Learning from failure

Claim to fame

Ran for City Council in Halifax, and has been nominated for Top 40 Under 40.

Heroes

Doesn’t look up to individual entrepreneurs. Instead, his mentors include successful business families, such as the Rogers, Shaw and Sobey dynasties.

Hobbies

He spends his downtime playing with his one-year-old husky-beagle mix, and supports the YMCA Strong Kids charity within his community. He’s also a huge Toronto Raptors and Maple Leafs fan, even though he currently resides in Ottawa.

Jerome Downey knows what it’s like to fail.

At 24, when most people are trying to land full-time jobs, he launched Downey Mortgage & Financial, a Nova Scotia-based brokerage offering discount financing.

What he didn’t know was how challenging it would be.

He pulled $40,000 in equity from his home to get the company going; and approached the Canadian Youth Business Foundation with his business plan, which landed him another $15,000 loan. And, he borrowed $50,000 from Credit Union Atlantic. “I was a young entrepreneur, I had all this money, and I was all alone,” says Downey, now 28.

The firm expanded too quickly. Before he knew it, he’d hired six people and didn’t have the resources to sustain operations.

Opening shop just after the financial crisis magnified the challenge—people weren’t buying homes, so he wasn’t making money.

To try and salvage the business, he got rid of overhead, including the office and staff, and became web-based. But that wasn’t enough.

“Because of capital strain, I had to retool, settle financial obligations and refocus the purpose of the company,” he says. “We’re currently on hiatus and will be re-launching in 2014.”

Downey admits establishing the business so young was risky. Although he had worked as an account executive at HSBC, he was too inexperienced to manage a financial firm.

He regrets not having someone to guide him. “I went through the trenches and got beat up financially because I didn’t have the right type of investment advisor,” he says. “It was too easy for me to get money. I look at that business plan now and I wouldn’t have given myself the money.”

Downey drew on his experience as a college football star—he played linebacker for the Mount Allison Mounties—to bounce back from the loss and start again.

“It affects your emotions, ability to deliver on your responsibilities, and relationships,” he says. “You have to believe in your vision and have confidence. You learn from failure.”

To gear up for the re-launch, Downey is working with firms like RBC, ResMor Trust Company and Purpose Capital (as well as government agencies, including the Atlantic Opportunities Agency and Aboriginal Business Canada) to move his business into the social finance sector. In early 2014, he’ll be launching a $5-million social finance bond for education and housing for institutional and retail investors.

Part of the bond will fund Ryerson students enrolling in the Innovation and Energy Management program.

Each applicant can get up to $4,500 to cover tuition fees. Graduating students are guaranteed jobs to ensure debt repayment; a percentage of the person’s wages are garnished until the principal is repaid.

Downey’s personal goals include increasing his total net worth to $3 million in the next 24 months. His company is worth $3.5 million, of which 75% is debt-equity loans. The rest is cash.

Currently, his only personal asset is $750,000 in equity shares of Titan File, a secure file-sharing system he created with a business partner in 2011. This technology lets the user email a file, such as a PDF, and sends a notification when it’s been opened. The user can also create a destruction date so the file’s accessible for a limited time only.

Succeeding in business is about the company you keep, so it’s important to surround yourself with the right people.

A background in finance means your client knows how to run a business

Not necessarily. Make sure clients get industry-specific advice. Otherwise, they could wind up in the hole.

On investing

I’m a big fan of the TFSA. It’s been underutilized. More people should have one. I also invest in mutual funds.

The majority of my investments, though, are private placements with other entrepreneurs and businesses. I find them more exciting because there’s more risk, which I can take on because I’m under 30. In the future, however, I’ll have more standard 60/40 positioning with a focus on emerging markets.

Return on investment is important when investing in private companies. To get it, you have to know the scalability and vision of the company. I like firms in electronics manufacturing and distribution, and industrial products. Clean technology is a sector I’m invested in.

Going forward, I plan to focus on smaller, regional firms that don’t market to the masses. One example is Shopify in Ottawa, an online shopping company. It’s had tremendous bottom-line success, with at least 15% growth annually.

On advisors

The challenge with all advisors is sustaining a relationship. They want to close the sale, and once they do, clients sometimes don’t continue receiving optimal service. They should send friendly notes, and make sure the communication about my portfolio is continuous. But let entrepreneurs tell you how they like to be contacted. I’m big on email.

A lot of advisors are in it just to make money. When I was going through a hard time with my firm, I forgot a payment on my critical illness insurance. My insurance advisor didn’t ask what went wrong—he wasn’t concerned at all. It felt like he just wanted to make sure I paid so he didn’t lose his commission.

Right now, I’m in the market for someone who can handle everything from investments to insurance. I can’t seem to find the right fit. It’s not about what company the advisor works for; it’s about matching personalities. I like Edward Jones because, even though they might charge me more on the premium, I know their advisors will also be that much more focused. I’m not aligned with them right now, but they stand out. Freedom 55 also stands out because they’re going after millennials—they have a lot of digital resources, which we like.

An advisor should understand my values, services and product offerings. Show me you care about my business and me because we’re one and the same. Sending thank-you cards or a bottle of wine is nice, but I’d rather you check in and talk about the industry and things relative to my interests.

On the other hand, if you’re constantly contacting me without updates on my investments, then there’s no value. An advisor should be an extension of my business. I should be able to confide in him, and he should understand my needs. Right now, I need someone to help me with long-term planning, including retirement and succession.

And I love an advisor who comes prepared with a presentation that goes the extra mile. Give me something to take away. Don’t just come into the meeting with standard corporate material. He should present me with projections for investing and insurance as they relate to my business.

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Suzanne Sharma is the associate editor of Advisor Group.