6 Personal Sharing on Angel Investing

(Updated 16 December 2016)
This article shares the mindset I have as an investor. It does not represent what other investors think and all opinions are just one sample. So read it in the right light.

Since 2009, my wife & I have been angel investing in the area of internet businesses where we have some experience. The idea is both to give back what we learned and also to hopefully profit from it.

To date, we have invested in 14 startups SG/regionally and we will probably invest in another 5-10 startups over the next 3-4 years or about 2-3 a year max. In addition, we have invested/committed in 5 incubator/Series A funds as part of our diversification/lead gen strategy.

Here are some learning points we have :

1) Invest in things we know and enjoy.

All the companies we have invested in are B2C companies with the exception of one which is a digital animation firm. Reason? Our experience building up a job portal allows us to share meaningfully with the portfolio companies. In fact, two of the portfolio companies are job portals outside of SG.

Recently, we have decided that Fintech B2C is an area which is ripe and which I have a personal interest. So we started researching the startups in the space and have met with quite a few. In the end, we decided to invest in two - iMoney and DrWealth. One has done pretty well.

Investing in B2C businesses allow us to gauge whether the management team is doing a good job or not and allows to learn even more about B2C mechanics which makes us even more valuable mentors. Being able to value add to the entrepreneur is a big positive feeling for me.

2) Invest with early stage VC for diversification. Double your bet alongside for stories you like.

One way that we are still trying out is to invest in incubators and early stage funds. Then for the stories we like and which are book building, we can invest alongside them. That is also why we invested in 500startups/durians.

3)  Always invest in the person and the rough model. Motivation matters a lot!

We want to invest in people who don't give up easily. Business models are rarely correct at startup stage. Management will need to tweak and pivot and go through a lot of pain before they hit on the right model (if ever). As investors, the last thing you want is a founder that gives up within 1+ years of funding esp if money still not run out. For me, I would be ok if the business fails if the founder has pivoted at least 2 times and has spent at least 2 years trying to make things work and has been willing to put more of personal money in to keep things going,

From what I have observed, the best key founders are those that just want to get things done. They have a just do it attitude and will never blame others for their failure. Frequently, they are not afraid to roll up their sleeves and do sales or marketing work. Their ego is subordinated to the business goal which they are crystal clear about. 

4) Coachable founders are critical and I don't need to be the coach

Related to point 4. Some people learn fast (whether from others, actual experiences or even from books), some don't. A team that does not learn or which is slow to change when change is clearly needed will rarely succeed. I now always look out for founders who are willing to listen and absorb new practises and who are willing to agree when numbers tell that they are wrong. They don't need to listen to me, but they need to listen to someone!

5) Invest money that is not needed and with discipline.

I cannot stress this enough.  We plan ahead 4-5 years and use a portfolio allocation strategy that limits how much we can allocate (not more than 15%)  into startups and VC/incubator funds.  We understand that in worst case, we will lose all of it though I would not except the VC funds to lose it all!

6) Invest as a way to give back to ecosystem

This one is for all those who managed to exit your business or who have down wel in corporate job. We all know Singapore does not have many of us. So putting aside 5,10,20% to invest back in the area you know well is a good win win. Life can't be just about making more money, more fun for ourselves and helping only our loved ones. Doing some mentoring and coaching for companies you are vested in and which you are knowledgeable about is a great way to give back and still be aligned.

All about Angel Investing (Part 1)

This article has 2 parts. Below are general questions many people ask about Angel Investing. The next article will be specific experiences and learning which I absorbed over the past 5 years of actually doing it.

NB: While I have experience mainly in tech startups, I believe the principles mostly apply to non tech angel investments too.

1) What in Angel Investing ? How is this different from other Private Investments?

Angel investing is more specific. It is investing in startups in hope that they succeed and you earn back your money via an exit (trade sale, IPO, sale to next investor).  In non tech world, you can also earn back your money via dividends once the company turns profitable. Private Investing covers angel investing but also include later stage investments into companies that are already larger, profitable etc. Private investing also covers investments into VC or PE funds. Basically investment into any non listed company.

2) Can I afford to be an angel investor? How much to invest?

We invest money that we can afford to lose completely. If you look at most strategic portfolio allocations (this is the various asset classes that experts advice people to allocate their investible money in), most will have an alternative allocation that includes private investments, art, wine, hedge funds and commodities. This percentage varies from 0% to 20%.

So lets say it is 20% of investible assets (excludes own home and current business which you run if applicable). 20% is currently what some banks recommend for alternatives and also what some UHNWI (people with more than 30M USD investible) individuals in the USA are doing.  Of course, not all 20% is for angel investing. Probably 5% of that? The other 15% is for hedge funds, PE funds, later stage VC funds, commodities etc.

Now flipping to the other side, we need to spread our bets since we do not control the companies we invest in. We will make mistakes and invest in bad models or bad people. So lets say at a minimum of 25K per investment and at 10 investments over 5 years, this means 250K is 5% or we need an investible net worth of about 5M min.

3) Is 25K the usual quantum for Angel Investments and what does that buy?

From what I can see, most angels in this region invest anything from 25K to 200K. One mistake I made early on was to invest way above that. Doing so made it hard for us to diversify properly and spread our bets. If your average bite is supposed to be 25K and you are doing 12 companies, then you can allocate 50K for 2-3 exceptional stories that you feel strongly about.

In the current tech space, angel/Seed round valuations range from 1M to 2.5M and amount raised is usually 500K. So 25K buys you anything from 1-2%.

4) What kind of returns can I expect as an Angel investor and in what time frame?

We all read about the lucky guy who invested in the next FB or Google. But lets face it, most Angel Investors in this region will take anything from 2 years to 10 years or more to exit their investments. We have invested in 7 startups in SG and regionally so far. None have exited yet. Luckily none have failed yet too.

So the usual timeframe to expect will be similar to a early stage VC fund. Anything from 3 years to 10 years for exit and blended returns of above 25% annualized would be good.

5) How do I get deals?

This is critical for success. There are a 2 ways that have worked for me.

a) Spread the word that you do coinvesting alongside incubators for SEED and Series A rounds. This way, you follow the lead investor for deals. This method has an advantage in that the lead investor helps settle the terms. It helps if you actually invest in some of these VC/incubators too.

b) Value add when you meet founders. Don't just view founder meetings as potential investments. Rather try to help them with your experience and connect them to relevant people. After a while, people will see you as a good person to talk to regardless of whether you invest.

6) What is my role as an Angel Investor?

With a stake of 1%-2%, you are not expected to play an active role in the business. Experience sharing if you have it and can get along with mgmt would be good periodically. Connecting to relevant people too would be useful if you have such contacts.

Of course, if you invested a lot or very early and own >5%, then it is entirely possible that the management wants you to perform some structured role. All these should be decided before investment.

7) I don't have access to good deals or any good value add, I just want to invest. What else can I do?

Of course, another way is to outright invest directly into early stage/Series A funds. You will be called in LP (limited partner) if you do so. Usual quantum ranges from $100K (for small funds) to $5M for large funds. The expected returns for these funds range from 15-25%. Some names in this area include Jungle Ventures, Golden Gate, Walden, Monkshill, 500Durians/Startups and many more. They are all raising capital now.

You can then treat these investments just like a mutual fund but classify it under alternatives.

In my next article, I will share specific experiences and learnings we have from our own foray into angel investing.