On 8th May 2018, AngelCentral organized a panel discussion with some of the most experienced angel investors in Southeast Asia. Between them, they have invested in more than 70 investments and have more than 40 years of combined experience. Among the panelists were Virginia Cha, who teaches and supports startup entrepreneurs in INSEAD, NUS, SIM and Platform E, Michael Blakey, who was named named “UK Angel Investor of the Year 2015” by the UK Business Angel Association, and Craig Dixon, the Entrepreneur in Residence and Program Manager for Muru-D, who has experience in the ecosystem as a founder, institutional investor, and Angel Investor.
Dorothy Yu, co-founder and COO of EngageRocket, a SAAS platform that analyses employee feedback real time, was the moderator for the session. Here are some notes I have taken from this insightful session.
What do angels invest in?
Michael emphasizes on the potential relationship that would result from an investment. He does not support founders who are just looking for money, or are unreceptive to external advice and support. Michael also believes that founders should be upfront about their problems as investors might have experiences to help them address their problems. In particular, he looks at the founders’ ability to sell.
Michael does extensive reference checks on founders. Michael would use social media tools such as Linkedin to find others that the founder(s) has worked with, instead of those referred to by them. This way, he will be able to get a more accurate view, as no-one will choose to indicate references that would give a negative recommendation!
Virginia shared that she looks for people who are mentally strong. She raised the example of the story/movie , where the main character did not panic when he was stranded on Mars. Instead, he focused on ensuring his survival. Similarly, she invests in founders who are mentally strong such that when they face problems, they will not panic and take the necessary steps to solve them instead.
Virginia also joked that she invests in people who are “bipolar”; individuals who have a big vision and dreams of what they want to achieve, while being rational and granular in problem solving and daily organisational work.
Craig shared a similar view where he likes to invest in founders with the trait of “rational optimism”. He shared how he had received multiple funding requests from ex-corporates looking to raise more than three million dollars just to create a MVP. It’s a totally unrealistic expectations.
Different investment philosophies
An interesting thing to note was how all the angels had different investment philosophies. For example, while Virginia mentioned that she would not invest in startups with a solo founder or a couple, Michael mentioned that he just invested in startups of such founding teams just the week before.
Craig mentioned that typically, he will only work with startups with an existing product and traction in the market. He also added that he does not invest in startups that outsource their technology development.
On the investment negotiation front, Craig does not want to waste time finding the perfect valuation and aims to shorten negotiation periods, using SAFE notes to do so. On the other hand, Michael shared that he invests only with direct equity.
Michael does not focus on finding the perfect valuation when investing into startups. Instead, he believes that startups should look to raise enough money to last them for 18 months. Michael believes that startup founders should prepare to have about 20-30% of their company to be owned by external investors. If it is <20%, the startup would typically be considered as overvalued, posing further issues down the road. If it is >30%, it would make the startup un-investable for future investors. Similarly, Craig recounted a story where he agreed to invest in the company only after a pre-existing investor agreed to reduce his ownership from 35% to 15%.
Lastly, Virginia noted that while being an angel is about building a relationship with the founders, angels need to build relationships and network with other angels as well. She finds that angels invest in startups with lead investors whom they have worked with in previous deals, and vice versa. She shared that it’s actually the easiest way for new angels to learn the rope into this space.
Michael shared that following experienced angels in the initial stages would help ease one’s angel learning journey, given the high amount of work required when starting out. For example, angels can consider joining syndicates, or finding strong lead investors on deals to leverage on their advice and support.
How much to invest and how much can you expect to earn as an angel investor?
Michael mentioned that the average exit for a startup takes about 8 years; one of his first startup investments took 17 years before it exited! Michael expects only 50% of his startups to make money in the long run. He added that angels should not invest what they cannot afford to lose, and consider the value of all their investments which have not exited as 0.
“If you are looking to earn fast money as an angel investor, you are in for a rude awakening.”
Craig reiterated on having the mindset to only invest money that you can afford to lose. He added that angles should be patient, not expect to make money in the middle to long term, and that it is ok to make mistakes when starting out.
Virginia shared that she has 2 types of investments; real estate which is generally safe, and angel investments which are extremely risky. She recommends for angels to “mentally block (the money) away” once he/she writes the cheques. She shared that she puts about 8% of her net worth into angel investments, and she reinvests proceeds from all her exits back into startups.
Virginia also added that depending on the nature of the deal, she invests between SGD10,000 to SGD200,000 per startup. For example, she would invest a higher amount when she is the lead investor, and invest small sums when she is a follower.
With such high risks and high probability of failure, why be an angel investor then?
The panelists all agreed that being an angel investor is not just about the money, and it is about enjoying the ride as well. Michael mentioned that one should only be an angel investor if he/she enjoys roller coaster rides, because there are bound to be ups and downs.
Virginia also noted that as long as as an angel continues to stay engaged and provides support to startups, they will be paid with more than just money. They include being exposed to cutting edge technologies, getting to know brilliant individuals, and having the opportunity to provide mentorship and advice.
A big thank you to the panelists for taking the time their busy schedules, and being so candid and open with their sharing. Many of the angels and startup founders that I spoke to found the session useful for their current roles. Overall, it was a meaningful and fruitful session for everyone involved!
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