Intro to Angel Investment & Thailand’s Perspective
Southeast Asia is by nature an emerging market and one can expect the majority of the venture investment to be seed rounds. From my previous post on Thailand Startup at the end of 2015, there are at least 31 early-stage deals (i.e., Seed and Pre-Series A) with a minimum value of $100k which are publicly announced in Thailand during 2012–2015. As part of the ecosystem, angel investment plays a critical role in filling the gap in startups and early-stage businesses looking to improve their product, get their first customers and grow their business before they could attract interest from VCs.
Angels & VCs
Differences
The most obvious and major difference between angel investors and venture capitalists is the source of capital. Angel investors invest their own money either on their own or with a syndicate while VCs invest other people’s (i.e., their Limited Partners) money through their funds.
Secondly, VCs are seasoned professionals getting paid to do the investment and create wealth back to the money owners. Angel investors, on the contrary, do not necessarily have as much investment experience and sometimes invest in private companies simply as a hobby. Nevertheless, competent angels usually make up for this with their industry experience and a strong network of traditional businesses and organizations which VCs are not always well connected.
Similarities
There used to be a clearer line in the past between angels and VCs in terms of the stage of investment — with angels coming in as the first money and VCs joining in later rounds. However, in recent years there have been a number of micro funds that focus exclusively on early-stage deals with as small cheque size as $100k, enabling both angels and VC funds to co-invest together.
Despite having more time and attention to entrepreneurs’ pitching, angels also share similar investment criteria to VCs when making decision, the key factor of which lies mostly in the team — always people over idea. Wonderful team will always end up fixing or pivoting from a terrible idea but terrible team can only mess up any wonderful idea.
Merits
The biggest merit of business angels, in addition to their less formality and demand for control, is in their approach. Angel investing is alternatively known as patient capital because individual investors are normally less concerned with accelerated return and are prepared to support the business through its journey over a longer term.
Investment pattern
Trends
Angel investment in Thailand has a lot of room to grow as high-wealth individuals become more familiar with and start building relationship with the emerging entrepreneurs and startup companies. Most of the investments made by angels are as co-investors relying on early-stage funds as the lead investors of the round. The deals data I collected so far in 2016 shows that around half of all deals in Thailand have already involved a local angel investor, compared to less than 25% in the previous years. While its way too early for any conclusion, the observation is already promising and it’s interesting to see the final figure at the end of this year.
Notable angels
Some notable local angels from internet and outside sectors include:
- Kris Nalamlieng — Real estate search portal HipFlat (Seed, 2013), Social commerce platform ShopSpot (Seed, 2012)
- William E. Heinecke, CEO & Chairman of Minor International — Last-minute hotel booking app HotelQuickly (Series A-II, 2014)
- Itthipat “Tob Tao Kae Noi” Peeradechapan, Food Entrepreneur — Event management platform Event Pop (Pre-Seed, 2015)
- Pattarapon Sinlapajan, Actor & Author — Social commerce aggregator Stylhunt (Pre-Series A, 2016)
Round size & Instrument
While the company maturity range for a seed round can differ greatly, early-stage deals (counting Seed and Pre-Series A rounds) in Thailand from my experience have a common range between $100k to $500k, with each angel investor contributing between $30k to $100k per deal.
Generally, there are two options to do seed financing — Convertible Note and Equity. In short, convertible note is a form of debt financing which can convert into equity upon the next, bigger round, involving two key economic terms: discount and valuation cap. (It is important to note that unlike Singapore and some countries, convertible note is technically not practicable in Thailand.) Compared to equity, convertible note offers simplicity and speed to closing as the entrepreneurs and investors agree to postpone the ‘sensitive’ valuation topic to the next equity round. Convertible note comes with a number of debatable issues which will be discussed in more details in my future post.
Key considerations
Quality: Smart is better
Choose either smart money (money & contribution) or cool money (money & trust) and avoid uncool money (money & lots of annoying questions). Some angel investors can make investment decision out of momentary interest or just following their best friends. It is the founder’s job to ensure the participating angels either bring value to the table or at least not adding more burden to the company. It is worth mentioning that not every angel investor has the love from the public and entrepreneurs should carefully vet their reputation before letting them on board.
Quantity: Fewer is better
VCs always prefer a clean cap table (i.e., list of shareholders) as more people only mean more hassle in reaching agreement on critical decisions of the company. If there are too many early investors on board from 3F (Founders, Friends & Family) and seed rounds, the founder should consult an adviser to group them into fewer entities.
Standardized seed round document?
While there could be a standardized, exhaustive set of documents for seed financing, I personally don’t support the idea because it will not simply work like that. The reality is all investors have their own favorite lawyers who will insist their documents are the most suitable. I believe in simplicity and that every company is different, and would rather let the founders focus on growing their company than going through, negotiate and check all the possible unnecessary terms (at least for this stage) for their first investment. The NVCA model documents are one of the good resources but also most of the time too complicated for seed rounds and most angel investors. For recommended reading, try the posts from Jason Mendelson and Brad Feld.
Bottom line
Instrument is not the biggest issue as long as you secure a money from prominent people. First money is always so hard and tempting but plan your runway carefully to minimize the unnecessary dilution from seed round. Thailand is expecting more participation from local angel investors and as the founder, it’s your responsibility to choose your angels carefully and keep the round simple with all the economic and control mechanics to ensure it’s not a headache for the next round investors.
This post is a part of my Venture Fundraising Basics series where I will try to share the fundamentals of raising venture capital for entrepreneurs and some local perspectives from my experience in Southeast Asia. For the complete outline and links to other posts, please visit here.
Note: All contents and opinions expressed in this story are humbly of my own and do not represent those of any of my current or previous employers.
