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.
Shao-Ning Huang is the Chief Angel and Co-Founder of AngelCentral. AngelCentral started as a community in 2017 to facilitate angel investments in Singapore. The community grew rapidly to almost 280 strong within ten months and has helped raise over SG$16 million (US$12 million) since 2016.
Seeing the enthusiasm and support from the community, Shao-Ning together with Teck Moh and Der Shing decided to incorporate and provide deeper angel training and investment support, with the key mandate to bridge good angels with good startups in Southeast Asia.
Previously, Huang was the Managing Director/Group Deputy CEO of JobsCentral Group (now CareerBuilder Singapore). Her life focus is to be relevant and pay it forward, helping wherever possible.
In this edition, Huang shares her take on angel funding.
Edited excerpts:
How do you typically approach investing during a funding winter?
I don’t think there is anything “typical” here as it is really a new paradigm we are dealing with here. But I am more fundamental in my approach towards venture funding, and I feel a lot more “justified” now being a sales/execution-result-seeking investor.
I managed but it really was quite hard for me with the “let’s try to fly before we can walk well” mindset previously. But now I am glad many founders are going back to the fundamentals and becoming more realistic and patient with growth and pace.
What are your typical investment criteria, such as industry, stage, and geographic location?
Ideally post MVP, with early patterns of sales already, ASEAN market-focused, technology-based business, and with a “do-good, helpful to mankind” angle.
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I learned the hard way: I had two direct investments outside of Asia. In addition to not knowing the tax treatment in those jurisdictions, I was at best remotely useful to the founders in managing their businesses. I could only empathise but was not really relevant in trying to solve the problems due to unfamiliarity with their markets/environments.
Can you describe your investment process from initial contact to closing a deal?
Pre-AngelCentral: A lot of word-of-mouth referrals and kind of haphazard. When Der Shing (my husband, we invest jointly) or I get a referral, we look at the deck, arrange coffee/meet up (almost 100 per cent of the referred), we like it, ask for a spreadsheet and further data, meet up again, we have our internal IC, yes/no go.
The rough estimate we probably saw 80-100 startups then, and we invest between four to six per year. As everything was via email, it was hard to keep track.
Now with AngelCentral: We are a lot more structured now, as we have a process set up now to do outreach, vet and deep dive. In a sense, AngelCentral is the platform along with CRM to allow us to better track our own processes.
And with AngelCentral, I now wear two hats. I vet as a screening service for our members, but I also vet wearing my own hat as a potential investor. Via the AngelCentral platform, I have a fixed questionnaire to cover foundational information that founders need to complete. We receive about 800 applications yearly. We send out questions via email.
We assess the businesses based on completed questionnaires and responses to our clarifying questions. If all is good, we will arrange a Zoom call/meet-up to understand better and to have a sense of the founder. So the decision here is to invite for a pitch or to keep it in view and re-connect in 6-12 months.
For those invited to pitch with us/our members at our monthly pitch sessions, the next step is to:
- Direct invest
- Syndicate investment
- Pass/keep in view for better metrics
How do you evaluate a startup’s potential for growth and success?
I look at the founder, execution to date, market, and deal term asking. We teach this as a class for our members, too much to talk about!
How important is the founder’s experience and background when making investment decisions?
Personally, I feel there are no hard and fast rules here. It’s through the interactions with the founders and at the end of those sessions, I could have the conviction that they are the right team to support this space at this juncture in time.
Can you share your successful investment and what made that investment successful?
In our family portfolio, we have done 48 angel investments to date. Last tally (December 2022), 80 per cent of them were “alive”, with 60 per cent of them in the “green zone” meaning good sales numbers, focusing on sales, narrowing their losses etc.
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Using the conventional definition of “success” (ie. gotten up rounds, gotten B/C/D round investments, scaling in second/third markets) we have about 15 to 18 such companies now.
Of the “exited” cases, one was a good return for us, one acqui-hire exit, three “small exits”, while the rest were “write-off” exits.
What are some common mistakes that startups make when pitching to angels? What are some myths about angel investment?
I will start with myths. Some founders “question” why we ask so many questions before investing. It’s getting less common, but please understand angels definitely invest for financial returns. Angel investing is not charity work, and our money doesn’t grow on trees.
Onto the common mistakes. Founders who do not understand the capital raising process, do not understand fundraising norms and practices, or even think angels invest in “ideas”. I guess with angels, there are also “casual angels” and “professional angels”.
For the second group, we expect certain savviness. Because without this, professional VCs are not likely to be keen down the road.
How important is the alignment of values between the investor and the startup founder?
I can’t speak for other angels, but for us, we prefer to invest in founders whom we “like” and who are definitely ethical. The latter could be harder to gauge; but “like or not like”, after a breakfast and some coffee sessions together, through small chats, you get an idea of what they are like.
How do you manage risk when investing in startups? Are there any specific metrics or indicators you look for?
At the startup level, I think it’s hard. Even for those that I am on their boards, I am not on a daily operational basis to know what’s really going on. It’s really important to have convictions via the pre-commitment homework.
We manage startup investing risk via our investment breadth, portfolio thinking, bite-size control and discipline. Our budget per deal is not more than US$200,000 overall, starting with a first check at US$30,000 to US$70,000, following on when there are good growth metrics; we have a diversified portfolio (48 companies and counting) and we do not invest in more than five companies a year.
Can you share any advice for startups looking to raise funds from angel investors?
Understand the investment norms, understand the market situations and be realistic in your asking, pure ideas with no executions to prove do not attract savvy investors.
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