On May 8, 2018, AngelCentral organised a panel discussion with some of the most experienced angel investors in Southeast Asia. Between them, they have invested in more than 70 investments over the past 40 years. Among the panelists were Virginia Cha, who teaches and supporting startup entrepreneurs in INSEAD, NUS, SIM and Platform E, Michael Blakely, who was named named “UK Angel Investor of the Year 2015” by the UK Business Angel Association, and Craig Dixon, the Entrepreneur in Residence and Program Manager for Muru-D, who has experience in the ecosystem as a founder, institutional investor, and Angel Investor.

Dorothy Yu, co-founder and COO of EngageRocket, a SAAS platform that analyses employee feedback real time, was the moderator for the session. Here are some notes I have taken from this insightful session.

What do angel investors look out for in startups and founders?

Blakely mentioned that he looks at the potential relationship that would result from an investment. He does not support founders who are just looking for money, and are unreceptive to external advice and support.  Blakely also believes that founders should be upfront about their problems as investors might be able to help fix them as well. He also looks at the founders’ ability to sell, particularly to potential customers.

Blakely added that he does not do extensive due diligence on startups, but chooses to do reference checks on founders instead. He would use social media tools such as Linkedin to find others that the founder(s) has worked with, instead of those referred to by them. This way, he will be able to get a more accurate view, as no-one will choose to indicate references that would give a negative recommendation!

Cha shared that she looks for people who are mentally strong. She raises the example of the story in The Martian, where the main character did not panic when he was stranded on Mars. Instead, he focused on ensuring the greatest probability of his survival. Similarly, she wants to invest in founders that are mentally strong such that when they face problems, they will not panic and take the necessary steps to solve them instead.

Also Read: China’s top 6 angel investors

Cha also added that she invests in people who are bipolar; individuals who have a big vision and dreams of what they want to achieve, while being rational in problem solving and making decisions at the same time. Dixon shared a similar view where he likes to invest in founders with the trait of “rational optimism”.

Dixon shared how he has received multiple funding requests from ex-corporates looking to raise more than three million dollars just to create a MVP. However, he prefers teams that chooses to create a MVP quickly and uses feedback from its initial base of users to reiterate and improve their product instead.

Different investment philosophies

An interesting thing to note was how all the angels had different investment philosophies. For example, while Cha mentioned that she would not invest in startups with a solo founder or a couple, Blakely mentioned that he invested in startups with both profiles recently!

Dixon mentioned that typically, he will only work with startups with an existing product and traction in the market. He also added that he does not invest in startups that outsource their technology development. Dixon added that he does not want to waste time finding the perfect valuation and aims to shorten negotiation periods, using SAFE notes to do so.

Blakely does not focus on finding the perfect valuation when investing into startups. Instead, he believes that startups should look to raise enough money to last them for 18 months. Blakely believes that startup founders should prepare to have about 20-30 per cent of their company to be owned by external investors. If it is <20 per cent, the startup would typically be considered as overvalued, posing further issues down the road.  If it is >30 per cent, it would make the startup un-investable for future investors. Similarly, Craig recounted a story where he agreed to invest in the company only after a pre-existing investor agreed to reduce his ownership from 35 to 15 per cent.

Lastly, Cha noted that while being an angel is about building a relationship between the founders and themselves, they also exist among angels as well. She finds that angels invest in startups with lead investors that they have worked with in previous deals, and vice versa.

Blakely shared that following experienced angels in the initial stages would help ease one’s journey, given the high amount of work required when starting out. For example, angels can consider joining syndicates, or finding strong lead investors on deals to leverage on their advice and support.

How much to invest and how much can you expect to earn as angel investors?

Blakely mentioned that the average exit for a startup takes about eight years; one of his first startup investments took 17 years before its exit! Michael expects only 50 per cent of his startups to make money in the long run. He added that angels should not invest what they cannot afford to lose, and consider the value of all their investments which have not exited as 0. From his personal experience, he noted that startups that raise multiple rounds tend to have higher failure rates that those which do not.

If you are looking to earn fast money as an angel investor, you are in for a rude awakening.

Dixon reiterated on having the mindset to only invest money that you can afford to lose. He added that angles should be patient, not expect to make money in the middle to long term, and that it is ok to make mistakes when starting out.

Cha shared that she has two types of investments; real estate which is generally safe, and angel investments which are usually risky. She recommends for angels to “mentally block (the money) away” once he/she writes the cheque. She shared that she puts about eight per cent of her net worth into angel investments, and she reinvests proceeds from all her exits back into startups.

Also read: The 11 smart ways to vet an investor before you seal the deal

Cha also added that depending on the nature of the deal, she invests between S$10,000 and S$200,000 per startup. For example, she would invest a higher amount when she is the lead investor, and invest smaller sums when she is a follower.

Why be an angel investor then?

With such high risks and high probability of failure, why be an angel investor then?

The panelists all agreed that being an angel investor should not just be about the money; it should also be about enjoying the ride. Blakely mentioned that one should only be an angel investor if he/she enjoys roller coaster rides because there are bound to be ups and downs.

Cha also noted that as long as as an angel continues to stay engaged and provides support to startups, they will be paid with more than just money. They include being exposed to cutting edge technologies, getting to know brilliant individuals, and having the opportunity to provide mentorship and advice.

A big thank you to the panelists for taking the time their busy schedules, and being so candid and open with their sharing. Many of the angels and startup founders that I spoke to found the session useful for their current roles. Overall, it was a meaningful and fruitful session for everyone involved!

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This article was first published on May 18, 2024

 

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