Steve Balmer. but what I can tell you is that, there was a point in time. Can I tell you this? I'll tell you anyway. There was a point in time, where the MultiMap acquisition by Microsoft got stuck.

[00:03:40] and apparently there was an email from the lead, in Microsoft to bill Gates who at this point was chair, Microsoft and, and was, is a big mapping fan. Like he's, he's a huge map fan. And so therefore he was. Always involved at arms length of the projects that Microsoft was involved in the mapping.

[00:03:57] And there was an email effectively to build saying we're [00:04:00] stuck. And so, apparently a phone call later and it was unstuck. So bill directly intervened in the acquisition of MultiMap. And then when it was concluded, as I was driving, with Eric Jorgensen in London who was, the lead vice-president in charge of the acquisition.

[00:04:17] and he kind of pulled out his phone and he showed me the congratulatory email from bill Gates on our deal. so also I didn't get to meet him personally. he was directly involved. He had his fingerprints on it, which is, which is nice given them the number of things that Microsoft is doing at the time.

[00:04:32] James Pringle: Yeah. And how did the conversation to sell the business to Microsoft actually stop?

[00:04:39] Jeff Kelisky: Well, it's a great story in the sense that it's one of the classic ways, acquirers get comfortable with a target business, which is we were approached in, 2005. And, in that approach, effectively, it was very simple.

[00:04:53] I had a phone call. Microsoft was interested in, growing in Europe. I thought we had [00:05:00] made some good progress when, who was interested in acquiring us and would we be interested having conversations? So we had a few conversations in 2005, and some reasonably large meetings. and then it just went quiet and the message was effectively.

[00:05:14] Actually, we think we will continue and compete with you. And so from 2005 to 2007, that's what happened. So Microsoft then armed themselves and tried to have a go at entering Europe directly. They had already acquired vicinity, which was a US-based mapping company that had had some success in Europe.

[00:05:33] In the end, we got a call in 2000 and, seven, which effectively said. Really respect what you've managed to achieve. We have been unsuccessful at establishing a beachhead and therefore we were wondering if you would entertain an acquisition discussion again and to be the beachhead for Microsoft in Europe.

[00:05:53] we were in the middle of a fundraising process at the time. so we were doing our, series B and so we basically ran a dual [00:06:00] track process. We said, you know what. You know, really interested in what you have to say. we always had great respect for Microsoft, but we also want it to maintain our mission.

[00:06:08] And so we ran a dual-track process an acquisition option process and, and a fundraising. And at the tail end of that, process Microsoft was by far the. the best path for the business. it was quite rewarding, both the honesty with which they approached us the second time around.

[00:06:24] and what that meant to them in terms of us being the beachhead for your mission that they had to try to really own mapping in the industry.

[00:06:33] James Pringle: later you joined Cedars. And, you replaced the founder as the CEO. I know you worked very closely together still and he's the chairman.

[00:06:43] So how did that come about, um, how does that relationship work?

[00:06:48] Jeff Kelisky: there's an email that I sent Jeff Lynn at some point in the sort of courtship of, are we going to do this together? I said, I really need to know if you're sticking around or leaving, because if you're leaving, then I'm really not interested. whereas I think [00:07:00] there's, there's a number of times when, you know, there's a tension where the person coming in.

[00:07:05] Doesn't want the founder around wants to own the whole thing. And actually one of the things that I really enjoy is the energy, the passion, the commitment that a founder has, and making sure that's not lost in the transition. And then, the idea was that I was always to be the CEO, but it made sense for Jeff not to take that risk as a starting, if I keep, he wrote a very, uh, good blog about kind of his thinking behind that, the process of hiring somebody and then seeing how it's going to work. So then the intention was within a year. If everything works out, if we like each other, the chemistry works, then I would be appointed CEO.

[00:07:40] Three months after I joined Jeff sat down with me and said, I'm fine. I'm happy to, I'm happy with this. So, I think we were having coffee, in a restaurant and he just dropped it on me and I'm like, great. and then within two months I was appointed CEO.

[00:07:54] and then it was really about the relationship, growing, through the stages. my style very much is [00:08:00] that To involve, in this case, Jeff, as much as possible because if we are aligned, then it just helps with every step of the way. And I think, the chemistry was actually, very easy with Jeff and one of the things that I respected and appreciated very much is. he always would, participate in discussions or decisions, but was very comfortable in saying, this is my view, but it's JKS decision because we're both named Jeff referred to as JK. so that division was brilliant and we have worked well throughout

[00:08:35] Just a short interruption to talk about our sponsor deck. Often deck dolphin is an anonymous marketplace with VCs helping founders to improve their pitch deck So they have a better chance of converting outreach into phone calls and meetings with investors.

[00:08:55] They got in touch after one of my posts on LinkedIn. So if you're a [00:09:00] founder and you're raising money, Go to deck dolphin.com and use discount code. Unicorn 10. Back to the episode

[00:09:10] James Pringle: And how do you see the importance of crowdfunding within the general fundraising ecosystem and how do you think that has changed in the last few years?

[00:09:22] Jeff Kelisky: So that's a great question because I almost want to give you some context as to how we think about it. and in many ways that was very much a question I asked Jeff I think from very early days, the intention was to create an investment platform, a platform where we can introduce transparency.

[00:09:39] and liquidity for both investors and entrepreneurs. It's important to look after both sides. I think it was really an intention of trying to be an investment platform where eventually there'll be a secondary market and eventually there would be institutional participation and, a path which would start to. Look like a public version, for a private market and that was the start point.[00:10:00] and we went from a position of, I think in the first year funding, half a dozen businesses. And last year we funded 250.

[00:10:08] James Pringle: how important does crowd funding play as an entry level for people to start learning about.

[00:10:13] Investing and becoming an angel investor or maybe an even a BC later in that life.

[00:10:21] Jeff Kelisky: Yeah, pretty much so and I think that touches on something that's often overlooked and is actually very important, which is it's not until you start using something and you start engaging with it, that you're able to learn how to get good at it.

[00:10:36] it's very easy to look at some of the unicorns that are out now, there was no way for, the retail investor to have ever gotten to play and invest in, for example, a Facebook

[00:10:47] and now there is, and of course, we've now seen that in spades, there are plenty, from the revolution, the Monzos of the world and many others. but I think one of the important things about our job in this space, in establishing [00:11:00] trust and credibility is the importance that this is a high-risk asset class, the angels who do this for a living, have become good at what they do because they understand the challenges in the selection process and seeing the business and understanding it.

[00:11:14] and it isn't a place to save your money. and certainly not an area maybe hopefully pick one and then you're successful. I think one of the really great things about, a secondary market and everything's under a nominee and be capture all the data is we actually have a history of, investments through the life of all the investments, since we started since, 2012 and what we saw was actually portfolio theory works.

[00:11:38] Even in private at this level, the math tests out. So for investors who have larger portfolios for investors who have invested in five businesses or 10 or 15 or 20, actually their IRR tends to be higher. And if you look at some of our previous portfolio reports that we've produced each year, you'll see [00:12:00] that.

[00:12:00] if you would invest it on everything on our platform from the beginning, and you'd be looking at a sort of, somewhere between a 10 and a 12% IRR, but those who have diversified portfolios. and I've kind of built up a skillset in this, the top core tile of investors on Cedars are making an IRR of 32 to 34% and that's pre EIS.

[00:12:24] and the top 10% are North of 50%. and so I think, to get to your question, what partially excites us here is, is that. As long as we're providing, the right guardrails and the right education and the right messaging, to help people on the journey of learning about investing,

[00:12:45] and by having a secondary market, also creating an exit point, sooner than most startups, need to finish their journey. when you make an angel investment, it could be a five-year, it could be a seven year.

[00:12:57] It could be a 10 year commitment. But with a secondary [00:13:00] market, we actually start to create a safety valve for people who need that money out earlier. Or if there's a big exit while the company is going through its stages. I think, Revolut is a classic case of that. and that's all part of this building is this wide and market. And then educating, I think one of the areas that is missing, is bringing a, building a community around investors and encouraging greater, communication, uh, knowledge sharing.

[00:13:22] James Pringle: Yeah. So the secondary market, is a significant shift in terms of liquidity for early stage investment as an asset class, what are the. Shifts or what's changed that has allowed the secondary market coming into existence why hasn't it existed earlier?

[00:13:40] Jeff Kelisky: Yeah. This is one of the areas that I get super jazzed about because it's super nerdy. the real challenge with, secondary markets is that with direct investment, when you've made investments if you want to sell your shares, then that's a process where, you need permission.

[00:13:55] There might be preemption rights on for other people. the share register needs to be updated [00:14:00] with the new buyer. So it's, a very complex, and fragmented process for individuals who have direct ownership into businesses. Because one of the things that Jeff did at the very beginning, and when I talked earlier about almost architecting, a scalable solution from the star, as he did everything under a nominate, which is quite new.

[00:14:19] And I think, he was only disappointed because he would talk about a nominee, which. For most people is super boring. but what it enabled is it meant that within the nominee we could facilitate trades.

[00:14:30] So we could build a technology stack on top of that, which would enable people to trade within any business. because we had that framework in place, then we could, with that technology stack, we could allow trades to happen, immediately, or, within 24 hours, for example.

[00:14:46] And so what that meant was that when we launched in, I think it was June 26, 2017, All businesses that have ever raised with theaters and their investors could trade on the secondary market. it respected the nominee. all other [00:15:00] platforms facilitated direct, and therefore they didn't have the rights to allow trades to take place.

[00:15:06] so nobody could do it except on a one by one basis. And the cool thing about this is the fact that this meant that on day one, any of those businesses could trade on our secondary market. And so in software terms, that's being backwards, compatible to your first release. Which generally is a very hard thing to do I remember on that Tuesday that we launched, I think 40% of all of the lots that were on sale sold within the first hour.

[00:15:31] it was very popular and little by little it's grown. So since that day, we had, over 25,000 investor exits, people often talk about this space from the perspective of, business exits.

[00:15:43] Which is a hard thing to do. It doesn't happen very often. It's obviously a big deal, great thing for many businesses, but actually we've had thousands and thousands of investor exits on, during that time. I think has been over 8 million pounds of sheriffs traded on our secondary market, over that time.

[00:15:57] and it's really starting to accelerate now, [00:16:00] as people are getting gotten, and as more businesses have gone through it,

[00:16:04] James Pringle: Yeah. will the reliance on the nominee structure restrict it from being available to all businesses in the future? Or will you always have to have seed as, as a nominee to facilitate a secondary market.

[00:16:16] Jeff Kelisky: we're just in the process of, opening up our secretary market to allow businesses to, use it, who haven't necessarily raised with us. the easy way to do that is to, bring those businesses or to bring a piece of them under the nominee.

[00:16:29] so there's effectively two products one's called, director nominee, which allows people to effectively bring shares into a nominee structure, which then allows the trays take place. and then there's another one, which actually is based on customer feedback, which we're now working on with the client, which is effectively direct to market.

[00:16:48] So this is where actually, I, I don't necessarily want to be in the nominee. I just want to sell. but I want to know that I've got a deal done. And so we built that capability and that's something that we're launching on in a couple of months [00:17:00] time.

[00:17:00] the other way that we're looking at doing it is, we partnered at, you've probably seen with a cap desk, um, or a cap table management tool. and that's increasingly part of if you're like the long-term vision, is that everything that we've built, we built on an API stack to make it consumable by other FinTech platforms.

[00:17:18] And so this is one where, you know, if you've got investments in a business, That are using cap desk as it's cap table management tool, you can log in, you can see your share allocation and effectively what we're doing is we're adding a sell button so then suddenly you have a sell button inside a cap table management tool where you can then transact, onto the Cedars platform.

[00:17:39] And that's the announcement that we did earlier this year. unfortunately there's the one size fits all. So, we've got a number of initiatives to try to make it as easy as possible for businesses that haven't raised with us to then use our secondary market.

[00:17:54] James Pringle: Yeah. that's a great partnership with CA desk, really interesting tool for any founders that [00:18:00] wants a better structure, the cap table, and just keep a track of it and manage it over time. so it was really interesting that you guys have. Seeing the opportunity to bring those two offerings together.

[00:18:12] Cedars and Crowdcube, they dominate the market share of equity crowdfunding in the UK. so how significant is the merger in terms of developing that secondary market further? And what was the main appeal to Cedars for doing a merger with Crowdcube?

[00:18:32] Jeff Kelisky: Yeah. so I guess the first thing I'd say is that, , if you like our frame of references, is that broader, investments in private companies, marketplace rather than crowdfunding specifically.

[00:18:42] If you're like pre crowdfunding, you basically had private equity, you had venture the capitalists and the angels, that have been around for a very long time. And I think, with crowdfunding, it was an opportunity to use technology, to create a transparent platform to facilitate transactions.

[00:18:57] And, and our vision, as I mentioned earlier, was [00:19:00] always that it would eventually be investors from retail through to institutional and entrepreneurs from seed to pre IPO. and so the, market, that we're looking at is the sort of 12 billion pounds. A marketplace of investing in private companies in the UK, and then we can set aside international at the time being so in that sense, crowdfunding, we collectively represent 2% of that market. and so we've got a long way to go. before, I feel like I could use the word dominate or dominant or anything like that. We're just so far away from that. in terms of crowdfunding as a tool or a fundraising vehicle.

[00:19:36] so we too are the most advanced, in doing so we have each. Built up complimentary strengths.

[00:19:45] by working together, actually we think we can then deliver far more value to the investor community through tools, greater transparency through a greater deal flow and just do so faster.

[00:19:55] James Pringle: Absolutely. And so do you agree with the statement that there's never been [00:20:00] a better time to be an early stage?

[00:20:05] yeah, I, I do actually, I do. And I think there's a couple of reasons for that. I think one, one is that, you have, an ecosystem which is growing and people like yourselves where there's a real connection with. The investor, in terms of purpose, and there's a lot of purpose driven investing.

[00:20:21] and particularly now, in the next five to 10 years, millennials will. Be more than 50% of the adult population and they absolutely control their own destiny.

[00:20:33] They want, in their hand they will manage their finances. So that is happening. That's a train, that's left the station and isn't going to change. And we have an opportunity with the tools to be able to. To make it a far more useful and transparent. And, and our goal is to is, is in building trust.

[00:20:51] if we can create a trusted environment and then do that cross border, then I think we think it's not only good for, each national economy [00:21:00] and the participation of its local investor base in the businesses that support it. And in a societal sense in actually creating, understanding across borders.

[00:21:10] If you, if you are working in a trusted market and you invest in a business, In another country that actually that's a that's connective tissue that, that goes beyond, your own kind of knowledge base. And we think that understanding will, create, more of a positive sense of contribution to, Just society.

[00:21:26] So we think the mission is very big and we think that now's a great time for investors. And I think the last thing I would say on that is that, we live in uncertain times. We've seen it in the UK. you can tell from my accent, I'm from the U S you've seen it in the U S and I think that, I've often been asked by journalists, with all this uncertainty, isn't that a bad time, supporting high-risk businesses.

[00:21:48] And I said, actually, it is times of uncertainty that breed entrepreneurs. Absolutely. entrepreneurs thrive in uncertainty because they find ways through, many of the great [00:22:00] businesses of today were founded during times of uncertainty and the last crash or previously. So actually I think now is, a great time for investing in this asset class.

[00:22:10] Well, I think that is a great note to end on that, Jeff. and I'll add the disclaimer, the oil capsule was at risk. indeed. Thank you for sharing your ride, a unicorn story, and for giving us deeper insight into. the merger and how the secondary market is developing and its significance for early stage investing and, and entrepreneurs as well.

[00:22:33] Thanks, James. Real pleasure.

[00:22:35] What a great episode with Jeff. He's so knowledgeable about early stage crowd funding and funding in general. It was really interesting insight And it was really great to interview him.

[00:22:46] I do 100% agree with him that there has never been a better time to invest in early stage tech companies, particularly in the UK, with the unfair advantage around open banking and health tech and. Other sectors where we just [00:23:00] seem to be creating great businesses led by brilliant founders and the access to capital and talent hair is.

[00:23:07] Second to none in Europe. Uh, also with the looming capital gains tax issues. In the UK. EIS investment has never been more attractive. Uh, so capital is at risk, but if anyone was interested in finding out more, please let me know. Next episode is going to be with Hector Mason from episode one ventures. They are a leading B2B.

[00:23:27] Early stage investor. hats as one of the rising stars in the venture space in the UK. So I'm Really looking forward to sharing his story about how he got into venture and what he's up to at the moment. please do like share subscribe follow et cetera and uh see you again next time