Steve Folwell, co-founder and chief executive of Lovespace talks to Rachel Bridge at Drax about how his start-up business is busy turning the storage market on its head
Steve Folwell took a rather unconventional route into entrepreneurship. Before becoming one of the founders of Lovespace, a fast-growing self-storage business, he was Director of Group strategy at The Guardian newspaper group. Before that he was a management consultant.
But he had been thinking about doing something different for a while so when he bumped into seasoned entrepreneur Brett Akker, who had started car-sharing company Streetcar, and Carl August Ameln, a self-storage pioneer in Scandinavia, the three of them decided to start Lovespace together.
He says: “I felt that I could add a lot to it, so the three of us got together and started it up.”
Lovespace has taken a similarly unconventional route to getting funding. The business had venture capital investment from Smedvig Capital very early on, and has since amassed an eclectic range of investors which includes corporates, private high-net worth individuals, more venture capital investment from DN Capital, and more than 600 small crowdfunded investors.
Steve says: “We have every flavour of investor. We now have a track record of being able to bring in and manage a broad investment group.”
Lovespace decided to raise money via crowdfunding partly because of the publicity it would generate for the business. At the time their funding raising target of £1.6 million made them one of the biggest crowdfunding campaigns in the world. Steve says: “We felt that we were a very simple business to understand, that would benefit from getting the word out to as many people as possible.”
The result is a shareholding structure in which no single investor group has a majority stake in the business.
Steve says the arrangement comes with both advantages and disadvantages. He says: “One of our great assets is the network we have. Opportunities arise out of conversations with smart people who can put one and one together and make more out of it, and we have got a lot of those people.”
The disadvantage is not having one major investor providing clear direction.
He says: “The big thing that we miss now is that leading financial shareholder who is looking to drive value over a specific time. It is great because in a sense management have control of their own destiny as long as the board think we are doing a decent job, but it does mean that we also have to do quite a lot of the heavy lifting when it comes to fund raising, strategic partnerships and the rest.”
He adds: “There is a complexity in trying to understand and manage the expectations of a very broad range of people, some of whom who have invested on the basis of EIS benefits, some of whom want to make a return in three years, some of whom are happy to build a very large disruptive storage business over decades, as well as the expectations of the management team. People want to see the numbers work and grow but there is no-one saying, I need to get out of this business in the next six months.”
The business itself is thriving, and is busy disrupting not only the self-storage industry but the logistics and removals industries too. Unlike other operators in the market, Lovespace collects and delivers from the doorstep, and is happy to deliver the items being stored in small batches. This has led to strong demand from small firms, who use the Lovespace service as a warehouse and delivery service to store their stock and then deliver it item by item to customers or retail stores.
As a subscription based, recurring revenue business, it clearly has a lot of potential. Steve says: “Logistics is a $7 trillion dollar business globally and when we look at our technology and the way we think about using spare capacity that is out there in existing networks, we think there is quite a big opportunity to go after.”
Since opening for business in 2013 Lovespace has amassed 35,000 customers, has stores in 26 locations around the UK and last year had a turnover of £2 million.
Although Lovespace is not itself majority PE-backed, Steve believes that private equity can deliver real benefits to entrepreneurial businesses.
He says: “If you have got a strong view as management and you are confident, then private equity firms provide scrutiny, they provide reward and they provide a route to either follow-on funding or exit. If I was starting up again I would definitely have private equity and VC in my top two options of fund raising because of the alignment, focus, single mindedness, and experience.”
It is however important to ensure that you get the right fit, he says: “The downside of private equity is when people get fixated on the initial assumptions of a business that then prove not to be true. When management is constantly having to defend why the PEs original assumptions were wrong that is not a healthy place to be.”
He adds: “It is important for entrepreneurs to get the right investors and to spend time with them to understand the journey. Any choice of financing has trade-offs, so understanding those trade-offs is important. Different business suit different investors so it is important to speak to people who have been through it and then reference the investors as much as they will reference you, because the relationship really matters.”
Drax sector lead: Mark Sherman
Director, Consumer & Distribution
Tel: 0203 949 9556