Startups & VC: Angel Investing- Your value as an investor

Jed Ng
Jed Ng
Sep 2, 2018 · 4 min read

I started this series to share my knowledge on startups, investing and various investment theses. You’ll find something relevant and useful for you if you’re:

  • Generally interested in startups
  • A startup founder who’s new to fundraising
  • Looking to get into venture investing

About me:

My background is in Corporate Entrepreneurship in the tech sector. I’m also a startup investor and advisor, and Techstars mentor. The common thread to all this is that I’m passionate about building and scaling early stage ventures. I do my work at the intersection of startups and corporates to leverage the best of both worlds. The ideal set up for me is one where I can enable an ultra-focused bootstrapped team with the right corporate resources (funding, facilities, data, advice).

Angel Investing 101: Your value as an investor

There are innumerable resources available to address each aspect of the startup ecosystem. However, that of the investor has the most opacity and presents the most challenges to breaking in. As a data point, I constantly receive questions from high-calibre professionals about how to get started. This is the first of many knowledge sharing articles aimed at demystifying early-stage venture investing.

Startup life is tough

I had the pleasure of watching Ben Horowitz speak at JANE New Economy Summit in Tokyo in April 2017. He touched on his journey as an entrepreneur and VC, and touched on lessons from his book The Hard Thing about Hard Things. If you’ve seen or read it, you’ll likely have noticed it’s subtly profound subheading:

“building a business when there are no easy answers”.

Things are immeasurably easier when you’re already a FANG. You’ve got a hit, a winning recipe, strategic defensive advantages and many things going for you.

Startups on the other hand are a whole other beast. They’re an evolution in hypotheses. They go from failure to failure, time and time again. Success is what happens when the ‘wins’ in between are bigger than the setbacks in between consecutive failures. As CEO, you’re worrying about cash burn, raising your next funding round or making payroll in 3 days. On top of all this, you’ve got to manage your investors.

Your role as an investor

As a prospective investor, I challenge you to reflect on this question:

What value do you bring to a startup you would consider investing in?

Why does this matter? As a general rule, startups only take as much money as they need to get to their next milestone (revenue, users, paying subs etc). They’re free to exercise freedom of choice on whose money to take just as you consider which startup to invest in. However, I believe that the reason is more fundamental. My answer is that:

the Investor-Founder relationship is not an exchange of resources. The ideal relationship is one which is value-additive.

As I mentioned, operational life in a startup is a rollercoaster. It’s fraught with difficulty and 90% of them don’t make it past the first 12 months. Even if you become successful, that success won’t precipitate into an exit event for 3 years or more.

An investor who views investing primarily as the provision of capital for ownership has a transactional view of what should be a long term relationship; their value = cheque size. He/She is unlikely to be inclined to help their startup solve problems, thus hurting rather than helping it. So let’s ask the question:

What value do you bring as an investor?

The fact that you’re considering early-stage investing means that you’ve accumulated some capital (say >$5,000) and are wiling to risk it. However, don’t underestimate the fact that your value as an investor can be immeasurably more than this. You’ll only be able to uncover this value by getting to know the startup, that is:

Investors can unlock their full value contribution by forming a genuine relationship with the startups they invest in.

As an investor, your sources of non-monetary value falls into one of these categories:

  1. Domain knowledge: Functional or vertical specific based on your work experience
  2. Network: I define this as 1st and 2nd degree connections. You should feel comfortable enough (1) directly contacting this person, and (2) making a request without the immediate ability to reciprocate in kind
  3. Experience: Things specific to your past. It may be a project you’ve worked on, a side interest or passion area you’re fairly knowledgeable about

Certainly, your pool of non-monetary value doesn’t transfer equally well to all startups but they are assets nonetheless. I also encourage you to focus on networking simply because it is the element most within your control so go out and spend time developing it. Any number of positive things could result from that next person you meet. He/She might give you access to your next deal, know the Founders of a startup you’re interested in, thereby helping you validate their character. They might even be able to introduce your startup to their next customer.

Thanks for reading. Stay tuned.

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