Saturday, March 31, 2018

Investing in ICOs - Accounting Angle

Was chatting with Ning about ICOs and we got stuck at accounting post ico. So did some research and below are some comments and link to good article.

1)  equity type tokens are cleanest but they are regulated by securities laws. So few ico do this. 

Utility tokens are liabilities and from investment standpoint it would appear that if token price plunges, its actually good for equity owners. Whereas if token price goes up a lot, equity holders get wiped out. Of course if we hold mix then we can have some inbetween configuration.

2) the above means it will be a nightmare to value the company in future and that creates big barrier for future round equity investors.

3) audit and ipo becomes very tricky and expensive. I think pre ipo auditors and accountants will need to charge a lot just to figure all this out properly.

4) using utility tokens to pay staff and founders is just the same as paying staff via an asset the company owns. 

Knowing above, I think it is risky and more complex to invest in the equity round of a pre ico startup. Basically need to expect more costs and less access to fiat capital in future rounds. But in exchange a successful ico gives you a lot more cash than a Vc round at similar stage. Of course, the ico still needs to execute well like any startup!

Side note : ico valuations are high because of crypto whales who made 100-1000 times returns via crypto bull. But that’s over for now. Believe it will come down. So I don’t think it’s a smart time to change fiat to crypto now.



Friday, March 16, 2018

How should Angels behave?

After interacting with numerous VCs, Angels and Founders, i realize that while there has been much improvement in the quality of our founders and some improvement in the VC quality, there is much lesser improvement in the Angel scene.  That is one of the reasons why we started AngelCentral.co - to build a community of competent and effective angels in ASEAN. So here is a list of key things Angels should do both pre and post deal. Actually many of the points apply to early stage VCs too.

1) Respect the founders!
Remember that the real stars of the show are the founders. Bearing this in mind helps with many decisions and where in doubt defer to the founders who are taking the most risk and pain. So any behaviour that is contrary to this is a big no no.

Eg. i have attended angel pitches where angels are eating dinner and not taking founders seriously during pitches. Or angels that badger founders over every small detail to the extent the angel is causing the founder stress. 

A good angel supports the founders as their earliest cheer leader. We help with thoughtful experience sharing, sometimes emotional burst outlet and can be a sounding board for the founders until they scale the business and raise professional money. 

2) Keep terms simple
Some angels try to add too many terms. Here are some i have seen :

a) Tranches. Some angels try to mitigate their risk by investing half first and half later upon certain milestones. While this is fine in principle, it would be easier to invest half now and have a pro rata right to invest next round. That frees the founders up to choose best investors and also frees your capital up too. We too, have been guilty of this in our earliest deals but have stopped since then. 

b) Board seats.  Don't insist on board seats unless you add good value and the founders want you.  I have heard of at least 2 good founders with successful companies that have to spend time and energy to kick out their earliest investor who has a board seat. What a waste of effort.

If the concern is on keeping up to date about the company, ask for information rights for the first few rounds. Information rights allow you to keep track of the company and so you can make better decisions subsequent rounds.

c) Nitpicking on agreements
We are not lead investors, we are angels who follow rounds or who do the earliest rounds. As such a simple preferred share structure or convertible note with cap will do.

What you do need to ask for as an Angel is pro-rata rights and information rights. The former so that you can continue to invest in successful startups as it is core to a successful angel portfolio that you maintain ownership as much as possible in winners. The latter so that you can value add with sharing, network and so that you can track how the startup is doing. This is critical and as an Angel you need the founders to agree to give you these terms for at least the next 1 or 2 rounds. Walk away from deals and VC leads that don't offer this. 

3) Be quick 
One of the key advantages of  Angels is that we move fast. A rule of thumb should be to make soft commits (agreeing to an investment pending lead investor and min capital raised) within 1-4 weeks of listening to pitch and receiving information. Most angels do this well. Also be quick to sign subscription and shareholder agreements. In terms of wiring money, do so once lead has done so.  No need to be the first here just in case lead investor pulls a fast one. 

Its the post investment phase that is less ideal. Post investment, you will need to sign resolutions, AGMs, exemptions etc. Please take this seriously and sign them promptly once you are satisfied the content is fine. Do not be an obstacle and make decisions on corporate actions quickly. 

4) Be useful
This is understand but its not easy to do well. We have over 20+ startup investments and i have found that the best way to be useful is to highlight from experience. Eg. many b2c startups severely underestimate the challenge of overseas expansion. They usually aim for 3-4 countries using Series A funds. Our JobsCentral and portfolio experience has been that its better to expand to just 1 more country first and base country mgmt depth better be strong!

Another area to value add can be in terms of network. Potential clients are best. Followed by potential investors. But make sure the contact is the right one! Don't try to be useful but end up wasting founder time.

Strategic or functional value is also good. We have shared in depth on topics like How to use Culture in Workplace, Sales Team management and metrics, Joint Venture overseas etc. All these help your founders learn faster and execute better!


5) Have right expectations!
Depending on the value of the angel, it is reasonable to expect that after the initial startup phase and once the startup has grown and raised more capital, angels play a much less important role. So unless you can continue to value add significantly in terms of network, capital or experience, it is reasonable to expect to be less engaged as time goes by. For myself and Ning, we know we are valuable knowledge/experience wise for startups up to maybe 10M gross profit and with about 100-200 headcount. Capital wise, we are usually following up to Series A round. Once beyond that, we are happy if the founders find time to meet us once a year just as friends, some updates and of course, we hope for the big exit when the startup finally has a liquidity event. Then actually, we may become useful again if the founders want to become investors! 

Of course, some of you may be strategic angels who run huge family businesses. In this case, you just need to have founders value you accordingly. Its either capital, network or knowhow. Show your value and insist on the rights that should be accorded to your value.

If you  like what you read, please visit http://www.angelcentral.co to sign up as an Angel today!







Wednesday, March 7, 2018

AngelCentral.co is up and running!

Some readers may know that Shao Ning & I have been actively organizing pitches and training Angel Investing workshops since late 2016. And just last month, we incorporated AngelCentral as an entity. Here's the journey and thought process - its almost like any startup story!

The AngelCentral Story

Ning & I have been angel investors since 2012 or so. We saw this as a way to give back to ecosystem and also to make use of our knowledge having built JobsCentral. Needless to say, we made many, many rookie mistakes of bite sizing, over optimism, poor due dilligence etc. By 2015, we worked out a methodology and start picking much better. If we just look at our last 15-20 picks since 2015, we are at 3.3X or about 68+% IRR (as of end July 2019) Only 1 failure with 1 exit and the rest either uprounds or new. We are now committed Angel Investors and have set for ourselves a 100 startup investment goal over the next 20-25 years.

We thought we should share our learning via Angel Investing Workshops. In 2017, we ran a total of 6 workshops and trained over 120 angels. Then, we thought since we met about 100+ startups annually, we can help organize pitch days for those whom we thought were good. Last year, we ran 6 pitch days for 19 startups and we had S$3+m in capital commitments.

Moreover, on a more macro level, we know that there are insufficient well trained angels in the region. Add on to the fact that tech businesses are booming in ASEAN and we have a classic growth area. Though i must say if we do our market sizing properly, the revenues at scale are not large.

However, we still feel this space needs help and from our pitches and workshops, we realize that we have tested out our MVP and it works very well for both startups and angels. So the next step is to actually start charging users and building a team.

Launching AngelCentral.co

Shao Ning as the boss/driver, came up with a vision and business plan for AngelCentral. AngelCentral's goal is to build a community of competent and effective angels in ASEAN. We will do so by offering quality deal flow and by creating learning platforms to widen investor knowledge. She then roped in Teck Moh who is a co-investor with us on some startups and whom we share similar investing philosophy.

Next, we all approved the budget and decided to invest S$200K of our own money to see if we can build up AngelCentral to be a sustainable enterprise.

First Month of Operations

AngelCentral incorporated in early Feb and since then we launched our membership tiers. Testing out a MVP really matters and accumulating goodwill initially helps. Within 1 month, we now have over 30 paying angels and corporates/VCs. We also organized our first well attended pitch day for 5 startups on Feb 23rd and have received 30+ decks from startups.

The hardest part turns out to be on the administrative and technical bits as we needed to build up the web site and forms. I must say the stack of tools available are amazing and much better in UI and features than what we had back in 2000 (basically non-existent).

We are also recruiting interns and key staff to help drive AngelCentral. So if you are keen on the topic of early stage investing and have great project management skills, email dershing@angelcentral.co with your CV.

Moving Forward

We have a goal to grow our membership base, double the pitches and funding amount in 2018. We also want to help educate angels with deep dives into legal and sector specific areas. Finally, we also want to provide syndicate structures so that Angels can invest together and with lesser bite sizes. If we succeed, we would have done our part to make AngelCentral more sustainable and also help improve our early funding climate.

So if you are an angel or a startup, do take a look at what AngelCentral can offer you!

For Angel Membership- https://www.angelcentral.co/angelinvestment
For Angel Education - https://www.angelcentral.co/learningevents
For Startups - https://www.angelcentral.co/startups