My Angel Investing Journey
For the past two months, I’ve been spending my evenings on Clubhouse in the company of angel investors and VCs in a room dedicated to startup fundraising. A few hundred founders (and founders-to-be) listen intently to our advice and queue to ask fundraising-related questions. It feels great to be able to contribute and to add my perspective based on dozen or so startup investments I’ve made to date.
Also, I learn plenty listening to more experienced investors on the panel, both from the US and Europe, female and male. All sources of capital are represented: angels, crowdfunding, venture capital, family office, loans, and grants, which gives us a wide variety of perspectives and the ability to answer more questions. I really enjoy being in a position to help entrepreneurs in this way.
This makes me reflect on my beginnings as an investor. Ever since I started working with startups, first in DreamStake and then as a founder of GrantTree, I have wanted to be able to give back to the community not just through time and advice but also through using my own funds. Because of the commercial success GrantTree achieved I’ve been lucky to be able to start doing just that in my early thirties.
Sourcing dealflow has never been a problem - I had access to plenty of interesting companies who were on our books, and got to know even more through networking which I’ve always enjoyed. If anything, I always craved to be able to invest more - and in more companies - than I was able to, given my limited resources.
Many people have asked me on what basis I make my choice who to invest in considering how many pitches I hear. I’ll be honest, I’ve never been particularly thorough with financial due diligence. At seed stage it’s mostly meaningless anyway. I invest based on my relationship with the founder (or founders), their values and ability to face adversity.
Coming from a commercial background, I also care about early traction and commercial hunger of the founding team. To me, financial success goes hand in hand with purpose and ability to make a positive impact on the world. It’s proof that what you deliver has tangible value. Sadly, I’ve seen too many startups that never find (enough) paying clients, focusing instead on developing a complex product offering only to discover it’s not useful enough to a large enough group of people. That’s why strong commercial acumen will be an important investment criterion for me.
As an early stage investor I’m well aware that statistically speaking 90% of the companies I’ve backed will fail. And so, I’m looking for a passionate, committed team and an impact on the world which would make me a proud investor and supporter of the venture even if I were to lose my money on it.
I’m particularly passionate about assisting, and investing in, underrepresented - and underestimated - founders, on the basis of sex as well as race, social background, education and neurodiversity. According to Crunchbase (quoting a recent report from 2019), only 2.8% of all VC investments in the US are in all female teams. Even though statistics prove that women tend to outperform men in business, the reality is that female founders have to work so much harder to attract investors’ interest. It’s clear that underestimated founders represent a huge, almost untapped opportunity for investors and it’s definitely a goal of mine to create a diverse portfolio.
In terms of my investment thesis, I’ve invested in mostly software companies to date and - apart from two - those which had at least some commercial traction. I’ve also invested in SEIS and EIS qualifying companies only because of the really attractive personal income tax saving opportunities these schemes represent. I definitely have ambitions to invest outside of the UK in the future, when my wealth grows sufficiently.
Probably the most often asked question in the Clubhouse room I co-host every night is how to pitch startup investors, both angels and VCs, effectively. I can’t stress enough how important it is to develop a good relationship with your investor way before you need them to make that transfer. Companies I invest in are often those I’ve had a chance to get to know over a period of time. Also, they typically come recommended by founders or investors I know.
So, if you are a founder looking to approach an investor, make sure to connect with them, perhaps on social media (Clubhouse is amazing for that!), perhaps through a common contact. If they’ve seen - or heard - you before, they are more likely to respond positively. Also, ask for their advice and input, since if they like your business they won’t hesitate to make you an offer themselves. So, if you’re looking for money, ask for advice. Reversely, if you ask for money (at least right away), you are likely to only get advice.
An important thing to discern is whether you actually need investment. Chances are you don’t actually want a company with hundreds (or thousands!) or employees and you want to simply build a lifestyle business which will provide for you and a few others. Also, it’s important to understand if your venture is investable to begin with which is a topic for a whole new post. But don’t go and attempt to raise equity funding simply because it’s the done thing in the startup world. Perhaps the best call is for you to focus on growing revenues and to fund the venture in this way. Perhaps what you need is to get funding from alternative, non-dilutive sources such as government grants. This is where GrantTree may be able to help.
If you are a professional with disposable income, rest assured that the time has never been better to invest in a startup, particularly in the tech space. We live in a hyperconnected world and the opportunity to create an amazing tech product has only been accelerated by the recent pandemic. On top of this, for those of us based in the UK, early stage startup investments have been significantly de-risked because of tax savings through SEIS and EIS schemes. So take the leap!
There are many aspects to an investor’s journey. One of the most rewarding is seeing your portfolio companies grow, change (sometimes in unexpected directions!) and, hopefully, achieve success. It’s deeply satisfying to be able to nurture and support them. It’s also rewarding to be able to help others not commit the same mistakes. Many say getting involved with an investor is not dissimilar to getting married but I would liken it more to having a grandchild - much less pressure than having your own kid (or business!) and tonnes of satisfaction. I look forward to many happy years of my investing career to come.
