The Invested Investor 2018 year end edition

Podcast transcription - 19th December 2018

Alan Cowley:                    Hi. Thank you for listening to the Invest investor podcast. If this is your first podcast, then welcome and enjoy. This podcast is a year-end special as we look back at some of the interesting and insightful stories we've had from over the last 12 months. It was a hard task for our team to reduce 32 podcasts into one special recording. We truly hope you enjoy the stories we've chosen and that you learn from ups and downs of all our inspiring podcastees.

                                             In our first snippet, we have Priya Lakhani, ABE, who is a founder of Century Tech, a leading AI company that is transforming how education is being delivered. In this clip, she talks about her previous start-up, Masala Masala, trying to sell her ethnic sauce outside Victoria Station, parking on double yellow lines, and trying to shift 74 cases of sauce from the back of a van during rush hour.

Priya Lakhani:                  The funny thing is, and every entrepreneur will feel this. You will have this moment, I had it at Century with my second venture. I don't remember the numbers with the first big Waitrose deal, what I do remember is my first deal and my first check. You would have had that, right?

Peter Cowley:                  Yes, I have.

Priya Lakhani:                  You remember it, right?

Peter Cowley:                  This correlation to check to volume.

Priya Lakhani:                  I didn't remember that, I remember my first check, it was Harvey Nichols, it was £108 and it was a cheque, it wasn't a transfer or anything. I got it in the post, it was the best £108 I've ever seen in my life. It was for just a handful of cases. The really, really funny thing about that was that big manufacturers don't make a handful of cases. They made a pallet which is 80 cases, Harvey Nichols were only buying six cases. I had a lot of cases to get rid of, 74 cases in the back of a van.

                                             I'd literally gone, within weeks, from wearing a three-piece suit as a barrister to wearing a hoodie and jogging bottoms, driving a van. I went to Victoria Station. I parked on the double red route and was lifting 74 cases out of the back of my van, outside the front of Victoria Station during rush hour. I was shouting, "Available in Waitrose in six weeks." I thought it would be a good marketing effort, I remember people wrote to me and said, "You said it was available in Waitrose. It's not." I had to remind them it was available in a few weeks.

Peter Cowley:                  Did you give them away?

Priya Lakhani:                  I was giving them away for free "Go and taste it at home, Feedback on Facebook Tell your friends about it." I was using it as a marketing tactic to launch in Waitrose because people really like free stuff. Particularly, stuff that they can take home that's tangible. What was really interesting was that I've been yelled at because I couldn't open the boxes quick enough.

Petr Cowley:                     Not fast enough?

Priya Lakhani:                  People were getting their keys out and they were keying the boxes and taking them out saying, "Give me more. I want that one." This homeless guy took complete pity on me and started helping me. I offered him the pots of sauce at the end of it, but he said, "I have not got a kitchen." I went and bought him a sandwich from Pret a Manger. Some parking attendants came up and said, "You're parked in red route." I said, "Please don't give me a ticket, I'm in trouble, people are yelling at me, they're keying the boxes, a homeless person's taking pity on me." I said, "Why don't you take a case home?" These guys, were African, I thought, "They're ethnic, this is the first ever ethnic fresh sauce." He said, "Okay." They took a case each and they took them home. They didn't give me a ticket.

                                             The next thing I know, four other parking attendants arrive because they had told their friends, they didn't give me a ticket either. It was really, interesting how my first cheque was so much more memorable. I went home, I was exhausted that day, I had cuts all over my hands; it is blood, sweat, and tears, literally running a business, it has its difficult times. I can talk about it anecdotally, I find it really, good fun talking about it. It was really exhausting and quite a scary proposition when you've got 74 cases that you're lifting, two by two at a time, by myself, people yelling at you, parking attendants etc, It's a great story. I don't regret it and I would do it again.

Alan Cowley:                    Neil Garner is a tenacious, serial entrepreneur who was the founder and CEO of Proxama, now known as Location Sciences, which is a business that deals with mobile wallet and NFC. Neil helped the company gain a listing on the London AIM stock exchange. He is also the founder and current CEO of another NFC company called Thyngs. In this podcast, we hear his views of equity crowdfunding and the lessons he learn’t using this method of fundraising.

Peter Cowley:                  Now, you've chosen Crowdcube which is primarily a B2C market, generally because people like to use the people investing as Champions of the brand. You're a B2B business?

Neil Garner:                      We're a B2B business, yes, I think there's quite a few B2B businesses on there. We did look at Cedars, SyndicateRoom, and Crowdcube. A lesson learned naively, is, if you can do it right, you can raise your SGIS money and get that to count towards your next investment. You can go into a crowdfund with a £150,000 you've already raised, it's on your ticket from day one. The lesson learned is, if you issue share certificates to those investments, that invalidates it, I think depending on the crowdfunding network. They've got different criteria about how much you need to have raised beforehand.

                                             I think the thing I found is, a lot of crowdfunding platforms, you probably need to have raised half your money before you go live.

Peter Cowley:                  Or more sometimes

Neil Garner:                      Yes, they change quite quickly. Another lesson is, that there is a plateau of despair in there as well, which is when you get your initial investors, you then get your mad fools, who just pile in because they think it looks great. Then, you get the people who download lots of documents, information, and sit there waiting. I think most businesses seem to get a plateau period where you think, "Oh, my God, there's a tumbleweed”, that's when you get investors who are interested but want to find out a little bit more so meet up, talk and share documentation.

Peter Cowley:                  They can ask some quite sophisticated questions?

Neil Garner:                      Yes, we've now got a number, of investors that are bigger, that are putting money in. Once you get over 50-60%, that is when it ticks up again and everybody else is happy to jump in. All being well that is when it helps to get overfunded. I think it's just getting your threshold right.

Peter Cowley:                  That would give you low numbers of hundreds of thousands. What are you going to do with that money?

Neil Garner:                      Fortunately, it's all for marketing and sales. Unlike quite a few businesses, we have built everything we need, and so, our solution's deliberately set to agnostic. We can apply it to different sorts of sectors, the work really is to analyse which sub sectors do we think we can own? In order to generate the revenue, then, we can push those out there. It's really sales, marketing, data analysis and which markets to move into, also deepening the partnership relationships we've got.

Peter Cowley:                  Neil, this is really, fascinating. This is two journeys, what tips have you got for entrepreneurs?

Neil Garner:                      First tip, lesson learned, is the first part of my journey it was me. I think many entrepreneurs are probably quite self-sufficient, jack-of-all-trades, masters of none. The second part of my journey and the third part with the new business, is actually build a team and a support network. The more open you are to working with others and build the best possible support network around you, that's definitely the most important tip.

Alan Cowley:                    Shirin Dehghan is an admirable entrepreneur, who successfully sold her mobile communications company, Arieso. More recently, she has transitioned into an investor both as an angel and adventure capitalist. In a two-part podcast snippet, she recounts some war stories, including showing the courage required of a founder, of asking her husband to step down as CTO so that she could recruit a talented scientist from NASA. She also talks about one of the test phases of a product. She and her team managed to blow up the IT in San Francisco. Her journey as an entrepreneur is one of the most exciting and honest journeys we have heard.

Shirin Dehghan:               I knew that I had to build a completely different product. The engineering staff I had just didn't have the experience, my husband was the CTO at the time, so I asked him to step down, he became Chief Science Officer. I hired in a CTO, a really, fantastic guy, very bright, literally, a rocket scientist. He used to work for NASA, he was working at Ben Labs. I have no idea to this day how I managed to convince this guy to leave his amazing job and come and join this tiddly little company.

Peter Cowley:                  He had to move from America to here.

Shirin Dehghan:               Well, he stayed in New Jersey, he was remote. He was so good that I didn't care frankly, where he was based. I managed to bring him on board as CTO, also, I brought in a Chief Architect who had built big systems for billing systems also, performance management, I knew I had a completely different problem to solve.

                                             I started augmenting and changing the technical team in order to build what we needed to build. It was a minimum viable product, a sort of level. We were doing something massive because no one had ever tried this before, to gather every single signalling message that was going from a lower handset to a base station and vice versa.

                                             We were handling billions of data records. With that, comes some interesting challenges, which meant that my Chief Architect was literally chained to every installation that we had to make.

Peter Cowley:                  To tweak it?

Shirin Dehghan:               Well, yes, literally, on the premise we were fixing bugs. Obviously, not telling the customer we're doing that. We didn't have a network to test it with.

Peter Cowley:                  No, you couldn't.

Shirin Dehghan:               Exactly.

Peter Cowley:                  You had to test on a live network, didn't you?

Shirin Dehghan:               Exactly. It was some midnight, hairy moments. I was out there, testing with the guys and they were fixing bugs. Anyway, we managed to do this without the customer really knowing, I call it "The Human Shield”

Peter Cowley:                  Which is probably true in many software systems, isn't it?

Shirin Dehghan:               Correct, when you're playing with someone's live network, it's bit scary.

Peter Cowley:                  I think if you could bring it down, you could bring a cell down or a city?

Shirin Dehghan:               Yeah. We did blow up the IT in San Francisco because our processing power was just using up so much

Peter Cowley:                  Of their system?

Shirin Dehghan:               Not the network. We probably shouldn't have plugged it into where the kettle was plugged in, we did what we had to do. It just went viral. We deployed in Los Angeles at AT&T, Los Angeles market, they loved it. We went to Dallas and to San Francisco, within six or seven months, we went to all the big cities. As you can imagine, San Francisco itself is like a county in Europe. It's so big.

Alan Cowley:                    From being a student who won a £25,000 University award, to becoming the two founders of a multi-million, pound turnover company called, Plumis. William Makant and Yusuf Muhammad reflect on their business journey so far. Interestingly, they state that they raised more funding rounds to start with as they would not want to invest in themselves. Pivoting and bootstrapping is the key formula for these founders, including a large stint of not paying themselves and working out of a boat in central London.

Peter Cowley:                  You ran out of cash correct? What happens when you run out of cash?

William Makant:             Well, I think the first point is that we asked for too little because we were not sure we could convince anybody to give more. We got the amount that we were able to get and tried the best with what we had. You could argue that even today we're highly bootstrapped trying to get too where we wanted. We've learned that was the only way for in an industry that is so slow moving. You don't have quick adoption of new products.

                                             The other day we were having a meeting with an established manufacturer of alarms. His development manager was telling us that one of their products had been launched 10 years ago and customers were telling him that this is a new product. This is a new product barely in the market. He got back to them and said, "This product is 10 years in the market and you're telling me it's a new product."  Our latest launch product is a year old and we're already iterating to its next version of it. This is the difference of start-up speed and what the industry is. We have had to adapt ourselves to this much slower and much higher barrier to entries of having to fire test, to have third-party scrutiny into everything you do with your product.

Peter Cowley:                  For a few months, you didn't pay yourselves?  We put some more money in and then what happened?

Yusuf Muhammad:         For many months, we didn't pay ourselves. We did all sorts of cost containment strategies of our own so that we could survive like that. I moved to a place where I would be fully subsidised. Yusuf moved to his parents' house, where he would be fully subsidised. We had to do some very bizarre strategies to be able to keep the business and keep investing our time in the business because that's what it needed.

Peter Cowley:                  Then we put some more money in. I guess you've got a slightly better story but that ran out as well didn't it?

Yusuf Muhammad:         Yes. That was our real first pivot that we did, when we had no or very little sales from the consumer side or the housing association side, we had a consumer knock on our door saying, "I'm refurbishing my home. I have building control telling me that I need to put in a sprinkler system. I'm wondering whether I can put your tap spray system in my kitchen and in my living room." We're like, "How on earth are we going to do that? We would have to put a sink in the middle of his living room." We didn't even know what building control was. In fact, that's where it's useful to explain where my experience from the fire industry was proved to be completely useless. The experience that I had was from a commercial, industrial side of things where it's all insurance-driven. It's reducing premiums because you're reducing the risk of a claim for the insurer.

                                             We've learned that on the residential side it's completely different. It's all building codes, building regulation-driven. It means that the drivers are completely different. The solution is completely different. All the experience I had was completely useless, I didn't know what building control was, so we went to the local building control office and learned what exactly they did and how our product could fit. They said, "Yes, indeed. Your product could be used for this very niche, specific loft conversion application, which is written into the building regulations in the U.K." Into the guidance of the building regulations in the U.K. That's really what the business started really growing organically from.

Peter Cowley:                  This was about six years ago, I think?

Yusuf Muhammad:         2011 was the first install.

Peter Cowley:                  What next? How do you scale the business?

William Makant:             Once we had identified this niche where we would be able to help people get their homes get signed off and enable them to have more open plan, more desirable layouts, we tried to educate the market as much as possible. We were an easy solution and we could help people to ease things off. We did a lot of CPD presentations, education to industry, to approvers, tried to get more architects to specify us and more installers to spread our story as well.

Peter Cowley:                  You're working from some interesting locations both in London and elsewhere.

William Makant:             Our first established office was in the H.M.S President, which was a World War II corvette and was located at Blackfriars on the River Thames. I remember with the first day we moved in there, it took a while to get used to the fact that it was undulating as a Thames hopper went up and down. Once we were over the seasickness

Yusuf Muhammad:         It was a really, great space.

William Makant:             It was affordable. There was a semi-workshop space below sea level where we could put together some of our more basic parts, assemble some units. We could ship our equipment out of there. Quite flexible but it worked really well.

Alan Cowley:                    Richard Lucas is an entrepreneur and a serial investor in Poland, who endorses the top three T's to ensure the success of any business. Team, traction, and technology. One of the most memorable experiences for him involves a potential investor and a briefcase. It's a truly astonishing story.

Richard Lucas:                  People have got their different red lines. In particular, business tests people's ethics a lot. It is quite a hard question to ask someone straight up, "Would you pay a bribe?" Or, "What do you think about sexual harassment in the workplace?" You need to have those questions in banter, are these people you may be ashamed to be in business with later? It's a very, very important question. The different between shame and guilt? Shame is when other people know, guilt is when you feel bad about being in business with them, even if no one knows how bad they are.

Peter Cowley:                  Do you have an example where this has happened?

Richard Lucas:                  Yes, I couldn't possibly talk about a time,

Peter Cowley:                  Not specifics, but?

Richard Lucas:                  I can use one example. I didn't go into business with him, but he had a briefcase with 30 thousand dollars in cash and a gun. I really did wonder what happened in my life.

Peter Cowley:                  A dirty pub?

Richard Lucas:                 It wasn't a dirty pub, it was in my office. This was someone who I thought wanted to lend us money. I think, he thought, that this would be a good way of making it clear that this would not be a banking source. As it was, this was a former secret policeman, who, as far as I could see was a loan shark

Alan Cowley:                    Ramona Liberoff is a serial investor as well as possessing a wealth of corporate and start-up business experience. In this snippet, she describes how she was involved in a start-up that was too early for the market. They spent every penny in the bank. That year, Ramona and her team's lives felt intense and kind of like a dog life.

Ramona Liberoff:            The other interesting lesson that I had in this whole thing was that, the team had been brought together through an executive MBA programme at LBS, of which I was not a part. I was brought in as Strategy and Marketing Director afterwards, when they realised there was a gap on the team. Something that is a student project, that makes a lot of sense on paper, even to potential investors, if it's not market-tested don't go anywhere near it. Secondly, don't take everything on faith, a number, of the people involved in it were disingenuous and kept other consulting arrangements, that several of us put money into and didn't take a salary. When that came out, that obviously was one of the death nails to the team being willing to put the time and effort and be productive.

Peter Cowley:                  The point of death was when more investment wasn't available?

Ramona Liberoff:            Exactly. During the due diligence for the second round of investment, all of these things came up about questionable commitment on some of the key members' foundations. Interesting enough, a couple of them actually went to go on to work in venture capital. For them, it wasn't too much of a hardship. It was a lesson that stuck with me, which is don't take everything on faith and certainly don't assume there is a market unless you have proof there is one.

Peter Cowley:                  Of course, that's difficult. I invest in technology, that is a long way from market.

Ramona Liberoff:            Yes, but even then, it's not impossible to chart a path to when it will be available. Also, you know that you'll have to remain extremely thrifty until the market emerges. There's nothing wrong with being early as long as you haven't spent every penny in the bank before the market is there.

Peter Cowley:                  How long was that journey?

Ramona Liberoff:            That was roughly a year, a year and a half.

Peter Cowley:                  Quite short then. A single round.

Ramona Liberoff:            Quite short. Intense. You know what these things are like, a year and a half in start-up terms is kind of like a dog’s life. I aged significantly during that time.

Peter Cowley:                  After that, did you go back into corporate life?

Ramona Liberoff:            I did, didn't realise something that's come back to me a few times, which is working for one start-up is interesting but, working to help arrange them is fascinating.

Alan Cowley:                    Jonathan Milner, co-founder of Abcam PLC, is an inspiring entrepreneur and investor, who has provided investment and support to over 40 companies and has assisted three technology companies to IPA. A humble beginning as an academic turned entrepreneur, who secured money to manufacture antibodies. This “walk through walls” story highlights the importance of determination and willingness to change direction in order to become successful. Abcam is now a multi-billion pound company. Jonathan has a lot of experience worth listening to.

Jonathan Milner:             At that point, we were getting into summer. My contract was ending during the summer months. Tony allowed me, very generously, to stay on and he knew that I was working in my spare time on a business with David. Tony joined us in the business, as well, as a Director very early on.

Peter Cowley:                  He didn't leave his role in the University?

Jonathan Milner:             Oh, no, no, no.

Peter Cowley:                  He's still there?

Jonathan Milner:             Still there.

Peter Cowley:                  You raised some money but you said you were getting desperate, so you wondered around with an ice bucket with an antibody in, I believe.

Jonathan Milner:             Well, that's right. We'd raised this money. We were burning that very fast, foolishly I spent it too quickly. I learned a lesson. I bought a load of stock not calculating that it would be difficult to sell. That's the first lesson. It was a really hard lesson.

Peter Cowley:                  Fundamental lesson, there.

Jonathan Milner:             Fundamental lesson. I was stuck with this stock that I couldn't sell and absolutely desperate to get money through the door. We were within two weeks of going bankrupt. In desperation, I just thought, "Well, I've got to get out there." I grabbed a load of antibodies, put them into an ice bucket, and I just went to all the labs that I knew. All the people that I knew.

Peter Cowley:                  You were collecting?

Jonathan Milner:             Well, it's just knocking on the door saying, "Would you like to buy these antibodies?" They didn't want to buy these antibodies. It didn't matter. It absolutely didn't matter. It absolutely transformed the company. Without me having done this, Abcam would have gone nowhere. The reason for that is because they looked in the ice bucket and they said, "Well, I don't want that antibody and I don't want that antibody." Bear in mind, there's thousands and thousands of different products. Trying to predict the antibody that you want is very difficult. Then they said, "I'm having trouble making antibodies, can you make me this antibody?" So, I just said, "Yes. I'll make you the antibody." I started a contract business bringing in contract work where I've managed the manufacturer of these antibodies and outsourced manufacturing.

Peter Cowley                    A service model rather than the product model?

Jonathan Milner:             The service model came in and the service model was the foundation for the cash flow, which got Abcam going. Otherwise, it wouldn't have survived.

Peter Cowley:                  This business is now worth a couple of billion in the market?

Jonathan Milner:             I think last time it was 2.3 billion pounds market cap.

Peter Cowley:                  We're talking here from bankruptcy. It's a longest journey. It took 20 years or 19 years.

Jonathan Milner:             Well, it's 20 years now.

Peter Cowley                    You must be having a 20th anniversary this year?

Jonathan Milner:             We're having the 20th anniversary year.

Alan Cowley:                    What can we say about the next serial entrepreneur, Andy Phillips, who was instrumental in the formation of the globally dominant Booking.com. Influential, innovative, imaginative, in it at the right time? This clip from this hugely illuminating recording highlights how Andy and his co-founder did whatever it took to make active hotels a success story.

Peter Cowley:                  Active hotels? Why did you pick hotels? Because it felt like almost anything at that point, in the late 90s was going to grow on the internet.

Andy Phillips:                   Yes, it was quite calculating in retrospect. When you're looking at what industries were expected to be impacted by the internet. There were many, many industries being impacted but the biggest one at the time was probably travel. We looked through travel and where people had traditionally or historically made margin in the travel industry is in insurance and in hotels. We knew very little about either, actually. We decided to pick on hotels. We set up an internet hotel room business but with a ridiculous, in retrospect, amount of research.

                                             I was quite conservative and we did 760 hotel interviews to try and work out exactly what the proposition was. We really wanted to make sure that we understood very well what hotels needed, what the problems were, what the challenges were. I would argue now, 760 was ridiculous.

Peter Cowley:                  These were face-to-face or on the telephone.

Andy Phillips:                   We probably did about 150 face-to-face and we also hired a call centre to do interviews for the remaining.

Peter Cowley:                  Through that front side of the platform, what about the other side? Did you use your own knowledge, your friends knowledge? You need to also track customers.

Andy Phillips:                   Yes. We spent less time on that. Probably, we should have spent more time on it. If I illustrate why we spent less time, the research indicated that slightly. If you spoke to hotels at the time, everyone knew that the internet was going to or expected to be a massive impact on the travel industry. There were some quite big brands already lastminute.com, hotels.com, Expedia, those kind of people with many, many millions behind them.

                                             When you spoke to hotels, there was a big problem. If you're going to sell through multiple channels, you have to make sure your availability and your prices are aligned up. Otherwise, you can double sell the room or you can sell it at the wrong price. If you're having to update your availability across all these different platforms at once, it gives you a real technical challenge. We actually set up this hub model, where we had a central database where you would maintain your availability and pricing once. You would add your room descriptions and et cetera. We distributed that out to whoever might want it.

                                             As a result, we did have interest in what the consumers wanted. When we started, at least, we were B2BC. We spent a bit more time talking to websites than we did speaking directly to consumers. That changed as the business progressed.

Peter Cowley:                  How do you define those initial weeks and months?

Andy Phillips:                   Painfully, actually. We managed to persuade an awful lot of friends to come do stuff for free. I put some more money in. I think it was quite difficult putting more money in at the time because I just funded an MBA. We were struggling a bit with the cash. We managed to persuade some people to write the code. We managed to persuade some people to do some marketing for free. We actually started bluffing things. We actually hired the premises, what we were doing funding around. There was quite a lot of pressure to close the funding round by the time we did it. There was an air of desperation circling when I was pitching.

Peter Cowley:                  How much did you raise in that first round?

Andy Phillips:                   405 thousand pounds. The five was because we met a guy, he wanted to invest five and he was a really nice guy, so we let him.

Peter Cowley:                  Who did you pitch to?

Andy Phillips:                   As with many entrepreneurs, we wanted useful money. We were very specific about what skill sets we want. As you gradually get more and more desperate, you want any money. We got some brilliant investors. We had the chairman of ABTA, the Association of British Travel Agents. We had a very successful technology entrepreneurs. We had some very good marketing people. Marketing directors for Pepsi, for example, invested in us. As we got slightly more in need of money and also because of personal chemistry, we took money from Britain's largest potato farmer, for example. The BBC correspondent, Peter Allen, which are difficult to justify operationally, but actually they were nice people.

Alan Cowley:                    Thank you for supporting our mission to share people's experiences and anecdotes. These stories will help entrepreneurs and investors create more successful start-ups. You can find all our podcasts on our website investedinvestor.com, as well as all major podcast platforms. Our recently released book, The Invested Investor: The New Rules for Start-ups, Scale-ups, and Angel Investing, is available on Amazon and includes a wealth of knowledge from entrepreneurs and investors from all over the world. Happy holidays from the Invested Investor team.