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.
Christina Teo is the Chief Builder of she1K. Launched in November 2018 and backed by Enterprise Singapore, she1K is the world’s first and only corporate executive angel network with more than 50 per cent female representation that champions and funds startups.
Teo is an avid angel investor herself and builds a strong portfolio of investments through their flagship program, C-shark Tank, which runs two-three times a year. She recently launched a peer network programme, called chiefX, catering only to C-suites.
Teo has been recognised as Linkedin Top Voices 2020 and is a strong proponent of women’s empowerment through her WomenChangemakers community events. She is also a much sought-after speaker as well as a judge for many startup pitch events and competitions.
In this edition, Teo shares her take on angel funding.
Edited excerpts:
How do you typically approach investing during a funding winter?
This is the first we have experienced. Generally, at the angel stage, we would continue to invest but be mindful that projections will need to be more conservative than before, and our expectations of outcome will also need to accommodate a longer-term horizon.
This is an investor’s point of view. For a founder, it may be quite a different story. Having said that, we changed the admission criteria for the eighth season of our flagship program, C-shark Tank, to only accept post-revenue startups.
What are your typical investment criteria, such as industry, stage, and geographic location?
We are sector agnostic, but we lean towards medtech, deeptech, agritech, and foodtech with the potential to IP. Sustainability is a bonus, not a condition. Geographies we do not cover include China, Africa, the Middle East, Russia and South America.
Can you describe your investment process from initial contact to closing a deal?
Whether it’s a referral or we scout directly, or they write in, we first must receive a deck. If we think there is a potential fit, we will book a one-hour call.
How do you evaluate a startup’s potential for growth and success?
Our questioning is very business and operations-oriented right from the get-go, i.e. who are their target customers, how is their go-to-market, and how will they position themselves in the market to achieve their targets?
The extent to which they are clear in articulating these aspects speaks volumes and/or instils confidence. We are a syndicate of C-suite executive angel investors, so technically, I am curating the deal to present to the C-suites (aka C-sharks).
Also Read: My advice is to approach raising funds as a learning process: Jeremy Au of Monk’s Hill Ventures
Other important points to consider are how their value proposition can grow over time with technology with a clear product-market fit with sparing customisation. Once it gets too bespoke or the sales cycle is too long, the probability of success may correspondingly be lower. We are generally more akin to B2B, so we are more patient with startups who sell to enterprises which implies a longer selling cycle.
How important is the founder’s experience and background when making investment decisions?
Because we are IP-centric, chances are the founder has direct experience with the solution sector. That may differ from the sector of the customers they are selling to.
For instance, if a biotech startup is selling to the beauty industry, it may be very convinced of all the productivity gains, innovation standards, etc., it brings to the table, but if they have not worked in the beauty sector, it might not know how the purchasing cycle and approvals work.
Can you share your successful investment and what made that investment successful?
Our first investment of almost four years has just been acquired. Performance Rotors launched the world’s smallest drone used for confined space inspection.
It was originally targeting the oil and gas and maritime sector. The combined technologies of the merged entity allow it to target a new sector that has already garnered a lot of traction. There is value contributed by both parties, and the merged entity commands a higher valuation.
Our smallest investment is in a medtech in Australia that has executed at a
speed far above average and has successfully raised another round with a strong escalation of valuation backed by reputable VCs.
What are some common mistakes that startups make when pitching to angel investors? What are some myths about angel investment?
Early-stage startups tend to pitch the big picture and stress how big the problem and market are. To what extent they themselves understand the statistics is questionable. Any solution they pitch is not addressing the entire market, even if we do not factor in competition.
Go-to-market is a prevalent weakness partially because of the work/market experience of the team or an over-focus on product/tech problem fit but not on how the market is going to know or be educated about the solution.
In the same token, projections make unrealistic assumptions based on a much bigger market than the one they can tangibly address given the limited resources of an early startup, which could very well be struggling with fundraising or if the sector is experiencing a downtrend in terms of attractiveness to venture capital.
How important is the alignment of values between the investor and the startup founder?
Given we are a syndicate and it is a wise option to invest via a syndicate vs going in directly, there is some limit to how much can be aligned.
Realistically, the value I ask for is accountability and transparency. Given the adverse economic dynamics these days, it is important that founders see investors as their partners, i.e. sounding board and not initiate contact only when they need funding.
Also Read: Founders should act as custodians of investors’ capital: Jed Ng of Angel School
The best alignment is when investors care and can open business leads, and the startup knows what kind of help and advice to get from each investor on his cap table. There are no perfect matches, and there can be a diversity of roles played by different investors in the same startup too.
How do you manage risk when investing in startups? Are there any specific metrics or indicators you look for?
Angel investing is perhaps the most risky. The founder, team and business have not proven their legs, and it is mostly not a relationship between friends. We go with eyes wide open, and the risks can be calibrated by sectors. On the other hand, we would want to manage a diverse portfolio to diversify the risks.
Can you share any advice for startups looking to raise funds from angel investors?
Take it seriously. “Too busy” is not a good reason to give, no matter how hot you are in demand. If you say you will send something by a certain time, please do so. Take pride in what you send over, so check the quality and accuracy.
Stay in touch with the investor even if they did not invest initially. Progress is part of the proof of concept. When you have pitched to many investors and still struggle to obtain funds, do some soul-searching. It’s not the system that is at fault. Show that you are on top of your business – you should know your numbers by day, week, month (depending on your sector), and year-to-date without looking at your spreadsheet.
Manage your pipeline actively — review it constantly to ensure you can manage your runway and also deliver on your promise to investors. Last but not least, an LOI/MOU is not a purchase order, so it does not validate much. The point to remember is angel investors are investing out of their own pocket of hard-earned money and not money belonging to the institution or to others as part of a fund.
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