Angel investors; the unsung heroes of a vibrant startup ecosystem?
As part of Angel360, we deep dive into the key focus areas and pain points for angel investors, from sourcing deals, negotiations and managing a portfolio. Here’s a look behind why we think angel investors are a vital part of the startup ecosystem and why we are providing opportunities and support for angel investors.
When people think of startup investing, the first thing that comes to mind is of money going into unicorns; investors making money off exits; venture capitalists raising hundreds of millions; PR about startups winning awards; and analysts who seem to have some kind of secret insider information about which startups will be winners.
Wow that sounds exciting. And sure, that’s some part of it.
But I want to talk about what happens before this.
It’s about this group of people that get involved in a company right at the very start. They guide it, advise, and become its biggest cheerleader.
No, they’re not the founders.
They’re angel investors.
The friends, families, and yes, the fools. They take a bet on a person and their idea. Sometimes it works, sometimes it doesn’t. Either way we’ve worked with enough angels and early-stage founders to know the reality is angel investors are the unsung heroes of a healthy startup ecosystem.
Where you see startups thriving, you see great angel investors too.
But angel investing is hard. Especially if you’re doing it yourself.
More often than not, we come across angels who have taken the leap and made an investment, only to never do it again because they lost money or the relationship with the founder went south.
Maybe they realised that the odds of finding a winning startup to bet on is low. Or are unsure how to choose which startups to invest in if you’ve allocated a certain investment amount?
Startup investing at the early stage requires you to have access to high quantity and quality deals. Quantity to ensure that you are in fact getting quality; meaning you need to be connected into enough networks to get a volume of deals high enough to assess whether a deal is good or not.
And then once you have access to quality deals, you need to diligence the company and the idea to be comfortable enough to invest in them. For some angels, they only go with relationships; ie. they’ll only invest in founders they know. This is common with founders who come from ex-Unicorns; typically their fellow colleagues will invest together, banking on trust and alignment in values. Other angels will join networks, mentor at accelerators, and develop relationships with funds. They’ll use these networks to pick a shortlist and diligence those startups. But that also takes a lot of time. How much diligence is too much diligence? At what point can you say you’re comfortable with making that investment?
A hybrid of this is how we’ve found that we’ve been working with many angels. They come into our network, become as hands-on as they like (and have time for), but they essentially utilise our extensive recruitment process as their filtering too. Negotiation is handled by us, and angels just join the rounds that we lead with the amounts that they’re comfortable with.
But the work doesn’t stop here. If you’re investing alone, at some point you’ll still have to manage your portfolio. For those who are doing lots of deals with small ticket sizes, portfolio management could be minimal, but for those doing larger investments in a select few, being hands-on is often the default as a way of keeping tabs on the performance of their investment.
Even for experienced investors, this is a lot to do by yourself.
And for someone who is just getting started, this can be overwhelming. They’ll turn up to a pitch event, listen to a bunch of startups pitch and it all sounds great, but where do you go from there?
We see this so often.
Budding angels sit on the sidelines and don’t get involved because they’re worried they might be asking ‘dumb’ questions; they end up not getting into a deal quick enough before more experienced investors close the round; or without realising it, invest under terms that are not favorable to the investor and the startup.
And if you’re just getting started or you don’t have people who are embedded in the industry on a daily basis, there’s a large hurdle to getting involved quickly:
Information that is relevant to this region - most angel investing information out there is relevant to the US or European investors.
A community you can ask questions - accelerators, pitch events and other startup networks are great if you’re looking for deal flow but what if you have questions? Who is going to walk you through a term sheet or help answer any questions you might have?
Regional networking - most networks and accelerators are country-focused, meaning that you potentially miss out on developments in the startup ecosystem that are happening around the region
Leveraging existing infrastructure - many individuals are not able to leverage existing infrastructures out there. This means they need to create their own networks and build their own platforms to get started in angel investing
At Accelerating Asia, we see our relationships with angel investors as critical to driving our mission forward. While late-stage investment rounds focus on startups with a well-known product and market presence, in order to build a holistic and developed entrepreneurship ecosystem, ongoing support and investment at the early stages are needed. Angel investors are critical to support early-stage founders and develop robust and healthy startup ecosystems across the region.
We’ve worked with enough startups and angel investors around the region now to know that there are things that you can do to set up the relationship for success.
And that’s why I’m excited to let you know that we’ve launched Angel360 with all of this in mind. Angel360 brings together the region’s active Angel Investors who have been involved in over 150 deals and over 10 exits to deliver sessions and workshops for the Angel360 community.
The program is designed to provide angels access to current trends and is informed by our market intel and insights into the ecosystem from our experience sourcing startups, managing investments and working with partners including Venture Capital funds, Angel networks and innovation hubs.
The initial idea for Angel360 was sparked during our conversations with Angel networks. Accelerating Asia has run over 20 sessions on investing in 2020 and we realised that the same questions come up repeatedly – how do I source startups, do you have document templates, do you know this startup or know someone who does (we have touchpoints with over 2000 startups per year).
We also realised that while there are opportunities for learning like this, there was not a structured program focused on Angel Investing in the region that provides actionable insights and information for Angels to put into practice instantly.
So, we created Angel360.
There are many other reasons and these are just a few. You can check out more information about the program here.
And if this is something that you’d like to have a chat with us about, we’d love to hear from you. How can we better support angel investors in the region? How can we encourage more people to feel comfortable with the startup ecosystem in that they might consider investing? And a personal passion of mine, how might we create an environment that attracts more women to invest in startups?
Disclaimer
In making an investment decision, investors must rely on their own examination of startups and the terms of the investment including the merits and risks involved. Prospective investors should not construe this content as legal, tax, investment, financial or accounting advice.