Earlier this year, I made the switch from working at ACE, a national startup ecosystem builder in Singapore, to join AngelCentral – which aims to build a community of effective and competent angel investors in Southeast Asia. During the first couple of weeks of my new role, I have gained many insights into the angel investment and early-stage funding scene in Southeast Asia. Here are just some of the lessons I have picked up thus far:
1. Fundraising is really difficult.
Seems a little obvious right? Of course, many of us know how tough a founder’s job can be when raising funds for the company. But, what struck me was the number of meetings that founders have to go through before closing their round. They will need to answer the same questions, listen to the same concerns, present the same deck, etc. It is a tiring process that they have to repeat over and over again. Hearing some of the stories and number of meetings some of the founders have to go through made me gain a new level of respect for them, especially for their tenacity and perseverance. This is why I like the idea of Pitch Days, where startups pitch to an audience of investors and after the session, founders are able to connect with and take meetings with only the parties that are interested. While some have been questioning the effectiveness of Demo Days, I still find it a useful way for many startups to fundraise and meet investors still.
2. Being an angel can be tough, especially if you are alone!
Being an angel investor is no easy task. Of course, to be an angel, one can merely write a cheque and hope for the ROI to come in a couple of years’ time. However, being an effective angel will require a lot more than that. You need to know how to evaluate companies well enough to know which startups are least likely to fail. This comes from asking the right questions, being aware of market trends, understanding the business model, etc. You will need to know when you should do follow-on funding, how to best manage founders after the investment, and manage your portfolio. If that is not enough, you will also need to understand all the different legal terms that are present in a contract. As quality startup opportunities are generally closed to the public, you will need to learn how to generate deal flow. Doing this includes tasks such as positioning yourself as a competent angel and gaining access to closed-door angel groups. Given the number of things angels need to master to do well, it can be intimidating for those that are just starting out. It is even tougher if you work alone and have no one to learn from. This is why when starting out, joining an angel investment group can be really useful for you to learn and pick up the tools of the trade!
3. People > Idea
In my previous company, I evaluated more than 120 companies for the Startup SG Founder grant (an early stage grant for first-time founders and young businesses launched by Enterprise Singapore). As such, I had some experience in assessing startups, which I thought could prove to be useful in my time here. This changed after sitting into a couple of startup meetings with my Partners. The meetings made me realize that the bar set by experienced angels was way higher than the government’s grant criteria. The most pressing difference was how angels would prioritise the founding team’s quality first. I remember sitting into one meeting with a startup that was operating in the region. The business consisted of a strong solution that had a strong demand. However, the angels rejected the startup as they were not confident the team would be the right one to dominate the market. I was sure that the startup would be awarded the grant if they applied for it, as the government’s focus tends to be on the business idea instead. This experience underscored to me the big importance that angels place on founders when making their decision. As the popular Belarusian American entrepreneur, investor and speaker, Gary Vaynerchuk used to say: “Always bet on the jockey, not the horse”
4. There is still lots of room for improvement among the angels in Southeast Asia.
In my short time here, I have already heard many horror stories about how some angels in the region treat founders. For example, I have heard of angels that take a majority share of great startups at the seed round, even as high as 50%! This makes the company practically uninvestable for future investors (similar stories was shared during a recent panel by some of the biggest investors in Southeast Asia). Other stories include angels that hound founders for updates every other week, are slow to sign agreements, and nitpick on every agreement, etc. Such actions cause founders unnecessary stress and impede the progress of startups. I have also personally witnessed a scene where an angel gave a startup founder just 2 hours to decide whether he wanted his deal, which I suppose was inspired by the investors in the Shark Tank! These stories highlight that the angel community in Southeast Asia needs a lot more education on how good angels should behave.
5. Why Angels Invest
My experience with most investment groups in Singapore is that they are just in it to make money. I see a stark difference in the angel investment space. What I realized was that many of the angels’ main goals were for more intangible reasons instead. Yes, angels still hope and expect to make money from startups, but many of them have other reasons to be in the game as well. Some of them include early exposure to emerging technologies, giving back, and as what Michael Seibel, a partner at Y Combinator says that he treats angel investing as “a form of charity”. Of course, while it is not accurate to say that angels do it entirely for altruistic reasons, it is great to hear that many of them are doing it as a way to contribute back to the ecosystem they once benefited from.
Even as the landscape for angel funding in Southeast Asia continues to develop, I believe there is still lots of room for improvement. It is heartening to note the formation of many angel groups which are looking to bridge this gap. They range from older institutions such as BANSEA (Business Angel Network of Southeast Asia), to newer ones like ANGIN (Angel Investment Network Indonesia), MBAN (Malaysian Business Angel Network) and the “new kid on the block” which is where I am from, AngelCentral. Together with the support of other ecosystem players ranging from the government agencies, VCs and Accelerators, the early stage funding and angel investment scene is bound to develop in the coming years. With that said, I am excited to be part of this movement to help promote a greater community of great angels in Southeast Asia!