[MUSIC] Rowan Gormley was a guy who grew up in South Africa and worked in his early years in the auditing and accounting industry. But he found that work kind of soul destroying and not very interesting. And so some years later he found himself working for Richard Branson in the UK, helping Branson discover new opportunities to invest in. While one of the ideas he had was to invest in online marketing of wine. But Branson didn't want to do it, so Gormley and his brother decided they would do it on their own. And they launched a business called, Orgasmic Wines and the idea was the consumers could buy their wine online instead of having to go to a store and if they wished they could even subscribe to a regular monthly shipment of wines. The business did make some head way and Branson decided he'd buy half the business and they converted the name to Virgin Wines. Along the way Virgin, which had grown to an empire with many different kinds of businesses, decided that it wanted to slim down. And Branson wanted to sell some of the businesses and one that got sold was Virgin Wines. So Gormley found himself soon working for someone else. Well three years into that relationship Gormley and the person he was working for had a disagreement on how best to grow the business and Gormley was fired. So what was he to do? He decided, you know, I love this business and I love the people I've been working with in this business, can I start an online wine business on my own? So he called an investor he knew in Germany, someone else in the wine business that was selling wines door to door. And talked them into a three million euro investment in what was to become Naked Wines. So Gormley then setup Naked Wines and brought with him 15 of the best people that he had built Virgin Wines with. They gathered around the able and had many conversations to ponder what were the lessons they'd learned in building Virgin Wines. And along the way they said, you know what, what really would be cool is if we could the two problems that wine makers have. The two problems that wine makers have are difficult for them. One is that wine takes a long time to make. You grow the grapes, then you harvest the grapes, then you put them in a tank and they sit there for awhile. And then you put the wine in oak barrels sometimes and it sits there for awhile and then you put it in bottles and it sits there for awhile. So you have to tie up a lot of capital to make wine. The other problem is, you can tie up all that capital and make the wine, but if you're a small maybe not very well known wine maker, you may not even be able to sell that wine once you've gone through the trouble of making it. So either you end up trying to sell it through high-end retail stores or restaurants, where it's really difficult to sell and difficult to get good quantity. Or you can make cheap wine and sell it to the supermarkets, but they beat you up on price. So Gormley and the new team decided, what we're going to do is we're going to go for the mid-market where most of the wine is consumed. And we're going to go to wine makers with the following proposition. You're a wine maker and you're perhaps working in a small winery or maybe making wine for some bigger company and you'd like to make wines with your own name. Well, we'll help you do that by financing the making of the wines at every step of the process from harvesting the grapes to crushing the grapes, to fermenting the wine, to aging and then bottling the wine. So, they took away the working capital risk that the wine maker had. And they also said to the wine maker, and we will guarantee we will buy all the wine at the end of the process. Now, the only question was how to fund this? And Gormley and team decided they would fund it by inviting angels, as they would call them, to invest in these wines. So using an online platform they began to sell wines online and invite angels to join the network and the deal for the angel was this. You provide 20 pounds a month as a subscription fee and that goes into your account, and as you build up your account you can spend it at any time you wish, and get 40% off on the wines that are Naked Wine-makers are making. Well, the business began to grow, not without fits and starts, and not without challenges. And by 2008, they had 100,000 angels sending cheques of 20 pounds a month to fund the making of the wines. But of course that didn't fund the entire business, because this business takes a lot of working capital. So the German investor WIV was funding the operating costs in order to make this work. Well, as the business in the UK turned profitable, they said well, what about growing internationally? Australia and the US are fantastic wine markets maybe we should grow there, too. So they began to do that, opening first in Australia, then in the US, and Gormley and one of his trusted colleagues ended up moving to Napa to build the US business on their own. But the US was difficult because there are 50 states each with different regulations. And in the beginning Gormley feared that they wouldn't even be able to do it because the law made it impossible to sell wine in some states unless you were a winery. But Gormley went back to his lawyers and said wait a second, we buy grapes, we ferment the grapes, we age the wine and we bottle that wine. Aren't we a winery? And of course they were. So they were able to comply with the US Regulations and fairly quickly they got authorization to sell in every US state. Well, the business in the US began to grow but, it took more capital. It's a bigger country with bigger costs and longer shipping distances. It took more capital than they thought and WIV supported them with additional rounds of capital. But meanwhile, WIV was struggling. Its direct door-to-door sales format for selling wine was finding hard times in its German and other markets. And WIV found itself strapped for cash in 2013. They told Gormley, no longer can we continue to fund your growth, and in fact we'd like you to turn profitable and start paying back some dividends on the investment we've made. Well, to Gormley and his team, that was a really difficult situation because the business had enormous potential, but they've learned in the UK that you had to get the business to a certain level before its volume would kick into a profitable level of sales. Because to get new customers, the margins would be low on the customer's first case of wine they we're getting new customers by giving them a deal. And the business didn't really become profitable until the proportion of new customers was reduced. So th UK was making money, Australia was making money, the US was not, but the turnaround, the point at which the US would turn to profit was just around the corner. So Gormley and team weren't sure what to do. At the end of the day what they did is they found a buyer, Majestic Wines, one of the largest wine retailers in the UK, who bought the business. Combining their expertise in sourcing wine that they developed over many years with the online expertise of Naked Wines and they hired Gormley to be the CEO of both businesses. So Naked Wines today is a part of Majestic, both businesses are growing nicely and the customer funding that the angels, now 300,000 angels across three countries have provided Is the cash that helped this business grow and prosper. So one of the lessons here in the Naked Wine story, customer funding wasn't all of the funding of course. WIV had to fund the business as well. But because the angel was paying in advance to become part of the network those funds those angel funds were able to be used to fund the working capital needs of making the wine, that enabled the business to be vastly more cash efficient than it would have been otherwise. [MUSIC]