#33 Veridian Ventures - Dan Schonfeld and Marwan El-Hakim

I met Dan and Marwan in business school way back in 2006!
They have since founded Veridian Ventures to help angel investors to make smart decisions on early-stage companies. In the conversation, they offer some extremely valuable advice on both how to choose investments but also to start-ups looking to secure funding.

Please like, subscribe, and review as appropriate!

The video version of the conversation is here: https://youtu.be/NeBPuKtQnKw

More on Veridian Ventures:
Veridian Ventures is an angel syndicate offering carefully curated investment opportunities to our network of Investor Members. Veridian’s partners invest in each opportunity introduced to Veridian’s Members.

At Veridian they focus on innovative early-stage companies in the UK with strong growth and profit potential. Their steady flow of quality deals, combined with a methodical and thorough diligence process, enable us to identify superior investment opportunities.

One of the core values of the Veridian partners is to challenge and support ambitious and talented entrepreneurs, helping them to turn their potential into results. Their partners draw from a wealth of expertise, connections and investment experience to help start-ups raise capital, develop growth strategies and navigate the challenges of a rapidly growing business.

Website
http://www.veridianventures.co.uk

Transcript

Nick Gray  0:00  
Hi, everyone. Welcome back to the podcast. I have Marwan and Dan here today to talk about their their business Veridian ventures, I'm going to try and make sure this is accessible to everyone as it can be because these guys are very smart, very gifted investors. And they work in a world where there's a lot of words and acronyms that we may us, as other people who don't work in that world may not be using on a day to day basis. So I'm going to try and make sure I ask questions to clarify what the words mean, and pretend like my MBA knowledge is, it has been forgotten, because obviously, I didn't forget any of the finance that I learned at the NBA and I remember everything very clearly. So the questions I asked Will purely be for you, the audience, not for myself, I will know everything, and definitely no sarcasm in that sentence at all. So first things first, I'm going to pass over to Dan and Marlon to introduce themselves. i We haven't actually agreed who's gonna go first. So you guys can battle that out. But mine, Dan, if you can take a moment to just give us a little bit about your backgrounds, kind of where you came from to get to where you are. Now, obviously, Insead is the business school where we met and is the business school where I did my MBA, you guys did your MBA back in way back in 2006. So I know that that was a major point for you guys. And but maybe if you can give us the flow through that into where you are now and setting up a business together.

Marwan  1:25  
Sure. Why don't I start? So my career before Insead was, I was basically a computer engineer and specialized in system integrations. And what I did was letting different systems work with each other and be able to talk to each other. And when I went to Insead, I actually didn't have a clear idea of what I wanted to do. I knew I wanted to change something. But I thought I will treat it as a learning experience. And I tried to learn as much as possible by diversifying the type of courses that I took. Now, in retrospect, I'm not sure that if that was a good strategy, but it worked for me, and I really enjoyed the experience. And since Insead, I've been mostly working either in financial services or consulting for financial services. And my sweet spot is the intersection of technology and the business. And that's where I feel that I'm the most effective.

Dan  2:30  
So building on my ones framework, which I think is a good framework, married three kids. We didn't get into that.

Nick Gray  2:40  
doesn't interrupt you, we may have kids interrupting us at any point during this because all three of us have children. Dan has the most he has three more and more. And and I have to and it's we're recording on a Saturday afternoon. So let's see how we how that pans out. But yes, Dan, sorry for interrupting.

Dan  2:58  
I did warn them, but they don't always listen, as I'm sure everyone knows. So started out as a lawyer, specifically a criminal prosecutor of all things, doing litigation work for a few years, then sort of took a hard right into management consulting, joined McKinsey and Company then switched over to EY. And after a few years of doing that, and sort of progressing up the ranks, I got to a point where I felt somewhat uncomfortable doing some heavy duty consulting engagements with a legal degree. So I figured, you know, my one ought to get a business degree at some point. So I went and did my MBA at Insead, where I met you guys. And I think unlike my one, I had a fairly clear focus coming from consulting and intending to go back to consulting, I focused most of my course selection on Strategy and Finance, unsurprisingly. And then I did go back into consulting actually in house at UBS, but still, same thing, just a different place, then a few years later, switched over into private equity, ran the private equity fund that impact investing in Sub Saharan Africa for six years. As part of that also moved around quite a bit and at some point got to London with with my family, which is where I'm based right now, as is my one. And then I left that and basically became a by quite what I guess you could best describe as an independent consultant doing mostly finance and strategy work on a project or ad hoc basis. And in parallel about, was it four or five years ago that we had set up brigade ventures, and we've been doing that in parallel. I think

Marwan  4:49  
we should discuss that separately because I think there's an interesting history of how it started because we didn't just have an idea out of the blue that we want to start Investing. I think it all came together naturally. Okay, sorry, Dan. I didn't mean to interrupt. But go ahead. That's

Nick Gray  5:06  
good. That's a good, good segue. But I just want to back up because I really want to ask the stupid questions here. Now, management consulting, I think is hopefully fairly self explanatory people, management consultants. And my dad used to have a great joke about it, because it's inappropriate, but, but they basically get get, tasked to go into businesses and solve some challenges that the businesses are having or establish some of the better ways in which business could be run. And they take it from all sorts of different angles. But a lot of it is related to the finance and the strategy that the businesses are doing. So MBA, Masters of Business Administration, people tend to have a pretty good profile for management consulting. So actually, a lot of MBA schools, recruited a lot of consultants into them, but also send out a lot of consultants into big companies, like the names you've just heard from, from these guys. And so that's management. Cuz I hopefully, that's a fair assessment of that a fair explanation. But I wanted you to explain private equity because a private equity you mentioned, coming through. And I think that for me, there's always there's often some confusion between private equity investment, angel investors, venture capitalists, and those sort of things. So if you can explain private equity to me, just very quickly, that would be that would be useful.

Dan  6:31  
Sure. In a nutshell, private equity is effectively investment structures, which are often structured as funds where individual investors, usually quite wealthy individual investors, and sometimes not individuals, but rather, companies or organizations invest money into a pool that is managed by a fund manager, and that fund manager has a strategy and investment strategy, it could be around specific sectors, geographies, so on that type of assets. And that fund manager has discretion within the bounds of that strategy to decide what to invest in. So in individual investors, they're called LPS or limited partners, don't make active decisions on what to invest in, it's discretionary, they basically hand over the money to a certain entity to invest it on their behalf subject to a certain strategy that is predefined and and typically those things run for few years, and then they get liquidated, and the money gets returned to investors, hopefully, with some significant profit. And typically, the investments are in equity as in in shares of businesses and so on, as opposed to lending or providing loans.

Nick Gray  7:45  
Okay, that's great. And that's a great clarification there at the end, I think, because one thing we're going to talk about a lot, I presume, is is money and investing and what people expect out of investments. And that's something which I think for an everyday person who hasn't maybe got a stock portfolio, or any any kind of investment experience, they may just think it's only about money. But as you mentioned, Sub Saharan Africa and private equity, that was your focus for your private equity firm. But there's a lot of different ways in which people are actually trying to invest their money in a positive way to have positive impact. There's loads of different ways in which actually, investors aren't just expecting massive amounts of money to roll into their bank account. They're also looking to try and do things that have a positive impact. So let's take from there then into Veridian ventures the idea where was the where was this idea born? And how did it you know, how did it germinate?

Marwan  8:39  
Let me start with that. So I think maybe we should go back to the time when we started off as independent angels. And I can tell you my journey. There is an event that is run by the Alumni Association of our school, which is an Angels event for NCR doors. And I was always intrigued by that, but I never went. And then I found out one day that a friend of mine was going and he said, Why don't you come with me? And I was like, not sure I know much about this. And he said, Well, it's a great learning experience. So I went and I saw the pitches of a number of startups and I fell in love with it. We fell in love with it straightaway. It was such an exciting place. Lots of people trying to do brilliant things starting from scratch sometimes from from such an early stage that I just found it very, very exciting. And I started attending more and more of these events. I started thinking ones that are not organized by Insead. And at one point, I decided that I wanted to invest in a company and very soon I found out that I wasn't able to because their minimum ticket size was 50,000 pounds and I wasn't willing to put that much money into my very first venture I was still trying to find My feet. And that's where I first realized that actually, you know what if a couple of angels can buddy up, we can together put a mountain that are required by as minimum tickets by some startups. And it makes more sense for us. And it started as that's where the idea started. And I started talking to different angels. But for a while nothing came out of it. Because with the way these things works, you have to find the proper opportunity that you can discuss before things can become a little bit more real. And that's exactly how it happens. So at one of the events, I I liked the company and I started looking into it. And I noticed that one of our very new co founders, John was also looking into it, John is also Insead, but he's not from our class. He's from our previous class. And I looked him up on the Insead directory and found his contact details. And I called him up and I said, John, look, I know you're looking into this company, why don't we compare notes, maybe there was something that you didn't see that I did, or vice versa. And we did that. And I found it very, very useful. And he found it useful as well, we ended up not investing in that particular company. But we sort of validated that a couple of angels collaborating together, can create more than more of a what's the right word more than the whole of each individual working independently. So we decided that it's useful. And let's continue doing this whenever possible. And then when Dan moved to the UK, I remember we were having lunch at my place. And he was asking me, well, what are you doing these days? And I said, Well, you know, I'm working for Goldman Sachs. But the really interesting stuff is the stuff that I'm doing outside of work. And I'm doing angel investing. And then had some investments he's been doing he had done on his own, and we agreed that we should also collaborate.

And we ended up three angels collaborating, then another three joined us. But we soon realized that angels loosely collaborating wasn't a very sustainable way of working, we were getting on these long calls to discuss one or two companies. It took a long time, but we also realized that there was different levels of contribution from each of the members. And that's when Dan came up with a brilliant idea of, well, if we professionalize it, and put in some processes in there, then maybe we can help help it grow. And that was important because we were getting other angels who were seeing what we were doing, they liked it. But we were a little bit hesitant on getting them on board the group because we were at capacity. So when we decided to professionalize it, the three of us we got together, we had several conversations around how we should work. We explored how other angel syndicates works, work, how funds work, and we put the plan together. Now with that resulted in was we basically all invested some, some funds in to create the partnership. We got a law firm to write up our legal documentation, we got def firm to build our websites. And we decided early on that we want to run this really properly. So we decided we wanted to get FCA authorized. FCA is the Financial Conduct Authority in the UK. And we are one of the few syndicates that are directly authorized by the FCA rather than getting an external agency to basically be appointed as an agent. And that was I think we finished all the setup in early 2018. And that's when we started working as verigin as an entity rather than individuals. And we started growing our syndicate. And where we are today is we roughly about 50 Angels investing together and we tend to grow by one or two every couple of months. So I think that is a brief history of how Veridian started. Dan, Did I miss anything?

Dan  14:24  
Oh, not at all. I think it's a very good summary and a very accurate narrative today. One thing that I would add to that is that the challenge that we had at the beginning, which is to find a way where this could be made to scale, was one that still continues with us to this day, in the sense that, you know, the model we've chosen the second, the angel syndicate model is a good scalable model to operate a group of angel investors, but it's not Ideal as in terms of really scaling up towards larger ticket investments. And so at some point, I think fairly early on, we started thinking about Viridian as sort of a work in progress. And the syndicate stage, which we're at now as a first stage towards something more significant and slightly, significantly different structure later on, which probably is going to be something along the lines of a fund a proper fund. So there is a sort of a story emerging here. It's not okay, we've set up a syndicate. That's it, that's what we're going to do. And that's the end all be all, end state of radiant. This there's a progression happening.

Nick Gray  15:46  
Just to clarify, I'm gonna go back to my clarifying words here. Syndication, what you mean there is a group of investors coming together under a legal framework. Is that Is that what is that?

Dan  15:57  
Well? Not exactly. Let me walk you through it for a second just to explain how this works. So verdient is a limited liability partnership registered in the UK has no one indicated and it is FCA authorized in the license we have allows us to introduce investment opportunities to our members. Now our members have to not everyone can join us. I mean, it's not a question of cost or anything like that they have to meet certain criteria, again, mandated by the FCA, they have to be either a high net worth individuals or professional recertified investors. And that comes down to their prior experience in investing in unlisted companies, because they these tend to be high risk. So the FCA tends to be quite careful in who they allow to participate in stuff like that. So to join us, one must qualify as either of these two are, there's a certain small test literally tests that they have to take and pass hopefully. And once they become members, we, we screen and select certain investment opportunities that we feel are good ones. And it's important to emphasize that my one and I invest in each and every one of these opportunities. So we're not some people operate this model as brokers basically they say, here's something that's interesting, you may want to invest in that or not up to you. But our perspective is different. I think it will be fair to characterize Veridian as more of a co investment platform than anything else. So my wife and I do diligence, everything ourselves. And the first question we have to answer is, are we comfortable investing our own money into it. And only if both of us commit to investing our own private funds into it, we then turn around and introduce this to the rest of the network. Now, syndication is basically that which is us introducing an investment opportunity to everyone and then deciding on a case by case basis, individually, whether or not they want to participate. And this is where a syndicate is very different from a fund a fund, you sign up to fund you put some money into the fund. And from that moment on, the fund manager has absolute discretion on what to do with that money. And you as the investor are sort of passive in it for the ride as it were. Syndicate is very different in that every single opportunity, every single investor has a decision to make on whether or not they want to join. And in practice, we've never had a single opportunity where everyone decided to invest. We've never had a single opportunity where no one decided to invest. It always ranges between roughly 25% to 75%, depending on how excited people get.

Nick Gray  18:37  
Okay, so just to clarify as well, then. So, as you said in a fund would be they'd be passive investing, basically, but invested into the fund and looking to just get a return based on the trust in the fund manager and presumably a team of people who are doing assessment and things analysis there, that you're putting your money into their trust their hands to say, I trust you with this, and you're gonna give me a return and then the basis of the agreement is probably some sort of target return, I would I would imagine, right? If you're an investor, you can't, you can't guarantee returns no,

Dan  19:17  
no, no guarantees, it's slightly more complicated than that, because the returns get calculated. It's a slightly more complicated financial mechanism in place to basically how to allocate the returns of different investment or the investments generate in a fund. But without going into too much detail on that because there's really not very material. You're absolutely right in that. Investors in a fund. Once they sign up and they commit to fund the they pass their money to that fund or even if they don't, sometimes it just is called on an as needed basis. However, they are legally obligated to do so and barring Very, very, let's say extreme circumstances, they cannot say actually, you know what, we've changed our mind. We don't like it anymore. We'd rather not do it. They are legally committed to fund whenever the it's called a drawdown. So when the fund manager announces a drawdown, they have to pass the money.

Nick Gray  20:17  
Right, right. Right. Okay. And so could you just then clarify venture capitalist versus angel investor versus private equity, I mean, private equity, I think you did a really good job explaining. But then venture capitalists and angel investors, where the differences are there. And also then where you sit in that framework as well.

Dan  20:41  
So it's not so much that there's a difference between Angel investing in venture capital angel investing is one form of venture capital venture capital, there's venture capital is in effect, early stage investing, I mean, to be to sort of generalize here, early stage, or investments into early stage ventures, as in private companies unlisted in relatively early stage of their development as in, right, or information or slightly after formation, sometimes they're pre revenue, sometimes they're already revenue generating, but they're not established. Operating trading businesses, and they're certainly not traded on any exchange, because that that then becomes a completely different story. So very roughly, P E, versus Vc as in private equity versus venture capital is more a matter of stage rather than a matter of type. And P is later stage and VCs is earlier stage. Now, within VC, you have different types of actors, some are funds, and then VCs, as this common terminology goes, is basically a short way of saying venture capital funds that are generally structured that funds. Angel investors are just individuals who do the same thing that VC funds do, but usually usually much smaller scale, because they're individuals rather than aggregated group of investors. And I would say quite often, also at earlier stages, because as you think about it, as the, as a company progresses, it becomes bigger requires more money, it raises larger rounds. And so generally, and again, this is a generalization. So you'll take it with significantly size pinch of salt, but generally earlier stages earlier, stage rounds are smaller and more amenable to individual investments, whereas later stage rounds are larger, and therefore, typically more the territory of VC funds.

Nick Gray  22:38  
Right. Okay. And just, again, my understanding is, as it scales, like, if you're an early early stage investor, you'd be looking for a better return, because it's a higher risk profile at that stage, especially pre revenue and things if a company's an idea that's even if it's a really cool idea, there's a lot of risk involved in like, is this going to be able to get to market? Is this going to be able to actually sell is there? Is there really a market for this? Or, you know, based on what the market research is saying? Is it is that legitimate? All of those questions, so therefore, the risk profile is much bigger. And therefore, if you invest at that stage, you'd be looking to get a better return than perhaps something that's very established and has already generated revenue is, you know, looking already towards IPO like to was listing itself at some point or getting an exit at some point in the not too distant future, then your return is likely to be less. Is that all correct? Yes. Okay, cool.

Dan  23:39  
They're always there. But But yeah, I mean, financial theory still operates like that. Yes.

Nick Gray  23:46  
Okay, good. Well, I'm glad we clarified, I feel like I understand that bit quite well. But at least the basics.

Marwan  23:52  
I think it's a normal run of things, Nick, the more risk you take on the more returns that you should expect. And that's exactly how the market operates.

Nick Gray  24:03  
Okay, cool. So what I want to do now is talk about then the types of the types of way in which you guys make decisions on businesses to invest in or to support to go for because what I would imagine it's because it's very interesting to me in terms of my kind of Win Building idea, concept, whatever. There's, you know, you've you've built a business, which in itself is difficult, right? So you've built a business and got together 50 engineers, for angel investors to collaborate and decide on things and I'm sure there's a lot of admin and pain in that towards like, you know, even even the Financial Services of authorities and things, you know, that getting that certification, all of the compliance that you have to run through I'm sure there's a lot of headaches involved in that, than being an ex lawyer probably loves those sorts of things, but like, there's probably a lot of there's a lot of pain involved in some of it. So

Dan  24:58  
I have to do it and you

Nick Gray  25:01  
Yeah. So there's a lot of lot of stuff going on there in terms of running a business. And that in itself is is very admirable that you guys have achieved to do that and get and get where you are now. But then also, I think it's interesting to see the each individual company that is being formed that's pitching you guys that's trying to get investment is on a road towards something hopefully great. Like, I want to, I want to understand from you guys, what are the key things you're looking at? Like? What are the main drivers? I've got some ideas in my head, but I want to hear it from you guys. Like what are the sorts of things when you see I forget a brochure with it. However, it gets presented on the first day. A pitch deck. Okay. Yeah. Okay. Of course, of course, this so much consultants, their pitch deck? Yeah. So when you see a pitch deck, meaning like, basically a set of slides, for those that don't know what a pitch deck is, with their pitch on it for their business? What are the first things you're looking at? What are the key things that you think? I mean, have you got a philosophy around that, that you guys stick to like that you you've kind of agreed upon as a basic framework to say, here's our top three concerns, when we're looking at a pitch deck, like what are the top three, top five things, we need to have a need to see a need to kind of believe in to even consider this?

Marwan  26:25  
So I don't think any pitch deck is exactly the same as the other. But there are things that we based on our experience look out for. And I think the first thing that that you think about is does this idea make sense? And if the idea makes sense, makes sense? Is there a market for it? And those are just the very, very basic two questions that you ask. If the idea makes sense, and there could be a market for it. I think that's where you start looking into the real things of whether it can be successful or not. And the big part of that is the team. Is the team a good team? Do they have the right experience? Do they have the right attitude? The other thing that we look for is a bit of discipline around their projections and how they've been running the company so far. So how well have they kept an eye on not just growth, but also their costs? And how well do they project they're going to do based on the additional funding that they're raising? I think in broad brushes, those are the things that we look for.

Nick Gray  27:47  
Okay, so as a

Dan  27:50  
few today's

Nick Gray  27:52  
Yeah, go for it. Please, please. And

Dan  27:55  
I think it's an excellent question. Because on one level, having done this with my lawn over the last four plus years, I know that we we look for the same things, we don't always agree on whether or not these things actually exist in the business. And we've had some very interesting discussions over the years on where we were asking the same question, but sort of disagreed on the answer. But the question was still the same. But I think trying to articulate it is, is a very, very useful exercise. And I think we've had to do that a couple of times in the past so to the list by one just went through, which I completely agree with, I'd add a couple more things. One is, even if there's a good team, and there's a good market and the idea makes sense, is it defensible if somebody can come along very easily and copy it and so you know, that makes it very, very risky and probably a good reason not to invest in it. Is it scalable as in you know, fine, it could be a great market great idea, but can it grow to significant sizes relatively quickly? Because remember our investors and us the the time horizon we have in mind is you know five to six years it's not 20 years let's wait around for a couple of decades and see if this goes somewhere so it has to achieve scale relatively quickly. Is it profitable? I mean unit economics is are there good margins embedded into into the business model because otherwise can grow for into a very large size but still you know the outcome is going to be not super sexy. And the fine thing is also isn't an equitable business. Some businesses can be great businesses but you're you're looking at them and you're asking Okay, how is this going to exit and you know, people always say the same things but traits it right who's gonna buy this is there is there an obvious buyer, not specifically a company but the type of company in some cases it's very obvious that you know, the type of certain type of company and there are several of those out there in the world would be interested in Buying something like that once you get scared. In other cases, you look at it and say, Okay, this is very niche, I don't have a picture of a buyer in my head. So that's another risk. So I think that these are also elements that we bring into our valuation.

Nick Gray  30:16  
And so when when you're let's take it right from the beginning would like does it make sense? Like, I'm guessing you like Marwan explained about the angel meetups that he went to, I don't know what they were actually called. But the meetings only went to see the pitch events, pitch events, there you go. And it's really obvious to pitch events when you went to these pitch events, like I'm sure there's probably some quite exciting ideas, concepts, things that you see, you're like, Whoa, I had never thought of that like, but when you're assessing, does it make sense? What what then let's dig a bit deeper on that, like, What do you mean by does it make sense? Like, is it something you can literally visualize yourself? Is it something that you can believe can happen? Or is it something different?

Dan  31:05  
Let me jump in there on that for a second. Because I think there are two ways of looking at this. And you I think, sort of touched on both of them the way you asked the question, and there are different differences important. One common pitfall that you have when you're evaluating investments is to view it as a potential client or user. And one thing that we often have to remind ourselves that we are not necessarily the target audience for something and especially when you're talking about things that appeal to younger people, or different geographies or you know, sectors that we have nothing to do with the fact that it doesn't appeal to me, it doesn't necessarily say that it doesn't appeal to a pretty large market out there. So you know, you are not the client is a phrase that comes comes up a lot in our discussions. The other side of it, and, you know, the way I look at it. I think Warren Buffett famously said, at some point that he doesn't invest in stuff he doesn't understand. I think that resonates with me, there could be so for example, one thing that we don't invest in as a rule is stuff that is too complicated for us to understand. We don't do biomed, for example, we don't do deep science, not because it's a bad idea, it could be an amazing idea. It's just we have no ability to assess whether or not this is likely to work, because neither of us understands enough about the subject matter to have what we would even initially qualify as, as, you know, an informed opinion. And if that's the case, then just leave it move on.

Marwan  32:45  
Let me try to articulate that in a different way. I think a lot of does it make sense is, is there demand for whatever the company is producing? And it could be anything could be a physical product, it could be a platform? Is there going to be demand for it? And if there is demand, then is there a way to monetize it? Because there are a lot of great things that we see. But sometimes you see a great idea. And I say, and you'll say, Oh, that's interesting. I may want to use that. But will you be willing to pay for it? That's a different question. And I think the second bit that then explain, which is the stuff that we don't invest in, I think the key question for us is, can we ask intelligent questions from these founders? That helps them clarify what the business is about? And if we can't, then we just don't understand that sector well enough.

Nick Gray  33:45  
I like that. That's actually kind of leads me into my next question as well. I was so I was trying to work out when you're talking to these people who are setting or pitching, right? Also, to what extent are they expecting investors to be involved in like, some in some way, affecting their business, because obviously, when you watch something like, I forget what it's called, it's just gone from Dragon's Den or the shark tank in America, you know, those those investment programs where you see a bunch of people sitting on a seat with a wad of cash in front of them. And then you watch people sweating in front of them trying to get money. But obviously, those people are like, they're looking to get something from the investors beyond just the money because it's usually like, you know, they're in a sector or something, they give them access. How does that play out in your world of investment, like to what extent pitchers people pitching their company expecting to have influence or involvement from investors because I'd imagine sometimes it would be much better for them just to get the money. I can get on with what they're doing it especially if they're experts in their field, and some investors probably don't want to be too involved because they want to get on with their lives. But where is that balance? And how do you

Marwan  35:04  
think, actually, it's the opposite way that you've described it? Like, most, the smartest founders, they, they don't want just the money. They want the experience of people who have seen lots of different companies, they can give good advice around the pitfalls that any business can fall into. And I think most of the best founders, they look beyond just the money and want help as well. And I think it's if, if there's any red flag for us, it would be a founder who would say we just need the money. Yeah. I think the best

Nick Gray  35:55  
what, what then, because I, that's what I'd imagined. And certainly, like, big brains sitting there with cash in front of them. There's a reason they've also got cash in front of them, usually, too. So they're, I would imagine, as if I was setting up a company, I definitely want to pull on that that knowledge and that expertise, I guess, then it plays to the question of like, how much involvement are investors willing to put into the, the company's progression? Because you don't also at the same time, you don't want to just have to be a consultant for, you know, on a full time basis for every startup, I'm assuming?

Dan  36:34  
Yeah. Well, I think the best answer I can give you in classic Insead tradition is it depends. Because it does depend quite a bit on at least two things. One is what the perspective of the founders is. And I don't think there is necessarily any correlation between intelligence and wanting to have more than just money, but also advice. I think part of it is also to what extent founders feel that they are sort of very, very familiar and very knowledgeable about the subject matter in which they operate and to what extent they feel that we are knowledgeable about the subject matter in which they operate, because it could be quite as authentic businesses, where we, given our backgrounds don't have a lot of relevant experience to bring to the table, or I think it would be very fair for them to, you know, look at our CVs and say, Okay, guys, you competent experience, probably pretty smart people. But you know, none of what you've done in your life so far is really relevant to what I'm doing, because I'm operating in whatever, I don't know, agricultural space, and you don't know anything about agriculture. So what value are you? But I think the other side of that, and it's a very good question that you've asked is, to what extent are we both willing, but more able or capable of supporting businesses on an ongoing basis, because sometimes it gets into quite a bit of heavy lifting. And just to be clear, right? I mean, in some deals that we do, we end up either as board members or board board observers in companies that we invest in, it really depends on the amount of money we invest in the composition of the round, and so on. But even if that is not the case, we're always there to provide advice if our portfolio companies wants and value that advice. But sometimes that becomes quite an intensive, demanding hands on relationship, which does take up quite a lot of bandwidth. And you know, both my wife and myself can give you quite a few examples, but also in recent examples where this has become a bit of a rabbit hole that we are sometimes finding it difficult to extract ourselves from, and definitely not what we bargained for. It's just, you know, it's part of the game, I guess.

Marwan  39:01  
Yeah, I would like to clarify a couple of things here, though. In many cases, you don't have to be a subject matter experts in the company's business to be able to help them. And what that means are, is there are lots of ways we can help companies and just to give you examples of some of the the ways that we've helped them, we've helped them recruit people through our network, we've helped clean up their financials. We've helped them decide on strategy and prepare the company for a next or a future fundraise. And these are areas where we don't have to have subject matter expertise in the core business. But we do have the expertise around how the environment works, and the network to help support them. So there is no right requirement for us to be more knowledgeable than the founders themselves about the area that we're investing in. Yeah, if anything, we expect the founders to have more knowledge than us. That's again, another red flag if we know more about the sector than the founder themselves.

Nick Gray  40:14  
Yeah, I would say that was a big red flag, then Weren't you doing it ourselves? It's such a great idea. Right? Or hiring people to do it for you? No, I hate that. So I think that's definitely. And those things. I think going back to the sort of the core, the core fundamentals of business, there's so many bits that people sort of neglect, or, or miss, or misunderstand, especially if, especially if they're, for example, you know, if they're a really competent technical guru, in a specific realm, and they know this specific realm, inside out back front, and they're just experts in it, and they've got this great idea for developing some technical thing. But that is a solution that everyone will need, and everyone will want, and it's going to be great. But then that that technical expertise does not lead into understanding how does a business actually get formed? How do you sell your product? How do you market your product? How are you going to get talent to scale this product, like to get enough engineers in to build the things out that you need to build? What's the next steps on your product range? You know, how is your product going to develop onwards into the future, all these things? And I think I mean, I've certainly seen myself in my work experience along the way, you know, there's, there's people who become who come in, in a very, very competent in a specific field, but they don't necessarily understand fundamentals of the business, and how how to draw how the business is going to be able to drive itself forward. Even if you've got the best idea in the world, you know, even if you've got a really amazing, individual person, but that individual person can't carry the company to scale necessarily.

Marwan  41:56  
And I think you've described it Well, Nick, as in, we expect founders to know something very, very well, but we don't expect them to know everything very well. And that's, I think one of the key metrics that we look at is how good is this founder at building a team around himself, where the team members complement each other, and they get and they bring in different skills that are required to build a business rather than build just a product.

Dan  42:30  
Related to that, I think there's another couple of questions that are very important when we evaluate business. One is, we found over the years that, and again, it's a generalization, but single founder businesses tend to do less well with us and in general than multiple founder businesses. And I think part of that is because if, if it's team two, three, doesn't matter how many, there is a built in inherent mechanism for discussion, sharing your thinking about things together, getting to consensus, which doesn't exist when one person running the show and they just call the shots. So, by the way, I think there's a lot of research substantiating that from you know, larger datasets. In the VC industry on the West Coast, at least that I've that I've seen. Another thing, which is a lot harder to quantify, but to me is a critical element in evaluating a potential investment. And then specifically a team is, do they listen? Do they know how to listen? Because to my ones point, yes, there's a lot of things that founders shouldn't know or not expect. We don't expect them to know. And it's fine. But we do not just expect them, we need them to be able to, and we don't expect them to even recognize that they don't know that or that these things are important. Some of the things you mentioned, like how to build a business, how to set it up for success, how to build the infrastructure, the processes, and so on. I mean, especially if they're first time founders, they would know that and we don't expect them to, we do expect them and more than that, we require them to be open to input and advice and listening, and not just be sort of single minded because otherwise, you end up with a team that is incapable of winning, because they don't know everything that's required to win, but they're not listening. And you can't force them to so unless they have the ability to listen. It's a very, very risky situation.

Nick Gray  44:34  
I think it's something that struck me while you're saying that, I think I mean, I've got a thing I mentioned all the time, so it's probably going to be boring for anyone who's listened to other podcasts on mine. But trust trust is such a key element in every single relationship we have in our lives, like no matter where what type of relationship it is, whether it's a lover of wife or husband or child or a friend or just like someone you're conducting business with. Trust is is absolutely innate in everything that runs towards successful relationships. And it's very difficult to develop trust, usually, especially if it's something that really matters or something you really care about like, or someone you really care about, it's very difficult to develop the trust. And it's very easy to break the trust, as we've all experienced, I'm sure in various points on life, but it sort of strikes me that actually, what you guys have done is set up a business that is like, around built like, managing trust and relationships between various different people, and developing those trusting relationships. So your trust within your investors, your angel group that you have, that they've, you know, got got together. And, of course, you've got a framework that they have to pass tests and things. But there's also then trusting that they're going to be a part of your group, too, because they trust the group and what it what it is stated to do and how it is built as a framework. And then they trust that you guys are going to be hopefully, you know, generating enough interesting portfolios to put in front of them. And thanks, likewise, the people who are going to be pitching with you, I mean, you've kind of alluded to it, but the, the, they're gonna have to trust you that you can also deliver for them, not just the money, but also the expertise or whatever it is that they need to help them make their company successful. It's pointless for them to take investment if the investment comes with no nothing useful to it, you know, if it's not enough money, or if it's not enough expertise, or balance, or both. So it strikes me you guys are kind of masters of trust, in the way that you work. I mean, how do you feel about what I say there is a big compliment, I suppose. But it's also something that I see with you guys know what I know of you. You're very smart guys. But you also very nice kind people, I think there's like you probably are talented within building those trusting relationships. And therefore that's probably where your strengths you know, beyond your kind of lawyer, technical, you know, management consultancy banking backgrounds have led you to into this realm. I would say your personalities and your ability to build those trusting relationships is probably a key component. But, yeah, you can maybe tweak for each other. So you don't have to Blow Your Own Trumpet.

Marwan  47:24  
Then you want to do want to go first? Yeah, I can go if you want.

Dan  47:30  
No, it's fine. I agree with what you've said. But a couple of caveats that we need to throw in there. And I think there's a third aspect that you haven't mentioned, which two is the key aspect. With our investors, yes, they do trust us. But bear in mind, they don't follow us blindly. It's not a fun. So they trust but verify. They definitely need to trust us enough to pay attention to what we send them and look at it and take it serious. And I think they do and many of our by now less and less. So but definitely all of our initial investors and still many of our investors to date are people that either I want on myself know, personally. And that's how they became our members. So there's there's a relationship. So that's one element. Your clickers okay, you're back. I'm sorry, I

Nick Gray  48:21  
briefly lost you. And it's so annoying, because I think it will have carried on. But if you can just take me through again, because you said about the investors and you said that they don't just blind some editing is going to be required. Let's do. Yes. Are you back? Oh, wow. So it may it may reduce the quality of the video, it certainly has my end. But it will record locally the good quality. So don't panic about the quality of the recording, but I didn't hear what you said. So you said about the individual investors that their trust relationship there.

Dan  49:04  
The point was that our investors do need to trust us to some extent, but not to the extent that you indicated because they do make their own mind. So you know, there's there's a strong element of trust there but perhaps not as much as you wouldn't find. Similarly with with startups, of course, they do need to trust us to make sense. But at the end of the day, in most cases, we're not in a position to enforce our opinions or views were in a position to provide them as advice and they are of course free to take them or not. And so that puts them at a much more autonomous place. I think the third element which to me is really critical is the trust between us, as in my one of myself. I mentioned earlier that you know we we don't always agree on things when we evaluate a company and sometimes we have opposite views and sometimes you I like a company and no one doesn't like it and or the other way around. And, and I mean, we're different people with different characters with different backgrounds and so on. So we have sometimes quite different points of view. But one thing that I was thinking about this this morning, sort of thinking ahead to this discussion, based on the brief that you sent. And I think the one thing that really came out to me as the key element or the core element of why this is successful, is that level of trust that I think we have managed to build between us, where I know that even if I don't agree with something that one says, and even if it pisses me off, and sometimes it does, I know that there's there's good and valid reason to listen. Because my history with him is such that he's proven to me sufficient times that he sees things that I don't, that it's worth paying attention what to what he says, because, you know, he's pardon my French, but he's called bullshit on quite a few of my opinions over the last years, and sometimes very deservedly so. And we recently had the company, you know, get into serious, serious spot of trouble, which is a company that before we started, very d&i invested in, and he didn't. And I recall that conversation, this wasn't like five years ago or so. And he was right. And I shouldn't have invested. And the reasons why that company got into trouble is exactly because what he said. And I believe that there are also examples to the opposite. But that's the thing, right? This over over the years, we've built a relationship where even if we don't agree with each other, we trust each other, and respect each other and value each other enough to listen. And I think that's really a key component of a team working well together.

Marwan  51:53  
So let me give my view on this. And I think similarly to then I'm going to break it down into the different entities or investors, us working together and the startups, I'm not going to add anything to the relationship with the investors because I think Dan covered it really well, I don't think I've got anything substantial to add in there. With regards to startups, it's, in many cases, you start from zero, because it's the first time you see that group of people. And in the early phases, the with which it's very difficult to, to build trust, what you want to see is a bit of track, record how they manage things. And that gives you an idea of how competent these folks are at running a business. In terms of trusting that they're going to make the right decisions. There is some history around how they run their business. But it's also part of the conversation, because what you want to also understand is how do these people think what what what were the key drivers for their decision and how they're going to decide if things run well, and how they're going to decide if these things don't run? Well. And those are the key things that you try to, to assess. Now, in many cases, you that just grows as you interact with the company more and more. But given that these are early stage companies, and we have a limited time to make decisions. There's only as a limit to how much trust you can build in that short period of time. You. I think a lot of trust comes from working together and understanding how each person thinks and how they work. And as with regards to us at Veridian. I think the reason that there's a strong level of trust is because I think one of the things that dad mentioned was we think differently, but we always have good reasons. And in many cases, we try to articulate that. Now that articulation of why we think one way or another doesn't necessarily lead to us getting consensus. But it always brings a new perspective that we may have not thought about individually. And with regards to running the business. I think now that we've been running it for several years, we've both identified what are the things that we are good at and what are the things that we are less good at. And in many cases, we had to become good at something because we had to distribute tasks at the very beginning. Somebody's got one task maybe coincidentally because they've had that initial contact with I don't know an accountant or, or a dev company and We just had to grow into those roles and become good at them. And I think over time, we've also identified very well what we are not good at. And I recall in many cases, when we have a new engagement or a new discussion with a new entity, I always think Dan would do a much better job at this than I could. And I think that's understanding and history built together. I think that's what leads leads to trust.

Nick Gray  55:30  
Yeah, well, I think you guys have a respect for one another, and a respect for your talents, which is what you're kind of what you're describing, as well. And like you said, working together, over time builds trust, it's ironic in a way that Dan was mentioning about, you know, single founder companies versus to multiple founder companies, because in a way, you guys are an example of that, right? You you have the ability to bounce off each other to try to test one another and you have the respect and and what would be the right word, I guess, emotional intelligence or whatever to trust that you could be wrong or like to be able to challenge yourself and an accept that you might be wrong on something or accept the challenge to your your, your, your beliefs, in specific situations? I think that is, I mean, that's something I saw a lot at Insead actually, I don't know if you agree, but I felt like a lot of people were very open minded because they had a very broad sense of the world and a lot of a lot of different experiences a lot of different opinions coming in from different industries and different backgrounds and things. So we saw a lot of things where people just very open to ideas open to potentially being wrong. Not everyone, there are exceptions. I'm sure we're all thinking of one right now. But a lot of people are very open minded. Shout out to no one at all. We love you about. But, but but I think that's something which I see as a superpower, as well as that open mindedness and that ability to kind of challenge yourself and I, I feel personally like as I get older, I learn more about what I don't know. And I become so much more hungry for knowledge and things because I'm learning so much more than I did when I was younger, because I feel like I'm becoming more and more open to like being wrong, which is kind of ironic, because I wish I'd had that when I was 20. And then I grown up with that. But I guess over time, you learn more and more about the world. And I always, always laugh because I think about my parents generation, and like they're looking at us coming to these revelations when we're in our 40s or whatever. And they're laughing going, yeah. Oh, cool. I remember that. I remember that time. Yeah, you've still got all this time to come. So now, but I think you guys, I'm still gonna stick with it, that trusting thing, okay, of course, the different levels of trust. And when you're dealing with a startup, and it's a new set of people, and it's a very, like basic trust, you're building there, but it's still trust, and it's still at, you're still looking to build that trusting relationship. And the more you can build it, then the more you can develop, and grow and help those people. And hopefully, they can help you in returns or in, you know, building their business and things. So it's, it's very interesting. Before we wrap up, I wanted to touch on one more sort of theme subject matter. And I apologize if you can get my kids in the background screaming and shouting, I think they've all arrived home now. But one thing I wanted to touch upon was more the any philosophies you have around specific types of investment or specific themes, or like you said about doing something good for the world, like you mentioned that right at the beginning more. And I think that's something I'm interested to know, kind of, is there a way in which you guys tried to Align yourselves on any specific themes or topics in terms of your

Marwan  58:55  
choice? So it varies. And I think Dan has touched upon this a little bit earlier. But there are things that we when we started very young, we agreed we're never going to invest in. So things like alcohol, firearms, tobacco and gambling, it's about policy, we just don't want to invest in those things. Now, what drives our investing is what I mentioned is things we understand, but also things we think has have the greatest potential. And what we gravitate towards are mostly technology companies, because those have the greatest potential in quick growth. But it's also where they can have the greatest impact as well. Now impact doesn't necessarily have to be green, or or we don't we're not we're not impact investors per se, but when I say impact, it's it's an an effect on how we do things or how to change the way that We we buy things or, or how different companies do things if it's a b2b company. Now, one thing I would point out is there's no conflict between trying to get good returns and also make a difference to society. But we don't restrict ourselves to that we we tend to gravitate towards good tech companies. Um, I don't, I don't think I explained it very well. So then I'm sure you're gonna be able to do a better job of this

Dan  1:00:45  
if only by virtue of the fact that this is I mean, you know, I ran an Impact Fund for six years. And this is classic discussion of returns versus impact. And so the way we always thought about it back in the Font where I was working is, imagine that there are two, two circles, like a Venn diagram, right, one circle is all of the opportunities that satisfy a certain impact policy, as in social, governance, environmental, and so on. And the other is all of the investment opportunities out there that satisfy certain financial requirements returned, basically. Right. And so as an investor, you're faced with a choice, do I invest only in stuff that meets the first set of criteria as it impacts regardless of financial? Or do I invest in anything that satisfies its financial requirements, regardless of impact? Or do I find the overlap, because there is an overlap. Now that we had that discussion, very early on, when we set up 3d And coming from an impact investing background, I was suggesting, and sort of trying to back then we were three, John was still part of the business. I was suggesting and trying to convince my one and John to adopt more restrictive policy where we would apply impact criteria, in addition to financial criteria. And their position with it, which I think was very justified in hindsight, is that that would restrict our universal opportunities very severely. And they're right. I think my bias was, you know, coming at it from doing this kind of work in Africa, where there's a lot more of an overlap between financial returns and impact, because there's a lot more opportunities that satisfy both, but in a relatively advanced, sophisticated market, like the UK, that becomes a very, very small subset, and then you sort of largely take yourself out of the market. So we went with, you know, the requirements, financial, however, I would say that, in both our cases, if an opportunity we look at, beyond meeting our financial requirements, also has very clear societal value that always is very strong plus, so you'd always opt to pursue things like that. versus things that you know, are just money.

Nick Gray  1:03:10  
Yeah, well, I can imagine, so you have an ethics framework with which you work from Anyway, you've cited, you know, Tobacco, Firearms, etc. Like, you have a framework with which you don't go outside of that. But then knowing you as I do, I would, you know, you probably looking to try to just be good humans, right. We're all I think we're all trying to be good humans, right. Like, there's, that's not taken into account a lot of the time in life nowadays. Everyone's looking to fight one another. But reality is, most of us try to be good humans and trying to do something worthwhile. So if we, if you get presented opportunities to do something worthwhile, and something that makes, you know, positive impact on society, or then in you, that that plays into it. But obviously, I guess as you going back to one of the first words, you said professionalize it, you know, professionalize what you're doing? Well, in that context, professionalizing it means you can't just be, you know, focused on one specific thing, you you for yourselves to be able to scale, you have to be open to lots of different opportunities. And, and I guess, as long as it sits within your ethical framework, which, you know, it can be anything then like, it's not everything needs to be Yeah,

Marwan  1:04:24  
I mean, to try to put it in a simple way. You're right. We don't invest in things that would make us bad people. And if there are things we invest in that make us good people, that's an additional bonus, but we also invest in things that make us neutral people.

Nick Gray  1:04:46  
Yeah, yeah. Yeah. Or just a business.

Dan  1:04:51  
And remember, we have to, we have a commitment to a fairly large and quite diverse group of people, 50 members, different geographies, different backgrounds, different life stages, different preferences, or we the value proposition we put in front of them when we approached them and invited them to join radian was not let's invest in stuff that delivers financial returns and does good for Planet society. So it was just, you know, we'll deliver to you what we believe are good investment opportunities that satisfy a relatively high financial threshold. And that is that so in a way, we don't really have the mandate to add further constraints that because that's not our promise to our investors.

Nick Gray  1:05:43  
Yeah, that's not how you built yourselves, right? Oops, sorry, I just tapped them. It's not how you've built yourselves as a business. So you then be trying to reframe your business. So guys, listen, I think that's a really nice place to sort of wrap up, but what I want to do is give you an opportunity to kind of well promote anything you want to promote, but also to just give any advice to anyone looking to start out either investing themselves or to start like chasing a pathway, if they're, let's say, we're talking to a younger person who's looking for a career in towards finance, investment, things like that, like any any advice you would give out there to the world that you can, that you would like to say.

Marwan  1:06:24  
Um, so for somebody wanting to invest the for the first time, I think the best advice is to take their time for their first investment. These are the area where we operate in is the riskiest part of the market, which is the startups. And before they jump in, and I know how exciting it can be the first time they go to a pitch event, take their time, learn from talk to other investors talk to other startup founders, build their knowledge about the environment, and about how other investors do their investing decisions before they make their firm's investment. And a good way of doing that is by joining a syndicate. So that's not a plug for ourselves. But joining any, any Syndicate, or collaborating lead the way that we started, especially if they can find a more experienced Angel they can work with. should be

Dan  1:07:35  
applied to that, I would add two things, I think one is diversification. So I completely agree with no one. But on top of that, you really need to put sort of Little Bets in many places rather than, you know, get really excited by something and put a lot of money into it. And if it works, it works. If it does work, you weren't a problem. And related to that, patience, because and realism, I mean, the truth of the matter is, and I don't think enough, people are aware of it. And even if they are, I don't think they really internalize it is that most early stage investments you make are going to fail. And that's relatively easy to understand that this sort of intellectual cerebral level, but living through that is much harder, which is, you know, roughly, it's the last statistics I've seen seven out of 10. So seven out of 10 of your investments are going to end up wiping up as in not doing okay ish, or just literally losing everything. And that's fine. That's that's, that's the industry average, you know, and another two are going to be okay, and the 10th is going to be the star right? Now, it takes a long time for the star to be a star, but it takes a lot longer, shorter time for the ones that crap out to crap out. And so the way it's built almost systemically, is you get the bad news first. And then people start panicking and you know, so it's important to set expectations correctly, when you start doing something like that, you know, a lot of the things we're going to do are not going to go well, that's fine. It's par for the course. The point is Keep at it diversify and overtime, you know, at the end of the day, the machine works and the statistics prove themselves out, you just have to hang in there. If you start panicking, everything goes

Nick Gray  1:09:32  
I love that. And, and I think that's a great way to great way to end there. Guys, thank you so much. I know you're very busy men with with families and, and lots of lots of things to get on with on a Saturday afternoon. So I super appreciate you taking the time with me to join me here on the podcast. And yeah, a shout out to any of our classmates that may have listened to towards the end here. Thank you so much for sticking with us. And for those of you who aren't our classmates or how And then it's like this far thank you as well. So guys, take care all the best with your business. I really hope that you guys find your next stage and build that fund and keep growing and I'll obviously keep watching and enjoying your

Marwan  1:10:14  
thank you for hosting this like it's been a pleasure.

Nick Gray  1:10:15  
Thank you so much again.

Dan  1:10:18  
Thank you very much. Thank you for having us. Absolutely. Thank you very much.

Transcribed by https://otter.ai