Disappearing, angel investing, Frog Capital, and what Shirin has learnt along the way
Podcast transcription - 19th september 2018
Peter Cowley: Welcome to Part Two of Shirin Dehghan's Invested Investor podcast.
In Part One we found out how she built and sold Arieso. After a short break Shirin transitioned into angel investing and, more recently, as a venture capitalist for Frog Capital.
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So, you took a break, did you, or not?
Shirin Dehghan: I did. Yes, I left-
Peter Cowley: Disappeared for a year ... or?
Shirin Dehghan: I did. I disappeared for a year, with my husband, we built a house in Oxfordshire from scratch. So that was an interesting experience. Managing builders ... I'd rather do a start-up actually!
Peter Cowley: I've built several houses. That's where I made my money, actually, building houses, so I know exactly what it's like. Not for myself though, this is prospectively building houses.
Shirin Dehghan: Sure. So, yeah, so that was an interesting experience. That took, like, 18 months or so. And then I started getting bored. And CorCom venture who invested in my company, contacted me, early 2016, and said "Hey. We've got a company in our portfolio; Open Signal. We think they're promising. They've got themselves to a couple of million, but can't quite break through that. Can you go and help?" So I became Executive Chair at Open Signal. Did that for 12 months. And also bought in a lot of my team from Arieso. So I bought in 10, 12 people from there. And so we got the company going from a couple of million, and this year they're going to do, like ... break the 10 million barrier.
Peter Cowley: Are you still a Chair there ... or?
Shirin Dehghan: Yes. I'm non-exec now. So I did the exec thing for 12 months.
And then I became a member of Cambridge Angels, started doing angel investment. And then last year when I stepped back to non-exec at Open Signal, I was, again, starting to get bored. Actually, was looking at doing my next start-up ... and this is crazy I know, and then I got contacted by two funds, quite separately, and then started to talking to them. Hadn't considered VC as a path but, actually, the more I investigated the more I liked it: I talked to people who-
Peter Cowley: What Richard had done exactly, yes. Jonathan Pell, if you know him, as well, et cetera.
Shirin Dehghan: Yeah. In fact, it's his fault, because he gave my name to the headhunter that was searching for Frog ... so.
Peter Cowley: And they didn't try to get you into DFJ, or anything?
Shirin Dehghan: No.
Peter Cowley: No, obviously not, because you're at Frog.
Shirin Dehghan: Well, it wasn't DFJ ... so, it was another fund, and it was Frog.
Peter Cowley: Okay.
Shirin Dehghan: And I liked Frog because I felt like their investment thesis was a lot closer to what I want to do. Their company to partner ratio is really good; it's four.
Peter Cowley: So four companies per partner?
Shirin Dehghan: Per partner. And I think that's excellent because it means that you actually have time to understand the business and add real value, rather than turn up to a lot of board meeting which, frankly, isn't that much fun.
Peter Cowley: I'm on five boards, and that's just about the limit of what I'd want to do.
Shirin Dehghan: Exactly. So that was quite good. And, also, they've got real passion to actually help the companies, and that's why they're bringing people like me, more with operational background.
Peter Cowley: So we'll talk Frog a little bit more in a minute, but how much angel investing have you done?
Shirin Dehghan: So far, four.
Peter Cowley: Okay.
Shirin Dehghan: Four companies.
Peter Cowley: One of which is, I think, Rovco, you've gone into, have you?
Shirin Dehghan: Yes.
Peter Cowley: Yes, excellent.
Shirin Dehghan: Yes, I did.
Peter Cowley: Which I've just come into, as well. That's not actually in the public domain yet, but it will be by the time this goes out.
Shirin Dehghan: Yes.
Peter Cowley: And what else have you invested in?
Shirin Dehghan: So, I've invested in SceneSkope. That was a company founded by a couple of guys who worked for me.
Peter Cowley: And you were quite a big investor in that. I think you were at 30% I noticed?
Shirin Dehghan: Yes.
Peter Cowley: So, a co-founder, really, isn't it?
Shirin Dehghan: Yeah, exactly.
Then, I've not investment into Neurophonics, which is a basically, biomedical engineering company, hardware and software. And then Open Signal, high investment.
Peter Cowley: So, two of those you're very close to?
Shirin Dehghan: Yes.
Peter Cowley: In terms of angel investing, primarily the two: Neurophonics and, of course, Rovco, which you've only just closed in the last week?
Shirin Dehghan: That is correct, yes.
Peter Cowley: But, of course, now you're concentrating very much on Frog. So can we just talk very briefly about Frog?
Is it public who the LPs are? Where the capital's from?
Shirin Dehghan: Yeah, I think so, reasonably. I mean basically it's a British business bank, it's European investment fund, and it's family funded ... has been supporting Frog. Because it used to be a family fund, before, and the same family's supporting it now.
Peter Cowley: A U.K. family, is that. Or ...?
Shirin Dehghan: No, actually, they live in Lichtenstein. And a number of other family, sort of, offices, that support it.
In terms of Frog's focus, they focus on scale-up. So they're not early stage investors. They come in when product market fit has largely been achieved, and the money's for expansion, either geographical, or customers, and that kind of thing.
Peter Cowley: So, revenues of low millions, I suspect?
Shirin Dehghan: Yeah, so a few million revenue and then they want to, obviously, take it to the next level.
Peter Cowley: And this is a 'B' round, or an 'A' round, or an 'A+', or a 'B-'?
Shirin Dehghan: Late series 'A', 'B' round, that kind of ... all these letters are morphing into one another, aren't they? So this is kind of-
Peter Cowley: For years they have. You get seed rounds for one and a half million now.
Shirin Dehghan: Well, exactly.
Peter Cowley: And that would have been 'A+'.
Shirin Dehghan: And the amounts are going up, all the time.
So, the way I think about things is I'm not hung up on whether it's 'B' 'A' whatever, I'm focused on, "Have you got product market fit? Can you demonstrate you've sold it to customers? Is the business model scalable? Is your product scalable?" If you've got all those ticks and you want money to just, basically, dominate the market.
Peter Cowley: And have you led any rounds yet for them, and gone onto boards?
Shirin Dehghan: No. I've only been with them for two months, so it's early days. But I'm looking at a few things, including some Cambridge companies.
Peter Cowley: So, Shirin, what have you learnt from your investments so far?
Shirin Dehghan: The way I look at my personal investments, and it's the same with Frog, but let's focus on the angel side of it: I care a lot about the team, because especially if it's really early stage. Frankly, sometimes there isn't really much there that you can base decisions on, so I've got to really believe in the team, and I've got to feel the chemistry, and all that. So the team is really critical.
I've got to be comfortable with the product. Comfortable in the sense that it's not a 'me too'. It has ... you know, there is know-how there. People have been working on a particular problem or something, and they've got a solution. Something that's tangible and defendable. So I wouldn't invest in apps and stuff like that, for example: that's easily copied.
And the third is markets: do I believe there is a big market? So those are the criteria I look at when I make my investments.
So, which ones are successful? I would say, Neurophonics, I'm really happy with those guys. They're super-motivated entrepreneurs. They're hitting every milestone. They're still pre-revenue, but they're doing extremely well and I feel my money is in good hands. This is, kind of, as an angel investor you have to feel that the entrepreneur is going to look after the money that you've just-
Peter Cowley: With some help from the investor director, if there is one, of course?
Shirin Dehghan: Of course. Yeah. I've been helping Neurophonics quite a lot, as pseudo-chairwoman, until they hire their chair person. Because I don't really understand their particular market, so they need to bring someone who does. But until that point I've been helping out. In fact, I'm running a strategy day for them on Saturday; things like that.
SceneSkope, which is the guys who used to work for me; that is not going massively well. They did really well, like, they're in revenue, they're doing, like, a couple of hundred K. But the trouble was that I invested in the guy who came with me to U.S., because he's brilliant, and I invested in my Chief Architect because I knew technically he was really good. But really the driving force was going to be him. And then I think they just got fed up with each other.
Peter Cowley: Oh no! Right.
Shirin Dehghan: Exactly. What I should have, maybe, paid more attention was that, "Is that relationship going to work in this team.
Peter Cowley: Are they still together? Is that
Shirin Dehghan: I mean they'd worked together in my business-
Peter Cowley: And they're still working together in SceneSkope, but not very well ... the ones left?
Shirin Dehghan: The guy who I personally invested the money in, effectively, has now left and working for OpenSignal.
Peter Cowley: Oh right, okay.
Shirin Dehghan: So, he told me that he couldn't get on with the technical guy, and it just wasn't working. And then, at that time I was investing and I was looking for Head of Product, so I said, "Okay, well come to-
Peter Cowley: So you poached your own CEO!
Shirin Dehghan: I poached my own ... said, "Okay. If you're not going to make money for me here, at least ..."
Peter Cowley: Make some money somewhere else!
Shirin Dehghan: Exactly.
So that one, kind of, hasn't gone so well. And it was kind of my mistake, because I let my guards down because I knew the team. And I should've been a bit more careful about, "Are they being able to work together in a different environment?"
Peter Cowley: Well you were family friends and fools, weren't you? In that case friends and, maybe, a tiny bit of fool, perhaps, if you don't mind me saying?
Shirin Dehghan: No. Absolutely. And, also, I felt kind of obliged to help them-
Peter Cowley: Help them out, yeah.
Shirin Dehghan: Because, effectively, they had made me successful, and it was going to be a bit awkward to say-
Peter Cowley: It was a gift. It was a Christmas gift.
Shirin Dehghan: It was a gift. It was, kind of, when they said, "Oh, we want to start our own company," I supported them.
Peter Cowley: What tips have you got for entrepreneurs, and angels?
Shirin Dehghan: I would say, as an entrepreneur, you're starting out to build your company, focus on solving a big problem. Don't do a 'me too'. Don't go after something that everyone else can copy. So I think that's quite, I think, important.
The other one is, as founders, decide if you're control oriented or if you're wealth oriented. Kind of make that decision from ... You can't be both. Also, as an investor, I always try to test that out, because the wealth oriented founders are the ones that are going to do far far better, than the ones who are far more interested in keeping control.
So I think that's the other thing that they need to kind of figure out, especially when you're getting a co-founder. Because if one co-founder is wealth oriented, the other one is control, then there's going to problems from that.
Peter Cowley: But can some 28, or 29-year-old founders work that out?
Shirin Dehghan: I don't know.
Peter Cowley: Have they enough emotional awareness to do that?
Shirin Dehghan: Maybe not.
Peter Cowley: And if they're mentored into doing that, will they believe that ... So?
Shirin Dehghan: Yeah. hat's a very good question. I don't know.
But if I look at myself, I was always wealth orientated: I just wanted to build the biggest value that I could with the company. Now, my company wasn't a billion dollar company, but if it was I would have gone for that. But that's just the person I am. And I don't know whether you know that, as you say, when you're younger. Maybe you don't. Maybe you kind of find out later. But as investors I think it's really critical for us to detect which one we're working with.
And the other tip is; get yourself a mentor. Really, really important, especially if you're a first time founder. Team up with someone who's done it before, and you can learn from. When I did my start-up I really didn't have anyone that I learnt from, and I think I paid for it in the first product. So I learnt the hard way, but you don't have to.
Peter Cowley: And this project's all about being open and transparent. Do you feel that that really worked for you, or were there times when that didn't? Being transparent between you and your investors and your board? And the other way round, of course.
Shirin Dehghan: Yeah. I was always open with my board. I think the key thing with managing, and the board, is that you have to honest: you can't hide stuff. But, at the same time, you can't turn up to board meetings with a laundry list of problems and not have a solution either. Because, then, your investors and your board members are going to think, "Well-
Peter Cowley: They lose faith.
Shirin Dehghan: Exactly. You're not in control.
So, be open, but actually figure out how to solve the issued that are coming up in the business, and keep the board informed of the most critical risks and problems, obviously.
And, finally, I would say the biggest thing that works for me and, again, I had to learn this the hard way, and I did it for the last five years of running the company: under promise, over deliver, and that keeps everyone happy.
Peter Cowley: Under promise, over deliver. Yes, exactly.
Shirin Dehghan: Yes, exactly.
Peter Cowley: Yeah, that's the big takeaway isn't it? Yeah.
Shirin Dehghan: Yeah.
Peter Cowley: Good. And the final question which you don't know what I'm going to ask is, I'm at least a decade older than you, I know how much older I am because I've seen your birth time at Companies House, what do you think you're going to be doing when you get into your early 60's?
Shirin Dehghan: Oh gosh! That's an interesting question.
Peter Cowley: Not thought about, yet?
Shirin Dehghan: Well, I'm a self-proclaimed workaholic, so I'm definitely not going to retire, that's for sure. I just have too much fun, working with companies, and solving problems, and that kind of thing. So I think I'll probably morph into much more of an active angel investor, I should say, than I am now. And probably develop a kind of a portfolio, maybe, when I'm at that age.
Peter Cowley: And not, say, the VP role, or whatever it is, at Frog, or a VC? You'll be fully portfolio, you think?
Shirin Dehghan: I think so. I mean, for me, the VC thing is for the next 10 years. And yeah, I'll just be hitting ... just coming up for 60.
Peter Cowley: Yes, don't need to say!a
Shirin Dehghan: No. No. That's fine. I'm 48, it doesn't matter!
So, I'm looking at this as, you know, something that I'm going to do for a period of time. I don't want to do it for forever. But afterwards I just want to go and, yeah, do my own thing.
Peter Cowley: You've had a great time haven't you, so far, in life? And I'm sure it will continue. We've learnt a tremendous amount from you, Shirin, so thank you very much indeed.
Shirin Dehghan: Thank you.
Peter Cowley: Thanks for listening to another Invested Investor podcast. You can subscribe to all future podcasts via our website, investedinvestor.com, or via a number of podcast platforms online. Signed pre-orders for our Invested Investor book are now available on our website. 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.