From investor to investor
Podcast transcription - 1st may
Alan Cowley: Welcome back to part two of Ronjon's Invested Investor Podcast. In part one we heard about a successful entrepreneurial career. Now we'll hear how he transitioned to angel investing and why he believes a helpful angel is a successful angel.
Peter Cowley: Had you already started angel investing before you did your second exit?
Ronjon Nag: Yes.
Peter Cowley: What led you into that?
Ronjon Nag: So, when I still had money from the first venture, before I'd put all of it in, there's three companies I invested in. This is about 10 years ago.
Peter Cowley: Or more probably?
Ronjon Nag: More than that. And let's see, so one, I lost all of my money, one I got 90% of my money back. And the third one, which is Cradle Points, they have a few hundred million dollars in revenue today.
Peter Cowley: What was your evaluation when you went into that one?
Ronjon Nag: That was about four million pre.
Peter Cowley: Yes so that got you at least four hundred you're at home, if not more.
Ronjon Nag: Exactly, yes, but that goes back to angel investing. A lot of my deals of that category, I've learned some things now. So, the one I lost all my money was in Switzerland, it was a company in Switzerland, and one of my lessons is that I want to invest in companies that are at least in places I go to, regularly. So obviously I live in Palo Alto, and so the Californian companies. I like Cambridge companies, British companies on the outside. And so typically I won't do companies outside of Britain or the US, and preferably in the US, because it's a big place, it’s usually the western side.
I run MIT angles group, not in Boston but in Silicon Valley, and so I have deal flow from MIT angles, I have deal flows from Cambridge Angles, which I'm a member of as you know Peter.
Peter Cowley: TIE, is Thee Indus Entrepreneur.
Ronjon Nag: Yes.
Peter Cowley: Chapters all over the world now.
Ronjon Nag: Yes, yes that right. Originally it was an Indian diaspora, but now its cosmopolitan or anyone could be a member, and each one of those networks have very different characters. So, when I talk to a company I try and point them out to the right group, mainly because of some of the other companies I’ve done myself, a little bit deeper science, usually there's less competition. Often though the market is not as developed, but I prefer that than going to a crowded marked, some people are the opposite.
Peter Cowley: The blue and red ocean, they call it down there. You want to be in the blue ocean not the red ocean.
Ronjon Nag: Right, and so sometimes people prefer maybe a crowded market because the market is there.
Peter Cowley: Developed, you don't need to educate the customers.
Ronjon Nag: Yes, the wider market. I've tried both in my experience though I prefer not having competitors. Well does anyone actually want this? Does any anyone actually want this companies product? And the irony is that I think though the deep science companies often lower evaluation, you can get them at lower valuations, than the crowded market.
Peter Cowley: Yes well that’s because, there is a huge technical risk. There's almost certainly market risk, because it’s a blue ocean and nobody is buying the stuff yet, and therefore it takes a long time and takes a lot of capital.
Ronjon Nag: Maybe I’ll debate that, the first one took $500 remember, my first company?
Peter Cowley: You had customers come on immediately that was the difference.
Ronjon Nag: Well that’s why I like companies that have customers almost immediately.
Peter Cowley: Okay
Ronjon Nag: I'm always telling a lot of entrepreneurs who think they can't ask for a project, they think if they've not built their project, not built their prototype.
Peter Cowley: They can't ask for money?
Ronjon Nag: They can't ask for money. I say the opposite. I say look, you go to your potential customer and say what you want for your prototype, built by you, for your custom need, well I've got an opportunity because I either do it for you or I can do it for a competitor or another competitor depending on how big. Who am I going to work with, this I your chance? Well I like to have my cake and eat it and if no one buys it, that's a signal, maybe there isn't a market there if you can't persuade somebody to at least write a cheque for a few tens of thousands, doesn't have to be millions just a few tens of thousands.
I like it if there's a signal, somebody's written something somewhere and puts some skin in the game on the customer side, the second point is the actual team members. Do they actually have credibility and the experience? I like PhD’s. Once they've graduated with their PhD, they are the worlds expert on that topic at that time. They may not be five years from then, but at that time, by definition the PhD is a creation of new knowledge to the world If you look at antidotes, I think, if it’s a curated set of PhDs in the right field, even if you don't have revenues it $10 000 000 dollars a person verse $1 000 000 per person if there’re just ordinary.
Peter Cowley: That just so they can value metric in my view, not a British metric
Ronjon Nag: Well you've got to go where the buyers are. There are British buyer, but one thing about Silicon Valley I like, is you have a lot of buyers, within a twenty, minute drive. One of my critics, by the way, in British companies is that they don't buy enough British companies. Some of these get to large market capitalisation, and they're a bit conservative, and they don't buy companies around them, and that devalues the ecosystem in Britain. Take Arm, it buys a company every month, sometimes every week.
Peter Cowley: It’s just bought one or two a year or something.
Ronjon Nag: Exactly, a 30 billion, dollar company, and they could get to Blackberry disease, they've bought back Softbank of course now.
Peter Cowley: And Softbank will have a different view that I'm sure.
Ronjon Nag: Yes, I think they're quite aggressive now, they've gotten this switched.
Peter Cowley: So, let’s just go back and talk about your angel investing career, so you've always done a little bit you dabbled a bit, obviously one worked very well, you've been very lucky with that one. You'd got out of Rim in about 2012?
Ronjon Nag: Right.
Peter Cowley: Okay, so then, did you make the decision, with your wife? With Sally Anne? and say, I'm going to blow a lot of money, but not blow hopefully all of it, but we're going to invest a certain chunk of money. You went into that in quite a big way, didn't you?
Ronjon Nag: Yes, so wealth is often lost within two generations, and so a way to look at it is you have an asset allocation. So, some of it is low risk, some of it is medium risk, and the other part is the high risk, complementary, high risk allocation, but with a knowledgeable basis.
So, the allocation went through, and I think I was just looked for companies, that’s what I like to do, if I like the idea, and go in quite early, very early. I know investors go in at different stages, but I usually go in very early.
Peter Cowley: That’s what I do, I go in very, very early.
Ronjon Nag: Very early.
Peter Cowley: I like to take lots of risk.
Ronjon Nag: Yes, and if you can get a good evaluation, often though when you get a good evaluation you end up working with the company too much.
Peter Cowley: Yes.
Ronjon Nag: And so, I've got about 35 investments now.
Peter Cowley: How many have disappeared after that 35?
Ronjon Nag: Two.
Peter Cowley: Two have failed?
Ronjon Nag: Yes, two have failed.
Peter Cowley: And how many successes have you had?
Ronjon Nag: We've had one exit, oh no I'm sorry there were two exits.
Peter Cowley: Two exits, exactly. What was the recent one?
Ronjon Nag: The recent one yes, which was a face recognition.
Peter Cowley: So this is over what period?
Ronjon Nag: Three years.
Peter Cowley: Okay.
Ronjon Nag: Yes, pretty, slowly putting money to work, and then first couple of years not very much a little bit, and pretty much like 2014-15 that kind of time.
Peter Cowley: We have a few, Light Blue Optics and Cambridge Mask and others we have in common.
Ronjon Nag: That right, yes.
Peter Cowley: But you do a bit more than that?
Ronjon Nag: Yes.
Peter Cowley: So Pay Plan etc. Can you talk through this, because this is a different model that some angles love and some angles hate, so tell me your rationale?
Ronjon Nag: It’s a more extreme version of going in early, so early it doesn't exist yet, and that was one of the theories I had, is to almost have a studio where, instead of putting 50K into a company, use the same 50K to develop a prototype.
The studio thing didn't work out, where you have a space, but it ended up being kind of virtually, its often projects I need or products I need. So, one is Pay Plan, which says basically okay a lot my portfolio companies have cash flow needs. They have customers, but the customers don't pay on the time scale they need to spend the money. So, typically I have customer that will pay 60 days and they need to pay their employees right now. So, I started Pay Plan specifically to buy the invoices.
Peter Cowley: Which is factoring, which has been around for decades?
Ronjon Nag: Exactly.
Peter Cowley: What was different?
Ronjon Nag: I found, I was looking for my own companies, I had customers and I couldn’t find factoring companies, that would do it.
Peter Cowley: You were to small, and too risky back then?
Ronjon Nag: Too small, they didn't understand what they were doing, and as a result, you need to have a guarantee, what's the point?
Peter Cowley: You can't pay the salaries to your staff at the end of the month, you could do with some money.
Ronjon Nag: Yes, by putting yourself at risk, and so we said well okay, if by closing this little company. It's probably not bad on paper, but is not risk free, because the oracle will say to the little company.
Your stuff stopped working, so we’re not going to pay you, but there's a reasonable model to generate income. So, that ended up being a little digital factoring company all by itself with its own customers, it is what we call in America, a double whammy. So, it worked as a stand-alone, by itself, but then it supplied all my portfolio companies too and other people’s portfolios companies as you know right?
And surprising enough it’s something that entrepreneur don't know. A lot of companies get it sticky positions where they've got the customers, they're trying to get equity when they don't need to.
Peter Cowley: No, no its working capital they need.
Ronjon Nag: Exactly
Peter Cowley: You provide the debt. So, you started investing a long time ago, you only did three and turned that cash into something very big. Let’s go back to investing. You've done about ten a year?
Ronjon Nag: Yes
Peter Cowley: Which is rapid. Tell me about how involved you get with your investments, not the co-founded companies you mentioned a moment ago. Do you sit on the board, do you meet the entrepreneur regularly etc?
Ronjon Nag: So, different companies, have different stages. So, one of them I'm actually chairman of, then a medical company, the chairman concept is not quite the same as here in Britain it’s not that common, but it is a note to the company, that you're a bit more involved both with the investors and the company.
A lot of it is guiding the CEO not to panic, in technology anything can happen, you could lose a big customer. So, better to put in place the mechanisms for diversification, continuing the development of intellectual property, and the public relations exercise so when you if you do need to raise more money, than you’re sort of prepared and set up.
And most importantly, I like to have my cake and eat it. When it’s a sustainable business. How can you get to cash flow break even and still have deep IP, deep technology, and growth? I think a lot of investors coach their companies, don't worry about the revenues or the profits just grow. If we’re losing money that fine, that's great but a lot of those investors didn't go through the dot com buzz like I did or 2008, they've forgotten about it, people forget.
Peter Cowley: They were too young maybe?
Ronjon Nag: People forget, they might be too young.
Peter Cowley:: They might have come from an industry, banking or something, where they didn't notice it in quite the same way?
Ronjon Nag: Exactly, and so we're trying to get that lesson across, because remember the role at the beginning? I said, the number one exercise, because you often don’t get the timing quite right, but you will have the belief that people will want your technology and product. So, the number one thing is, you need to exist, so when the market realises it wants you, you are there to scoop up also you need to exist to be a credible player.
So if you do not exist, than you're investment goes down.
Peter Cowley: And existing means having cash, and cash comes mostly from customers or equity, and the equity is not there it has to come from customers.
Ronjon Nag: Great.
Peter Cowley: Otherwise you don't exist?
Ronjon Nag: Yes, and you need to chart your own way, you need to think for yourself. I think my role in the board is sort of pushing that story, often other board members have other values to bring, but it’s quite common for people to say, don't worry about this, just add people, but I say, is that person paying for himself or when is he going to pay for himself? It is, definitely not, fun but as a board member you have to guide the CEO, you have to do what you have to do.
Peter Cowley: This is very British, what you're saying, I totally agree, I've been through lots of entrepreneurial journeys, but I bet you get a real push back with this?
Ronjon Nag: I do, but I think a lot of them haven't got through the down turns, or on the investor side they have diversified already.
Peter Cowley: And they just let them go.
Ronjon Nag: They just let them go and they are okay with that. So, maybe there's a kind of a moral support thing, with the people themselves or maybe as angel we have less diversification, and it’s our own money.
Peter Cowley: Yes, Yes.
Ronjon Nag: Unlike avenger capitalists, often it’s not their own money.
Peter Cowley: They profit share, but don’t loss share basically.
Ronjon Nag: Yes.
Peter Cowley: Apart from loss of brand and the ability to raise another fund.
Ronjon Nag: Yes, so they'll say I've lost my reputation, and I've lost my money, my money is worth more than your reputation.
Peter Cowley: I can buy a house with that money.
Ronjon Nag: Yes exactly, so then you sort of, build your track record, of course. I think that maybe in the early days you, maybe with venture capital firms who are quite long-standing harms them less if they lose one or two because they've got a twenty to thirty, year old track record. I think a lot of Angel investors have a personal reputation unlike in venture capital, it’s a little bit more private, so often if you make a mistake no one actually, knows.
Peter Cowley: I'm not, you might have looked at my website, all my failures are on there. I believe it shouldn't be.
Ronjon Nag: I agree with you. I agree with you Peter completely, which is why I've already admitted that I've lost two, right. So often you want other collaborators to co-invest with you. If you're honest with them, then people understand the risks and try and get that across, okay here is what I think, here is why I am investing, and here is what I think you should at least look at it, The first thing that I tell people, don't follow me, make your own decision. You'll try to absolve yourself, but you can't do that, but by just saying, well I am investing in this, you might want to look too.
Peter Cowley: You're already doing that, so I know if you get to sit on the board there is a level of moral responsibility there. And certainly, in the UK and America, there is no legal responsibility, but certain moral responsibility.
Ronjon Nag: Exactly! It goes back to reputation, and actually reputation is worth more than the money at this stage. The other thing with angel investment, I assume is a ten, year investment. I've had a few exits now and its two or three years.
Peter Cowley: Apple bought within?
Ronjon Nag: Three years, and television was like two and a half years.
Peter Cowley: Well you went in late, and television had been around for a few years.
Ronjon Nag: Yes, yes, yes, yes. But as an investment I assume it’s a ten, year cycle and, maybe it’s because my own company took ten years, well at least my second did.
Peter Cowley: No if you look at the big exists like we just had Grapeshot here in Cambridge that went to Oracle for a large amount of money, and that was about a fourteen year, fifteen years. You take the big exits, the multi-hundred, millions certainly in the UK, not in America so much, do take twelve, thirteen, fourteen years.
Ronjon Nag: But one of our investors was the Potter family who created E-Trade and the story they told us was, it took them fourteen years to get E-Trade public. I think I pity the young entrepreneurs, they think, oh it’s just a few years and if it doesn't work-out we'll just sell it. I try to tell them you do need someone else to want to buy you, you can't unilaterally sell it.
Peter Cowley: You can close it down for zero value.
Ronjon Nag: Right
Peter Cowley: But not find somebody who'll write the cheque for you.
Ronjon Nag: Which is why it goes back to, can it be a self-sustaining business regardless of the time, so it works out for you? So, the thing is if you start investing late in life, you're not investing for yourself you're investing for your kids. I remember we had this conversation with other angel investors. There's a time where it’s the right time to put money to work rapidly and then, there is a time for harvesting.
If you wait too late the conviction is a little bit different. I think that there's a stage in life where there's a peak. So, in your 50s-60s it's probably at an optimum.
Peter Cowley: Oh really? If you've got the capital to do it when you're in your 40's. If people got the time and the effort, you need some time to be able to use the money smartly, and assist with the investor etc.
But people in their 40s we've got plenty of them at Cambridge Angles between 40s and 50.
Ronjon Nag: Yes, I do think they are too early.
Peter Cowley: There's too early. I think personally in the twenties its far too young.
Ronjon Nag: Yes, 30’s even that's a bit early.
Peter Cowley: Unfortunately it is when people are in their 50s and the 60s, when people have got enough capital, enough time, kids off your hands, and you can spend the time doing it.
Ronjon Nag: And in their 50’s it’s also difficult to get employed, in a regular job.
Peter Cowley: Oh yes exactly. I'm totally unemployable what about you?
Ronjon Nag: So, you end up creating your own job in a way.
Peter Cowley: Yes.
Ronjon Nag: Where age is an advantage.
Peter Cowley: So, let’s just talk about some tips, let’s talk through a few tips for angels and a few tips for entrepreneurs.
Ronjon Nag: Okay. For angles, I think the tips are team, people and I like academically strong people. Sometimes people say, well I dropped out of my PhD, I view that as a negative. I know some investors say they like investing in those people who are so impatient they want to start a company. A company is harder than a PhD, so can you finish it?
Academically strong, unique, by definition, a customer, even if its ten thousand dollars, any customer, is also the criteria. Then, is it unique? You've got to use your own mind. Do not follow, never follow you need to use your own mind to decide for yourself because by following, you don't know what the dynamics of the lead investors might be.
Peter Cowley: That’s a tip for an angle of course?
Ronjon Nag: Yes, an angel, yes, yes.
Peter Cowley: Make your mind up, exactly, don't just blindly follow somebody else.
Ronjon Nag: Often I am the only investor, and sometimes I am the only person not investing and I am imperfectly comfortable with that. Venture capitalists are like that too. You know they have had forty other firms and thirty, eight of them have turned them down, and those two firms are comfortable, despite that, and as an angel investor you need to almost have the same dynamic.
Peter Cowley: Exactly
Ronjon Nag: Thirty, eight people, have turned these guys down, but I liked them or vice versa, thirty, eight people have rushed into investing, but I don't like it.
Peter Cowley: And you must never regret. My son Allan told me has FOMO, fear of missing out. I don't have the fear of missing out, and you must never ever regret. I missed with Swifts Key for instance which sold to Microsoft for a quarter of a billion. I don't regret it.
Ronjon Nag: There's loads of deals and I think this concept of, can you get a deal, I think there's lots of deals you can get into.
Peter Cowley: Yes.
Ronjon Nag: No regrets. If you're in the right networks, there are plenty of networks to get your flow.
Peter Cowley: So tell the entrepreneur, how does an entrepreneur find you? What is the best way to make contact?
Ronjon Nag: I have three or four meeting a week without even trying. They just find me, LinkedIn that's one of the best resources out there. If I've got time in my schedule, I'm a big believer in serendipity, so that maybe, those from both sides, entrepreneur and the angel investor side, if they want to meet me, I will meet with them, and sometimes it is something you may not think a good fit.
Peter Cowley: They come to you, they come to your house, they come to your office?
Ronjon Nag: They come to a coffee shop, I rarely go to them in the beginning, but sometimes I will. Entrepreneurs though, they are so charming, as you know and before you know it, they've got money out of your pocket, and so you've got to put your discipline to the top. What I like to do is point them to the right angel group, not because I don't want to invest in them, but because I want to hear the questions from other smart people.
The entrepreneurs, I think, need to then get your prototype up and running, and somehow, they need to talk to lots of people. Even in my own company you talk to lots of people. Is this something worth doing? Because they have to realise, that they may be at it for ten years, so it better be something that you're interested in, and that you're going to be passionate about and not get bored with, and typically I think entrepreneurs need to be a pair of people, three at the most. I don't like singles because it’s a sort of point of failure, single point of failure, if it's five than often each one of them may not have enough stake.
Peter Cowley: Totally agree Yes.
Ronjon Nag: Who are they? And have they worked with each other for a long time? I think second time founders I like, often the second time founders may put some skin in the game themselves.
Peter Cowley: And they've made loads of mistakes before. Even if they've failed they still learn so much.
So just before we finish, can we talk about this wonderful thing you've been doing for the last couple of years called the Stanford Distinguished Fellow Programme, is it?
Ronjon Nag: Its very pompous, yes, It’s the Stanford Distinguished Careers Institute.
Peter Cowley: Very pompous, just give us a little flavour of the wonderful things you've been doing last couple of years.
Ronjon Nag: So, I was the post docket at Stanford thirty years ago, and then in the last couple of years this programme at Stanford basically started based on the assumption that, because we're living longer the universities should be educating people a later stage. They're graduating 18 year olds for Bachelor degrees, 22 year olds for Masters, NBAs at 27 and PhDs at 28, but when you're in your 50s, when you've finished a career or also done big chunk of a career, you’ve still got thirty years left and unlike our parent’s generation who were thinking, well lets settle down and retire. I think a lot of people don't want to retire, they want to do things and they want to keep their brains alive and there is a school of thought that retirement reduces lifespan and does not increase it.
So, the programme is to come back to university and do anything you want and use resources, attend any class, any subject, and work with a cohort of thirty people usually, very interesting people, we spread across the university.
Peter Cowley: And you don't have to do homework or exams if you don't want to?
Ronjon Nag: Correct, you don't have to do homework, so you can take more risks. I took a lot of genomics classes, biology classes, anatomy, working with cadaverous, and neuro computational imaging, learning how to use the MRI machine. These are things you can't do at an evening class and you can go very deep on a subject, and more universities should do that, more universities in the UK should look at that because, A, there is a market and B, there are so many people who want to keep their brains alive. For me as an entrepreneur and an angel investor it gives me the education to analyse other campuses, and deal flow, all the kids. At Stanford there's no shortage of companies coming out of Stanford.
There's just ideas just lying on the floor literally lying on the floor just waiting to be picked up, and universities are good places to go to if you want to be an entrepreneur or an investor, because you have experts on every topic within a hundred yards of wherever you're standing. It can be any university you don't have to be pompous about it, it can be any university by definition, they have experts on every topic, isn't that great. So, I think being connected to the university system in one way or another is key.
Peter Cowley: Well that's excellent. So, this leads to my final question, which you've almost answered anyway.
When you get to my age, I know we have compared grey hair, but you've got much less than I have. What are you going to be doing? People come up with all kinds of interesting answers. Now in your case you're not going to change at my age, and you probably won't change in another ten years, or even in another twenty years. would that be fair to say?
Ronjon Nag: That would be fair, I mean, I assume no one is going to employ me number one, so in a way you have to create your own occupation, and so that occupation is working with companies, helping companies or one of the companies you start to get more involved with and you concentrate on that one, and I think it’s something that people, as they get old can do. Unfortunately, people haven't built enough assets to do that.
Peter Cowley: Yes, we are talking about a fortunate position here.
Ronjon Nag: Yes.
Peter Cowley: It must be clear that both of us, you more so than me, are in position where we really don't need to work, and we can enjoy what we do. But what we are doing, is giving back a huge amount, both of us, all investors are to entrepreneurs.
Ronjon Nag: Yes, and I think people who haven't got those assets, they can still play but it’s probably on a different context. They can be advisors to companies, often by definition people have built up some sort of expertise in something. So, you can still play in that area.
Peter Cowley: Excellent Ronjon, it has been really, good. I've learned so much from you, we've become friends over the years, and the whole audience will also have learned from that.
Thank you very much.
Ronjon Nag: Thank you, it’s been an honour to be here.
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