Amidst the challenges of a tough funding climate, e27 is launching an exciting new article series called Angel’s Advocate to provide fresh perspectives on angel funding. In this exclusive series, we sit down with prominent angels to hear their stories and strategies and gain unique insights about the early-stage financing space.
Jed Ng is Founder of Angel School, a fellowship programme dedicated to helping emerging investors build, run and scale their own angel syndicates. He’s a self-taught angel with an exit and has backed two startups from seed to unicorn.
Ng started his own syndicate in 2020 and has grown this from zero to 1000+ LPs with US$0 marketing spend. He holds an MBA from INSEAD.
In this edition, Ng shares his take on angel funding.
Edited excerpts:
How do you typically approach investing during a funding winter?
Here is some relevant context. I’ve built a large-scale syndicate and am backed by 1,000+ LPs today. This is my primary investing vehicle which gives me the ability to write cheques of US$500,000 to US$1 million (or more).
Syndicates are scalable sources of capital that grow over time if they’re built the right way. Because of this, I’m always in a position to deploy capital.
In the current funding winter, startup valuations are down across all stages, and later-stage companies are more severely impacted. The logical reaction is to look at later-stage companies which are less risky and to take advantage of more severe multiples compression.
We are able to do this exactly because of the syndicate model.
What are your typical investment criteria, such as industry, stage, and geographic location?
I invest in non-consumer software (SaaS, enterprise, cloud), typically from seed to Series A. We expect entrepreneurs to be able to build, ship products, and show traction before seeking external capital; that’s generally possible in software.
I’m concurrently building investment teams in Europe and Asia this year. That’s one reason why I recently moved to Singapore. In these new geographies, I’m building a bench of local investors plugged into their respective ecosystems to define our regional thesis.
We’re essentially building infrastructure for scaling the venture.
Can you describe your investment process from initial contact to deal closing?
Deal flow is first vetted by our investment team for thesis fit. Thereafter, a deal team of subject matter experts performs diligence. They present a deal memo to the investment committee, collectively deciding whether to proceed.
We then move into the fundraising phase, where the deal is presented to our LP network and commit capital.
What’s important about the proposition is that we give investors 100 per cent decision control over investment decisions.
Also Read: I use strategies such as diversification to manage risks: Blockchain expert Anndy Lian
How do you evaluate a startup’s potential for growth and success?
Investing is a skill that anyone can acquire. I say this as a self-taught angel who’s backed two seed-stage startups that became US$1B+ companies.
Diligence, discipline and structure help investors evaluate a company holistically. For example, we’ve codified a diligence checklist of items we expect every company to fulfil.
What we look for in companies are strong founders serving massive markets. Then we look for realisable business models with the potential for strong unit economics and revenue quality. In the current climate, we are indexing more on capital efficiency.
How important is the founder’s experience and background when making investment decisions?
Very important. At a minimum, founders should have experienced the problem they are building first-hand.
Building a company is hard. Founders need to be serious about this undertaking and act as custodians of investors’ capital. While it’s a subjective decision, we screen out ‘tourist founders’.
For first-time founders, one way to show commitment is to invest your own sweat equity and capital in having skin in the game before raising external capital.
Can you share your successful investment and what made that investment successful?
I invested in Turing.com at the seed stage. The company was valued at US$1.1B at the end of 2021. Turing helps tech companies scale up engineering workforces as easily as cloud infrastructure.
Here is an article I wrote about the investment.
What are some common mistakes that startups make when pitching to angel investors? What are some myths about angel investment?
I recently posted about five myths about angel investing. They are:
- You can be a successful investor if you have a good deal flow: That’s not true because making quality decisions is a far harder challenge.
- Simply invest in a top-tier fund: That’s extremely exclusionary. Very few people have the access or wealth to do that. It also suggests that angels cannot be successful investors.
- Angels who are starting to build their own syndicate should lower carried interest: That’s false because it’s a net negative economic decision.
- If you’re building a syndicate, you should aim for a small group of large cheque writers: That’s technically true but not very actionable unless your network is full of high-net-worth individuals.
- You need a big, established investing track record before starting a syndicate: I’ve worked with dozens of angels in my venture programme. A carefully crafted professional bio and astute pitching work wonders for getting early backers.
How important is the alignment of values between the investor and the startup founder?
Alignment is incredibly important. We’ve been in a five or 10-year relationship with every founder we back. It’s a relationship, not a fling. We want to back founders who are transparent, communicative and act as custodians of our capital. In turn, we will do our utmost to support and back them.
Also Read: Pure ideas with no executions to prove do not attract savvy investors: Shao-Ning Huang of AngelCentral
How do you manage risk when investing in startups? Are there any specific metrics or indicators you look for?
There is always a deal risk. We do deep diligence on each deal to understand that. The more interesting way to look at risk (and consequently success) is at a systematic level.
Your levers for being a successful investor come down to a few levers:
- Ability to command capital
- Economics
- Investment volume (deals per year)
- Deal flow volume
- Decision quality
The syndicate model of investing helps me solve point number one and two. As I mentioned, strong investor networks grow themselves. That’s how I’ve grown to over 1,000+ backers today. The other interesting thing is that the economic structure of syndicates is mathematically better than VC funds. Here is an article I wrote about this.
Notice that levers three and five are human-centric. There really isn’t the technology to solve this today. It’s about having enough bandwidth, relationships and networks, broad expertise and skill, which takes time to acquire.
Earlier, I spoke about building ‘infrastructure for scaling venture’. That infrastructure is exactly what we need to unlock these human performance bottlenecks. We’re essentially turning angel investing and venture capital into a team sport through our ‘Super Network’.
Can you share any advice for startups looking to raise funds from angel investors?
Investing is a relationship business. Making an effort to approach investors in a purposeful, personalised way compared to generic automated emails makes a huge difference. Is it scalable? No. Does it move the needle on fundraising success? 100 per cent.
Every investor has a thesis — whether they realise it or not. I’m a software investor. That’s evident from my portfolio. There is zero chance I will invest in D2C or biotech. The simple thing founders can do is to be targeted to who they reach out. Take two minutes to look at someone’s LinkedIn profile before contacting them.
The other easy fix for startups is to learn the ‘lingua franca’ of investor communications. If you look at how investors share deal flow with each other, you’ll notice a pattern. It’s bare bones, jargon-free, and stripped down to the essentials. It contains a standard set of information. I strongly encourage startups to communicate this way. This might be the best 15 minutes you invest in building your company.
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