Startup investing is a high risk, illiquid, and challenging asset class. Yet, the amount of interest and funding into startups continue to grow each year. VCs, PE funds, Corporates and family offices invest billions annually into the ASEAN startup space. Increasingly, more individuals also known as Angel Investors, have joined in the forays.
On 26th July 2019, we had on panel four seasoned angel investors to share their angel investing journey and some tips on starting an angel investing journey. Below is a summary of some learning points from the panel.
The panelists were:
- Mr Phey Teck Moh, Partner, AngelCentral
- Mr Cho Chia Yuan, Program Director, DSO National Laboratories
- Ms Wynthia Goh, Director, Trie Ventures
- Ms Jane Prior, Partner, Rapzo Capital
- Ms Huang Shao-Ning, Partner, AngelCentral (Moderator)
Before we dive into the topic of angel investing, so, what is angel investing?
Angel Investing is essentially the act of investing in startups at an early stage. As an asset class, angel investing is highly illiquid, binary and requires long holding period. It must be viewed as an extremely high-risk activity where risk is mitigated by angels’ personal effort to review and assess, and where the rewards are both financial and non-financial.
Here’s the million-dollar question – why do people angel invest?
As shared on the panel, angel investing is a good alternative investment to one’s portfolio of property, equity, and bonds, provided your risk tolerance is high and have a long investment horizon of 5-7 years. It’s a high risk high reward asset class. The returns are not thought of in “%” but “x” (times or multiples).
In addition to eventual financial returns, angel investing brings forward huge opportunities of learning. Angel investors spend a lot of time meeting founders, researching on different spaces, business models, and at times, chat to get insights from industry experts. Angels also work with other angels frequently, to leverage each others’ expertise, know-how and network. (A quick way to do that is to join established investment network like #AngelCentral)
More often than not, early investors invest because of their belief in the founder. Through our experience at AngelCentral engaging with both experienced and new angels alike, we found that their motivation is always more than just about the money. Most angels are successful businessmen or corporate executives, and they know the issues in their respective areas. When they meet founders with insights and unique solutions for their specialty areas, they see the potential and viability of the proposed solutions. Next, if they could see the founder to be the right person to solve this big problem they both identify with.
How does one take the step to start angel investing then? Here are some tips:
Never function solo; you need a community to support you
Within the network and community, we help each other validate several aspects of the business – is the problem big enough, do the founder’s claims check out, is this proposed solution plausible? The key to it is to leverage the network’s collective knowledge, evaluate with your own lenses, and not follow/invest blindly.
Have an investment thesis
As you progress in the journey of angel investing, develop and put together an investment thesis on how to better select the areas you would like to invest in. This “manifesto” should be reviewed periodically to reflect changing times too.
Ask yourself these 4 questions:
- How is this idea going to change the world? (new category? game changer? or copy cat?)
- How do I see the value being created? (efficiency, productivity or new ways of doing old things?)
- Where are the areas I should invest in? (fintech, medtech, healthcare, marketplaces, HRtech, SAAS, etc)
- What kind of founding team do I support? (value system, skillset, background etc)
Look out for these traits and ideas
The traction and idea are definitely what one should be looking out for before investing. Also, the technical expertise of the founding team should definitely be a key evaluation point for tech-driven businesses.
You have heard from many – the founder is the key for early stage investments. Some key points to note will be:
- Is the founder laid-back or a hustler?
- Is the founder working on this full-time or part-time?
- Does the founder understand the business landscapes and models?
- Does the founder have the potential to grow?
- Has the founder acquired a growing team behind him?
- Can the founder execute?
Lastly, the evening ended with good angel mindset suggestions:
Be prepared to lose angel investing money. The first rule of angel investing is that the investor must be able to lose that sum of money and still maintain personal financial stability. Approximately, only 10% succeed, so think of the money that you angel-invested as money that you spend learning about businesses with the hope that investment materializes, but if not, there is no loss as you gain the experience. It must not affect your lifestyle.
Angel Investors are cheerleaders, Entrepreneurs are the stars of the show. Entrepreneurs are the ones leading the charge, angel Investors just cheer them on (ie. after you have committed! pre-investment, you should be as careful and detailed as possible in evaluating the founder and the progress). The importance of trusting, guiding and allowing the startup founder(s) to have the flexibility to run his/her own business is key to the growth of the startup. Angel investing invests in the idea as much as you are investing in the person.
So, are you ready to be a cheerleader? Join us at our coffee & chat sessions if you would like to find out more!
Check out the AngelCentral Learning Forum: Why Angel Invest (Hint: It’s more than just money) here: