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.
Yi Ming Kau is the founder and venture partner at Krux Asia, a venture-building studio and consultancy firm, whose focus is to help corporations innovate and establish new ventures. He is a strategic advisor to TechStorm, Smobler Studios, and several other startups.
Kau is also an angel investor and an investment committee member of Angel School, a network of more than 1,000 angels, which has deployed more than US$4 million in over 15 startups.
In this edition, Kau shares her take on angel funding.
Edited excerpts:
How do you typically approach investing during a funding winter?
My investment philosophy doesn’t change very much regardless of funding cycles but a funding winter allows angels to play a more significant role than otherwise.
- VCs are more cautious and move slower, allowing angels more time to evaluate deals and make investments in otherwise fast-moving deals.
- Deal valuations also become more favourable, even allowing opportunities to partake in later rounds or secondaries.
What are your typical investment criteria, such as industry, stage, and geographic location?
Generally, it is mostly weighed on team, market and product in that order, but depending on the geographical location and the maturity of the startup ecosystem, the criteria vary. In the US, I tend to place more value on the depth of the technology and the experience of the team. In SEA, I tend to look at the potential of the market more.
Can you describe your investment process from initial contact to closing a deal?
My investments are driven by trust and relationship-based philosophy. As I don’t make a lot of investments, I tend to spend more time understanding and interacting with the team. While this means I have to pass on deals that are “urgent” or have a limited timeline, I feel more at ease with the investments I make.
I do a pre-evaluation test as a filter criterion; this is mostly on sector, stage and problem. The next level is a more in-depth study of the team, market and product before making a decision.
How do you evaluate a startup’s potential for growth and success?
The tenacity and commitment of the team are important as things are not guaranteed and are uncertain. The next is looking at the market, particularly from a disruptive angle. It is different to envisage how a market may look when it doesn’t yet exist. Disruptive plays tend to enter a market from a different direction, the more unexpected the angle, the larger the impact.
How important is the founder’s experience and background when making investment decisions?
The ability of the founder to learn and iterate quickly is more important. In SEA, the opportunity to find founders with exits is rare but this is a helpful criterion as you know the learning curve is less steep. Ultimately, I think an investible founder/team is based on grit.
Can you share your successful investment and what made that investment successful?
I can’t share specifics but I do have a startup that did very well and is currently looking at a high multiple ROI. This was an investment in both a strong team and an even stronger trend. Market trends can really make a big difference.
What are some common mistakes that startups make when pitching to angel investors? What are some myths about angel investment?
In my opinion, treating the pitching process as a transaction is the worst. Angels are not an ATM and they need to know they can trust the startups with their money. While it is tough for startups to maintain a close relationship with all the potential angels/investors, there are simple ways to keep the relationship warm such as newsletters and the occasional check-ins.
Angel investing isn’t simply funding startups blindly and without due diligence. I see angel investing as a professional process that has the necessary rigour as that of a VC/fund manager.
How important is the alignment of values between the investor and the startup founder?
Depends on the amount of influence an investor has over the startup. Angel investors don’t have much influence unless we come to a very early stage.
How do you manage risk when investing in startups? Are there any specific metrics or indicators you look for?
I assume I am not able to beat the power law and hence need to have a broad portfolio of at least 25 startups to manage the risk. The rate of growth is still a key metric that I look at because it is a reflection of strong PMF, which is important for early-stage startups.
Can you share any advice for startups looking to raise funds from angel investors?
Take time to build a relationship. Be open to inputs.
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