Angel investing — from the ground up
For around 6 months now I’ve been part of the angel investor programme at Ada Ventures; a result of building the global community we have at Dffrnt and attracting deal flow from all corners of society. As a first-time angel investor on this journey, I’ve learnt a lot and wanted to share a few insights for anyone else lucky enough to consider the journey.
How to start
For me the combo was partly hard work, partly good luck.
Work-wise, I built a community. A community full of awesome people building incredible things, many of which had raised investment and/or were exploring it for themselves. This allowed me to naturally build connections with investors who are interested in accessing early-stage companies. Often, I personally see companies that are likely to raise funding before they ever even consider it. This is a play-making opportunity for me and has allowed me to open doors into funds like Ada as a result.
I was lucky, though; being part of the inaugural angel investor programme with Ada allows me to invest as part of their fund: 5 angels including myself, chosen via open application process, investing £50k each across an average of 5 deals, £10k cheques (more info here). I wouldn’t have the capital to do this otherwise. I could maybe raise a fund on the back of our deal flow, but UK FCA regulations make this difficult, to say the least, and rightfully so — investing other peoples’ money is something that one should be qualified for.
Why do it?
While investing in a diverse portfolio of startups can help spread bet and mitigate risk, angel investing (like most investing) comes with a level of risk. So, why do it? Well, if you bet on the right company, and it goes well, you might win big.
Plus, as part of a smaller, earlier-stage company, you have the ability to help de-risk your own investment from day one by being helpful as an investor by opening doors to deals, further investment, supporting the company and ultimately aiding in their performance — far more than you might be able to, say, investing in a huge public company, for example.
Investing in a diversified portfolio of stocks might garner you a few % points in growth each year, whereas angel investing represents a chance to potentially get some vastly outsized returns. In connecting with fellow angel investors during this programme independently and via Andy Ayim’s Angel Investing School the spot in which was sponsored also by Ada and is a programme I recommend for anyone wanting to learn more about angel investing) I heard from one person who had seen all their money back from 2 out of 20 investments. The remaining 18, if exited for profit, would be pure net gains and therefore likely give this person a much greater gain vs investing in public stocks, for example. This is not a normal example, though. Just one that could happen if you’re in the race.
Another reason to consider angel investing is impact. Specifically, the impact on the founder, the team and the world as a result of this company coming to fruition. I’m passionate about good people building good companies for the betterment of the species and the planet. That can be in a tiny way [to start with] or a big one [eventually]. It’s never the only reason to invest (see: philanthropy) but it’s humbling for me to know I can affect some positive socio-economic and/or environmental change as a result of my investing activity.
Who to invest in?
Simply put, you want to invest in good companies. No duh, right? But what is a good company? Well at the earliest stages, where I’m investing, who really knows? If it was easy to figure that bit out, everyone would do it and everyone would win. This is where a ‘thesis’ comes in.
A thesis, in investment terms, is your personal guidebook on what you might invest in and why. This develops as you grow as an investor and likely adapts with your personality, passions and the market.
My current (and developing) thesis is to invest in b2b SaaS (business software), community-led companies, polished brands and gaming. Ideally, also into founders/teams who are diverse and will be most appreciative of the investment, i.e. Those who might otherwise not have access to the opportunities or capital and/or may otherwise be overlooked. I’m especially passionate about helping solo founders who come from a socio-economic background that doesn’t educate about investments of this kind. It’s where I’m from so I understand the mindset and can help these people the most.
However, it’s also my job to make good investments for the fund and the funds subsequent LPs (limited partners) who have bet on me in this way to choose good deals, so while this is a positive factor, I will still invest in a good company, doing good things, as long as the founder is at least humble enough to recognise their own privilege.
As suggested with my point about the socio-economic status of the founders, the reasons for these being my choices are personally aligned. With b2b SaaS, I’ve worked in b2b and startups for a decade now and have seen software companies come and go and think I have a good idea on what works and why doesn’t and why. I’ve spent over 5 years building a global community from nothing with Dffrnt and think I can recognise companies that are well equipped to do this to their benefits. My background in branding means I truly do believe that humans are inclined to buy beautiful brands, often before product quality is as refined as it could be, which helps early startups gain traction pre-product market fit. And I’ve been a gamer all my life and I think my combined knowledge of business and gaming gives me a competitive advantage in investing in this area too.
However, there’s still a lot of companies in this subset to choose from, so extra layers of judgement are factored in then too. One of these that has become key for me is that I like to add value to and want to be a natural ambassador of every company I invest in. As such I’ve started to follow a one-week ‘excitement rule’ where I’ll generally wait a week after an initial call with a startup to avoid any natural reactions to the idea (as an idea person I automatically cheerlead cool sounding things which could skew decision making) and, if I’m still excited about the idea, possibly telling friends about it, etc, a week later, then I’m much more likely to move to the next call. If I’m not, then that isn’t to say the startup is a bad one at all, I’m just probably not the right investor for it and so they’re better off without me too — it’s a win/win.
I’m sure I’ll add more aspects to my decision process as time goes on; likely with a piece on here about my thoughts on how almost-delusional belief in a vision can bring others into your journey regardless of traction, but equally easily fall on the wrong side of the line and be a bad thing (Adam Neumann a good example here).
Who have I invested in (and why)?
The first deal I’ve done is currently in stealth but I can’t wait to shout about them. What I can say is that they’re in the gaming community space, democratising work opportunities, empowering the creator & passion economy and bridging the gap between big corporates and individuals.
The second deal is now live and I’m excited to shout about it.
Genie is a conversational tool that’s disrupting the recruitment space for the marketing industry [currently], using AI to connect the right recruiter with the right individual (and vice versa) faster than any agency can and democratise the recruitment process as a whole, removing any human bias in the process. They’ve just landed Sir John Hegarty as Chairman too (CampaignLive article here), so I’m excited to be involved in a small part of the journey of a company lead by such experienced brains. Can’t wait to see where this technology goes — my brain runs wild with ideas about how it could be used at scale!
I’ve got one other deal going through due diligence at the moment which I’m SO excited about as the brand execution is beautiful on something I’ve often thought might be needed but never done anything about. Can’t wait to announce this one.
I expect to do 2–3 more deals via the initial Ada Ventures angels programme and will keep you posted on any others that come up and progressions beyond this first year too.
A couple of key learnings (so far)
A few key things that I think are worth sharing for investors and founders alike:
- Don’t decide on emotion — let it sit with you for a few days and then look at it with a clear head to sense check your knee-jerk thoughts (thanks Matt at Ada for this tip; it’s been valuable in more areas than just investing!)
- VCs don’t know everything — VCs are just humans with opinions, like all of us, yes they may be experienced in the field of investing but they often have a small amount of knowledge in a vast array of things; therefore if one isn’t interested in your business it’s likely not because it’s a bad business but more so because they’re not exposed enough to your experience to ‘get it’.
- Everyone will want to speak to you — a clear thesis makes it easy to say no and save peoples’ time if you’re not going to be the right investor for them. Conversely this is important for startups to consider too.
- Raising investment is a marriage proposal— in fact, the relationship may end up being longer than that. So choose investors/founders/teams that you’ll be excited to share a journey with for 3, 5, 10+ years.
Get in touch
As mentioned, I’m still on the look out for my last 2–3 deals. So, if you’re building something that has the potential to deliver deep or wide impact, with a beautiful brand and strong commercials with a little traction to show for it — then get in touch.
You can reach me on Twitter and via email at ash[at]dffrnt.so
