Space Tech, wine club, and an array of investing

Podcast transcription - 17th October 2018

Alan Cowley:                    So, welcome to another Invested Investor podcast. I'm sat opposite Nathan Hill, who is a serial entrepreneur and angel investor. So, Nathan, why don't you tell the listeners a little bit about yourself, and how you got into angel investing?


Nathan Hill:                     I started off life as a physicist. I guess the seminal learning point for me as an 18-year-old was that I was really a rubbish physicist. And my tutor, the late Harry Rosenberg, a great solid-state physicist, introduced me to Martin Wood, who was one of the founders of Oxford Instruments, with the amazing introduction, that I hope all of you will benefit from, which was, "Martin, you've got to meet this guy, Nathan Hill. He's about the worst physicist I've ever tutored, but he could sure as hell sell a shed-load of superconducting magnets for you." And that stopped me from the idea of doing a PhD at Oxford. And on to being a salesman for Oxford Instruments, where I spent my first happy 12 years or so, in Germany, in Japan and the USA, ending up as managing director of two businesses in Cambridge.


Alan Cowley:                    Okay, what year was this when you were working for Oxford Instruments?


Nathan Hill:                      That would have been from, well, as a student actually, and then from 1987 to 1999. And then I left, and started Qi3, my own business, in technology commercialization in Cambridge. And that business, the thing I really love is selling. And it's selling, but also finding that bite point or that clutch point, or leverage, or pivot, where technology can really be saleable. And I just love following the sales opportunities for that. And Qi3 was really based around doing that, in sensing instrumentation technologies, starting off very much broad, in security, aerospace, defense, semiconductors, medical, environmental.

                                            But, over the last to years or so, we've done more and more in the space sector, starting off with Mars exploration, and the technologies required for British industrial involvement in the Mars program. But more, latterly, in uses of space data, for novel businesses, a lot of which has ended up with a cluster of investments and businesses around the Harwell Science Park. And that's been absolutely fascinating. So, nowadays I'd say we're about 75% or so in the space sector, and that's Qi3, the first business I founded, and went on doing that happily until 2010 or so. And it's still going. It's 19 years old now.


Alan Cowley:                                   But how big is the company now?


Nathan Hill:                                     Oh, it's a small business. We're very much boutique, but the special thing about it is, it deals with very very big companies, so we do a lot of work for very large multinationals, in their space and aerospace defense technology strategy. And also for the agencies, people like the European Space Agency, UK Space Agencies, universities, and people like that.


Alan Cowley:                                   Okay, so in 2010, you were about to say, you transitioned-


Nathan Hill:                                     Yeah, I'm quite a sort of impetuous character, I guess, and I got bored of doing consulting on the clock, and so I handed that little bomb of managing that over to my co-director, another ex-Oxford Instruments MD, a guy called Robin Higgons, who's been running that business now for the last eight years. And I went into angel investing really full-time from then. I got suckered back into a couple of interesting projects, on space technology and on graphene, during the time really when I was building my angel portfolio. But I've been doing that since 2010.


Alan Cowley:                                   So how large is your portfolio at the moment?


Nathan Hill:                                     I always think that's a rather ... People always go, "How big is your portfolio?", sort of thing. It's more the quality of the portfolio I'm interested in. But, I guess, to answer the question directly, I've made 15 angel investments and recently my first VC investment, and I also have two operating businesses, Qi3, the space tech business, and Honest Grapes, an online wine club.


Alan Cowley:                                   In terms of your angel investing, can you talk about any successes and failures over the last eight years?


Nathan Hill:                     Yeah, but I always wince at failures. I think I was very lucky in that, during the lifetime of Qi3, as a business consulting in space tech and other sensing instrumentation technologies, I managed to do quite a number of what really is sweat equity investments, or deferred fee arrangements. Because we were doing really well as a business, with large clients who were paying us, I'd quite often see very interesting small businesses or spin-out businesses that needed help, but couldn't afford us. And so I used to do a couple of deals a year, where I'd say, "Okay, look, I've got a salesman's nose. I think this is going to work. Either pay me later, when you've got some money coming in, or give me a few per cent of your equity, and let's see how we get on." And I did some very, very successful both cash deals and equity deals, through that.

                                           Since I started what I call my first fund, as it were, because I treat each portfolio as a fund, I started that, and that's where the 15 investments are. Of that, I've had a 25x exit, a 37x exit, quite recently, and that's the good news. I've had one company that's paid its investment back in dividends so far, and will probably do so again, roughly. It should double before it exits. And I've got five nasty failures, and six companies left in play. This is after about eight years. And, of those six companies in play, with a following wind, I'd hope that about maybe two or three of them should have good exits still.


Alan Cowley:                                   So, the difference there ... The companies that have succeeded compared to the companies that have failed, what are the reasons for this?


Nathan Hill:                                     Partly, it's been my own learning, as to what to invest in and what not to invest in. The rest of it's mostly down to people.


Alan Cowley:                                   As most other angels will tell you.


Nathan Hill:                                     Yeah, exactly.


Alan Cowley:                                   So, you've got full-time angel investing, you're consulting, and you're running your own business. How do you balance all of this?


Nathan Hill:                                     Insomnia helps. I think, to be honest, it's passion and enthusiasm. I love what I'm doing, so I get on with it. I tend to look at everything as part of an overall portfolio of activities, which, hopefully somewhere as well involves life and family and friends, as well as business and investment activity.


Alan Cowley:                                   You took a nice break to New Zealand and Australia last year.


Nathan Hill:                                     Exactly, yeah, that was my sabbatical, for four-and-a-half months or so. So, I have a set of principles which I try to follow myself, and also write into the contracts for every employee in all of my businesses. And that is, doing great things for customers first, working ethically and honestly, having fun, making a decent living, and then enjoy the weekends with your family and friends, and so on. So I think actually, having a balance of what you spend your life doing, and encouraging that atmosphere in the companies I founded, is pretty important.

                                            I think, by the way, while we're doing all of this success story, I founded four companies, and we've spoken about three. So, there's Qi3, Qi3 Ventures, which I call the portfolio of investments, and Honest Grapes, the online wine club. But I also set up a wine bar about 13 years ago, in Cambridge, which spectacularly collapsed, and it was the fastest way of losing a million pounds that I've managed to find. So, you learn from your failures, as an investor and as an entrepreneur as well.

                                            But, going back to your question of how do you balance all of that, it's really governed by the portfolio and by the need. So, if we take them in turn, Qi3 is a successful boutique business. I still spend a day or so a week doing consulting, I tend to get suckered into great projects, where there's exciting things and I can add value. And actually, that business, although it's boutique, is actually growing quite fast at the moment. So it's actually cyclically needing more attention, as we're picking up more business in the space arena. I like selling, so I see prospects, and I go and sell to them. And that gives us more work to do.

                                            The wine business has gone from nought to two-and-a-bit million pounds turnover in three years. Wine is quite a struggle of a business. It's a retail business, it's online, it's got events. I've invested a lot in that. I was basically bankrolling it, and that's gone pretty well, but it's also needed support at various stages. Most notably, actually, in terms of getting the management of that right and making sure I can get the cashflow working properly. So, at some times, that's needed very little time in a week. At other times, it's needed to be four or five days a week. At the moment, maybe two-and-a-half days, something like that. So, it varies, but it's my investment, I've got to get it right.

                                            If I go on to the angel investing activity, that's been really very cyclical. When I started off in 2010, I guess I was thinking of it much more as an active angel portfolio, where I'd be putting a lot of sweat and energy into every investment. Now it's ended up as a more balanced portfolio, where sometimes companies need a lot of time and help. Other times, actually, to be honest, the management are doing very well, or my co-investor mates are doing very well in their roles, as NEDs or chairmen or whatever, to help the company along. So I can sit back and watch it succeed or, sometimes, often, fail, as well.


Alan Cowley:                                   Do you sit on any boards at the moment, then, or-

Nathan Hill:                                     At this very moment, no. So, when I took my sabbatical last year, I cycled out of quite a number of directorships before I went on the sabbatical, because I felt that was right for me, at that stage, and right for those companies. At various stages, I've been NED, I've been chairman, I've been on the board of the UK Business Angels Association, but at this stage, I've got my hands full with two operating businesses and my portfolio. I am on the advisory board of the Space Fund, Seraphim Space Fund, which is the VC fund, in which we've invested and I'm a limited partner. I keep involvement, but it cycles.


Alan Cowley:                                   So, you've got this array of different portfolios, as you call them, and different interests in businesses, three businesses, and also consulting. Have you got any advice and methods of managing all of that?


Nathan Hill:                                     Yeah, so this is sounding quite disparate as I'm saying it, but actually everything is based around looking at your life and your activities, and also your net worth as an investor, and to look at it as a portfolio, or in fact a portfolio of portfolios. So, when I had my light-bulb moment back in 2009, that I needed to do things differently from just day-to-day consulting and building Qi3, successful as that was, I actually went and read two books. One of them, which I'd recommend anybody to read, is Smarter Investing by Tim Hale, and, if you're an angel investor, please read it, because it won't encourage you to angel invest. It's all about passive investing, in index funds or exchange- traded funds, and focusing on balancing risk and asset allocation. And I found that a really, really interesting book, and two of my portfolios are based entirely around Tim Hale's principles.

                                           The second book is one I actually can't remember, but it was all about matching your investment goals to your life's needs. So, for example, I need to save for a bigger house, or I need to save for a pension, or I need some emergency funds for my parents or my family. I would like some extra money for some luxuries, and I'd like some risk investment because I like having fun, or doing good, investing in other companies. And so, those two principles of investing in pots or funds and of thinking about long-term buy and hold, or Alpha versus Beta in investment terms. When am I going to be activist and look for above-normal returns, or when am I going to ride the Beta curve and just balance my risk versus my reward? Those two books, those two types of learning, were extremely valuable to me.

                                            What I then did was, split everything into the pots of what are now the two operating businesses, Qi3 and Honest Grapes. In the operating businesses, I've got high return on capital for my investment. They're risky, because I'm the investor, and if things go wrong I have to fund the mistakes. They offer growth, they offer long-term dividends, and they may offer exit potential.

                                           Personally, to be honest, if Qi3 pays me a nice dividend into my retirement and keeps me active in space technology, and Honest Grapes gives me lots of opportunities to visit nice vineyards and drink lots of wine for the rest of my life, I'm going to be healthy, happy, pickled and wise. Actually, the exit opportunity is less important to me than the long-term dividend opportunity. They've paid my living for many years now. I'm not likely to be anybody else's employee, although listeners, please offer me, but I'm unlikely. And I'm just very happy. Space tech and wine, what more could you want?

                                           The second set of pools, really, is the two passive and semi-passive investments. There, my benchmark is about 7%. It's RPI plus 4%. In fact, I do about 10 to 12% over the long term, and that's simply investing in very simple, constructed portfolios of exchange-traded funds, ETFs, with a bit of investment trust, or a bit of other single-share investment, but all quoted equities. Sometimes that's just to spice up the return on individual portfolios. Over the long term, doing 10 to 12% compound return, long-term buy and hold very slow rotation, nothing to do with daily trading, I'm generally in those shares for years, and just reinvest the dividends to compoun       d that growth rate. That sets a very stable basis for your pension. Yes, shares go down as well as up. So, please need to look up my Lazy ETF. Google Lazy ETF Portfolios, okay? Most of it's just based around very careful asset allocation around Lazy ETF Portfolios, and that is a sensible benchmark to say, "Why should I do anything riskier than that?" Because the people who sell you pensions will tell you, "The RPI plus 4%, you're doing well."

                                           Another good metric, by the way is if you take your net worth. If you invested that in a pot, and you could take 4% interest a year and live off that, then you should be happy for the rest of your life. Why be greedy? You've got enough money to live on. If you could live off 3&% you're doing really well, and if you could live off 2% of your net worth, that's almost like tips. US index-linked treasurers, which yield about 2% or so. In other words, the safest investments in the world yield about 2%. So, if you could invest your net worth, live off 2% of it, why work for the rest of your life. I've got a lovely garden. Go out and enjoy yourself. Why do anymore?


Alan Cowley:                                   Yeah.


Nathan Hill:                                     Once you get to that stage as an individual, then it's all about gaining the fun and interest out of the work you're doing, and the pleasure you've got in the businesses you're investing in, and the work you're doing day-to-day. So, all of my portfolios are geared around either achieving that basis or more. Then, why [inaudible] investing, I'm looking for 20% or however. So, that's the spice. But, I'm also looking for the fun out of it, and for supporting entrepreneurs who are in great businesses that I want to be involved with. And, that's why [Engel] investing is one of my five portfolios.


Alan Cowley:                                   Do you think you would, on future investments, lead an investment and maybe sit on anymore boards?


Nathan Hill:                                     Oh, absolutely yeah. I think it's a cyclical thing. I've been syndicate lead over quite a different number of investment, at this very stage because I've had to fix issues, and get my two operational businesses moving in different directions. I've been doing rather less active investing, but I see it very much cyclical. I'm quite young still. I've got plenty more years to do different things.

Alan Cowley:                                   Right. But, you're also working with Space Camp at the moment, aren't you?


Nathan Hill:                                     Yeah, that's right. So, one of my more recent investments ... so, back to asset allocation, I've chosen to invest that 15% in these higher risk areas of Engel Investing. I wanted to be doing more in the space arena, at around the same time that [SoFM] started to put their space technology firm together. And, I went into that fund as a limited partner through QI3, and as an advisory board member. That has now made six investments of its own. It should end up with 20 or so. And, they've put together a space camp, which is an accelerator program, and I'm working as an Entrepreneur-in-Residence on that program. We're only in the sort of second week of that program at the moment, and it's great fun. We've got six companies in there, three of them more on the upstream sides of the components and technologies, and three more on the downstream sides of data derived from space assets.


Alan Cowley:                                   Oh, it sounds really interesting. So, you talked about active and passive involved with Engel Investing. When do you feel it's best to either lead or be a chair or NED? And, when do you feel it's best to sit back and let others do the heavy lifting?


Nathan Hill:                                     I don't think there's a shrink-wrapped answer to that. But, I'll maybe sort of talk about a few experiences. It's been a big lesson for me because as I said earlier, I started off looking at it very much as a wholly active portfolio, and now it's more balanced. And, it's really interesting to listen to these podcasts to chat with my other investor mates and entrepreneurs, and actually learn from them where people really benefit from [Engel's involvement].

                                           So, my first big loss ... you asked earlier about wins and losses was actually an instrumentation business. Now, I was an ex MD. I've worked with instruments. I should know instrumentation. My latest syndicate, which was a decent market prospect, and it collapsed within 15 months. And, I was the NED, and it was a tremendously humbling experience, more than humbling, horrible experience. Basically, without going into details or naming names, it's an instrumentation business where the technology wasn't really as well developed as we thought it was. And, although they had some installations, it couldn't make that step from working well in a lab to working well on a factory floor. Let's leave it at that sort of level for now.

                                            It had a decent plausible nice guy running the business, but he couldn't get further sales. And so, despite us capitalizing the business very well, I think it was about 1 and 1/3, 1.5 million pounds in the round [inaudible]. It ran out of money in 15 months. So, you had the toxic combination of a non-delivering company, a VC investing alongside Engels. Big note there, choose your care investors, and as an NED, I was spending a day a month involved in the business. But, my input as an NED, I didn't feel was really being listened to. But, what could I do about it. You either, kick out the CEO and become the CEO yourself, which means I've got yet another business to run, okay? Or, you do nothing about it, which means the business goes to the wall. Or, you just try and give more input at board meetings, and hope you're listened to.

                                           And, actually it's a really difficult position to be in because you feel like a hostage to a situation, and everybody's looking at you as the expert. But, actually what are you supposed to do? And, in the end, I poured more and more time into it, and it still went bust cause in the end, it's the team whose got to run the business. Your role as an investor should be an active supporter, a mentor, and friend of the business, not as the person whose criticizing the management team and ultimately kicking them out, and doing it yourself. And, I've been in that position three times now, where management fail and therefore, the business fails. And, the investors are left holding the baby, basically.


Alan Cowley:                                   There's actually some research being done in Cambridge about whether or not CEOs can be taught or mentored or coached into being better CEOS, and it's some research. If maybe in your scenario, if this research had been how many years ago it was ...


Nathan Hill:                                     And, I think that's really important because I got into it as an entrepreneur who accidentally got into Sweat Equity investments, who then started to do it more formally. Most of the other people I know, got into either by inheritance, realizing they had a pot of money they had to do something with, or as exited entrepreneurs who got their inheritance, who made their inheritance for themselves as it were, and therefore started to say, "I do want to run another business, now I'll do that." I'm a hybrid. I'm running businesses and investing. And so, I think a lot of us who are Engels, and maybe do know a bit better than the people who we're investing in. But, ultimately my role as an Engel is not to run the business. It's to help the management run the business, and sometimes that can just be moving to more passive side, giving people contacts, helping them along the way, giving them a bit of advice. That can be the old phone call or Skype thing.

                                           After that first big loss, I went to look at a couple of successes. My recent exit got superb support from two of my co-investors, [Tim Duvogreen] and Paul [Ansen], wonderful guys to work with, who basically supported that business in getting its operational execution right, and in representing us as passive investors, all of us as the investors, through 5.5 years and through the final 9 months to exit to private equity. What better friends can you have? Maybe I've got the inverse Midas Touch. The one I was an NED of collapsed. The one they were NEDs of has had a superb exit.

                                           Another investment that is doing reasonably well. I'm looking for great things from. As a team, we introduced his company in Bristol doing deep silicon technology. It's not just our role as an NEDs, but also the introductions we've made bringing investors and support from founders of ARM and CSR into that deep silicone business. Frankly, I know quite a lot about the physics of silicon about semiconductors. I don't know about wireless technologies. So, our ability as Cambridge, London sort of Engels to bring in people who've been very successful in that technology arena is really useful. One huge benefit I've got from running a technology commercialization business is I've got a very wide network of deep tech experts in the fields of which I'm likely to invest, and that's really helped in terms of being able to evaluate and support businesses I'm involved with.

Alan Cowley:                                   You touched on that you have an investment there in Bristol. How do you feel about some Engels like to keep it quite close to them. Some angels are fine with being abroad and having various companies over it. What's your position on location of investments?

Nathan Hill:                                     So, for my passive investments, I invest in the world, passively in the world in quite lots of sort of world [indices]. For my Engel investments, I really look to be within a couple of hours of the companies. The benefits as a UK investor, from using the UK tax breaks, Enterprise Investment Scheme, [C Enterprise Investment Scheme 00:09:26], I do working capital loans as well. Those benefits make it sensible to have most of my investments in the UK, but not all of them. So, generally I like to be within striking distance of the companies. I think the other important thing though is we are all investing our time, not just our money. And, our time is most often our scarcest resources, a scarcer resource than money. As investors, we're in the privileged position of being able to feed ourselves, house ourselves, keep the house warm. So, invest your time as well as your money wisely, middle where it's helpful, and catch a ball only if you can pass it on before it explodes or if you can handle the explosion.

                                           So, I think the active versus passive thing for me has changed quite a lot over time, and quite a lot of the support I'm giving to companies at this very moment is actually through advice and support, rather than sitting on boards. But, that will change over time. It's bound to be.


Alan Cowley:                                   So Nathan, can you tell us a little bit more about your portfolio in management?


Nathan Hill:                                     Yeah. So, I'll focus mainly on the Engel investments. But, if I briefly deal with the more passive investments. I said earlier Google Lazy ETF Portfolios. It's all about balancing your risks on beater-style investments. So, not expecting to outperform markets, but to balance your risk by deciding how much risk versus how much reward. Everything I've learned in that is about learning good investment discipline. Long-term buy and hold, the time to buy is now. I make so many mistakes trying to actively manage a passive portfolio. You've just gotta mind switch and realize that it's all about long-term reinvestment of dividends and just compounding. And, you've gotta learn good investment behaviors, and just spend most of your effort thinking about the initial asset allocation, and then gradually over time refining that asset allocation. So, that's the passive stuff. But, it's a very useful benchmark.

                                            The second thing is I unitize everything. It takes the emotion out of it a bit. Look it up. There's just a bit of spreadsheet work. You can turn all of your portfolios into something more like a unit trust portfolio with accumulation units and income units. I do that with my Engel portfolio. I do it with my two operating businesses. People think I'm bonkers. To be honest, it's very little work once you've set it up. But, it takes the emotion out of it to be able to look at your portfolios and say, "Is that portfolio hitting my benchmark, or isn't it? And, I can follow all of those portfolios over the last 10 years or so, and it's a really, really useful way of doing it. And, maybe me as a physicist, but hey it's just a bit of spreadsheet work.

                                           On to the Engel stuff. So, you set goals and focus on total return. In the Engel portfolio, I'm looking to be 20% in the long term on my current fund. So, I set everything up as a series of three funds through my what I anticipate to be my investment lifetime, almost like a mini VC. I've completed the first fund, and I'm now into my second fund.


Alan Cowley:                                   Okay.


Nathan Hill:                                     On my first fund, you haven't asked me the magical question, "Am I cash up, so far?" I am cash up. I'm currently at 13% [IOR], and I expect to reach my 20 - 25% IOR goal on my first portfolio. To be frank though, that's all about having two big success there's so  [crosstalk] ...


Alan Cowley:                                   A little bit of luck there.


Nathan Hill:                                     A bit of luck. Well, a bit of luck and the luck we call inspired judgment.


Alan Cowley:                                   Yeah.


Nathan Hill:                                     Okay. The failures were uninspired judgment. So, unitize everything, set benchmarks, and then monitor, but not too frequently. So, with my passive investments, I download the prices once a month, stick them into the spreadsheet. But, I only really look at everything once a quarter, and rebalance every maybe twice a year maximum. I really try to leave it alone. Don't mettle.

                                           On the Engel investments, I'm looking for quarterly reports from each of the companies. Obviously, if I'm an NED or whatever, I'll be looking for monthly reports. Treat the money as a fund. My recipe is to have ... and, I know different people have got different recipes. I have about one-third of the money in the fund for new investments, and about two-thirds follow-ons, and as I'm getting towards an end of a fund, I'll decide whether to reinvest or to say, "Okay, that funds closed now. I'll bring the money into the new one." As I said, I'm on to my second fund now. I've made three investments in the new fund: the VC investment, two [Engel] investments ...

PART 2 OF 3 ENDS [00:28:04]

Nathan Hill:                       -And the new fund the VC investments, two angel investments are working capital investment. Have a clear investment thesis what types of companies are you interested in investing in. What floats your boat? How are you going to manage your pipeline? And how are you going to evaluate the potential financial return for each investment you go into? And that really is worth doing. I think a really important thing is not to be in a hurry. It's very easy, I've pulled out of an investment recently where people were saying, "oh yeah, you got to make your mind up quickly. You're invited [inaudible] here you know you got to pick your 50,000 then right at the end tail otherwise it's closed."

                                            You'll regret much more the investment you make that you shouldn't have made rather than the investments that went well that got away from you because you've said no or you just didn't have the time to say yes.

                                            I never really worry about the ones that got away. I honor them a little bit. You know you always say "Could I have invested in Deep Mine or something like that?" I wasn't there at the time okay. Sometimes I'm there at the time and I miss it. Sometimes I didn't hear about it. I'm too late. Good luck. Well done for the people who are in it. I wasn't there. The ones I regret more are the ones I did put money into and then went bust. And it's a natural regret. What you should really focus on is backing winners. The ones that look good, the ones that you think you could invest in your second, and third, and fourth investment rounds and take [inaudible].

                                           Don't be in a hurry. Five key criteria absolutely rock solid are, investing in a team that's credible to the deliverable business plan than they're pitching to you. Look at them in the whites of their eyes and think can I trust those people with my money. Do I think they can deliver on the plan they're pitching me. Is the market interesting and exciting? I've heard other people say. They want to invest in things that are doing good for the world. I prefer to do things good for the world as well, but ultimately there needs to be a market for that. So is there something in which I see an interesting market that's growing or where I can see a real place for that company. The third thing is differentiation. In which zone is this company going to disrupt that market and make a difference against its competitors? How is it going to stand out? The fourth one is intellectual property or at least the moat. What's the thing that's going to stop everybody else doing the same thing? Is there something in their technology? Is there something in their business model that stops people just copying them and beating them to it?

                                           The fifth thing then is the business model. You can see all the good pictures in the world without quite getting to the heart of how that management team with that proposition is going to attract a handle that makes money out of what they're doing. And I want to understand that business model. Notice by the way, goes strictly in that order.

                                            The team comes first and foremost. The other four things, market differentiation, intellectual property, and business model come after that. A great team can make a good business after a mediocre proposition. A bad team can buckle up and kill any business, any piece of gold you give them. Once I got my proposition then, choose your co-investors. I tend not to go into propositions where there are VCs involved.

                                            I've already said I have a set for investments, which is a VC fund but as an angel I tend to find that a group of people managing our own money are quite well aligned particularly if we all have the same class of share. People who are managing other people's money and have got liquidation preferences, management fees and things like that involved. They're just not aligned it's not they're bad people. It's just their interest aren't aligned. For me it's all in water I've been burnt twice. I won't do it a third time. The last bit of that then is the money arch. The investment arch. Just yesterday, a company not one that I've invested in but a company has gone bust. It's not gone bust, it's gone bust with its shareholders because it's been sold out to 90% loss to its shareholders. Why? Because it ran out of money and got taken over by a competitor. So as an angel I tend not just to look at the round I'm investing in, but I think how much money will that business need [inaudible] to some kind of exit or [inaudible] to some kind of cash break even.

                                            Can I participate in those rounds? Will it be sensible for me to do so? If the investment arch doesn't feel right to me and they going to be more cash consumptive than I can be involved with, I can't necessarily see a point for me investing in it because the inevitable change in strategy and change in equity structure will mean that I'll be crowded out and so will my other co-investors. I know that my VC colleagues say that I'm ambitious and I'm looking for smaller businesses than they are that's fine with me I've got plenty of deal flow, plenty of opportunity to invest. Frankly, the only two days when a share fly matters are the day you buy it and the day you sell it and the rest of it is needed [inaudible]. So why not think about those two dates and the cash it might need to go in between one and the other.

                                           So I think thinking about the financial arch and your co-investors is pretty important there. You hear all sorts of horror stories and I've been involved in some of them where you're just in bed with people who aren't very nice or who've got different investment [inaudible] from you. And in the end the success stories are gonna be built where there's some alignment and where everybody succeeds on exit.


Alan Cowley:                                   Wow this is incredible useful for a lot of angel investors and people thinking of getting into angel investing. Let's spin it on its head just before we get you to our final point we want to speak about 'cause it's Friday. Have you got any tips to entrepreneurs.


Nathan Hill:                                     Communicate and be honest probably those two. As an entrepreneur, I've been one too many times I've coached and mentor plenty-


Alan Cowley:                     [crosstalk][inaudible]


Nathan Hill:                                     Oh I'm still am one, yeah exactly, yeah. I've benefit from other people's help not just the help I'm giving to people as is so that gets system.     As an entrepreneur, be honest when you're pitching because that honesty will- it will shine through to people. And I like to invest in people who are clever, who well meaning, who in good markets, but who I feel like I can trust with the money I've earned.

                                           Communicate, keep to that courtly discipline. You don't really need to more frequently and if you've got bit of good news or unfortunately bad news. But communicate with your investors. It's so tiresome just to hear from your investee companies when their fair with the begging bowl needing the next emergency round. If you've had that courtly communication, you've got a feeling to what they're up to they'll invite you once a year to some kind of shareholders' gig you can see the team and get a feeling for them. You're more inspire to feel part of that team, involved and not just a money tab. To be honest those are the two things I'd say to entrepreneurs, but I guess if there was a third thing is go for it. Celebrate your successes, work hard, learn from your failures, I've had plenty. Be like me, fail, but then learn from it.


Alan Cowley:                                   Okay, well lets talk about one that hasn't failed. And also like I said, it's Friday afternoon. It's sunny, got a lovely garden here. You also have a- as you said earlier, got a pretty successful wine club on this grapes. Can you just tell us a little bit about that?


Nathan Hill:                                     Yes of course. Many of my friends think that I invest in the wine business either as a way of exploring my interest in wine, which has been something I've enjoyed ever since living in Germany for a few years, 30 years ago. Or they think it's just a sensible way of drinking the profits of the money I've made from [inaudible] engine investing. In fact it's nothing to do with that, it's a serious investment and it's one that was taken from zero to a couple of million turnover now on- onwards from that. Over the last few years or so, it's an online, offline hybrid so it's eCommerce plus social. And the social is through 250 events or so a year. One fairs, personal advice to people. The eCommerce is a slick website but it's one that's really there to deliver to its members and the gap I sport it in the market really was a non-fuddy-duddy non-elitist way of offering really great artisanal wines to private individuals like myself really, who enjoy wine but don't want to be bamboozled by all of the offers that they get from traditional merchants or frankly the oldness of it.

                                            The main wine merchants in London are offering really to an audience of 60 year old class whereas we're a young club. We're aiming at 30, 40, 50-year olds with about 80% of our members being between the age of 30 and upper 40s. It's really about the celebration of great wine, but as a business, basically our customers are high-yielding, recently well off, they genuinely enjoy wine, but don't see themselves as wine buffs, and every level from a spend of 300 pounds a year up to tens of thousands a year we offer every individual of their own personal wine guru to sort of support them to their aspiration of wine. We flew one wine maker all around the world to meet our members. We've run individual portfolios for people. We think of it really more as investment in your future drinking pleasure, more than wine as an investment. Although, frankly, I've made some descent money out of investing in wine as well.

                                           But for me to be honest, I'm there to drink it, celebrate it, and enjoy it. I love doing that with members and it's such a pleasure to introduce people to the producer of wine. Celebrate that, we had a guy last week, a guy I met in Australia called Taras Ochota who's a surfer, a biker, a punk rocker, he makes beautiful pinot noir, grenache, syrah, all sorts of wonderful wines in Adelaide Hills. He just inspires people. We took him to a club in Mayfair, brought a couple of dozen of our members and club members around to meet him, drank his wines and everybody went mad and just bought his wines at the end of the evening. And that's the great pleasure of running a business like that can inspire.

                                            As an investment, it's an investment I funded through a loan from one of my other businesses. Its got itself to a descent state now and we're growing to reasonable rates so yeah, it's just great fun. And it's lovely to be involved in space tech and wine daily.


Alan Cowley:                                   It's an interesting and intriguing mix of companies, space and wine.


Nathan Hill:                                     Absolutely.


Alan Cowley:                                   Bring them together. Well Nathan this has been absolutely brilliant. I'm sure all our listeners will love to hear more over a glass of wine. Thank you very much.

Nathan Hill:                                     You're most welcome. Thank you.


Peter Cowley:                                  Thanks for listening to another Invested Investor podcast. You can subscribe to all future podcast by our website, or by our number of podcast platforms online. Remember you can order our book online and be sure to follow us on Twitter, LinkedIn, and Facebook to get the most up to date interesting and insightful content from the Invested Investor.