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Angel Investing 101 with Harry Stebbings

AirTree’s Open Source VC with Harry Stebbings, Founder of Stride.VC and The Twenty Minute VC

Back in 2015, Harry Stebbings made the first recording for The Twenty Minute VC podcast from his bedroom when he was just 17. Listening back now, he says the content wasn’t great and he sounded like a BBC presenter from the 1950s. But that’s part of the podcast’s charm and success — over 2,800 episodes and 100 million downloads later, Harry’s audience has grown with him while he’s learnt everything on the job.

Now, if you google ‘Hot companies funded in the last 18 months’, you’re basically bringing up a list of Harry’s angel investments, which is why we asked him to join us for an Open Source VC meetup. Harry chatted with our Partner John, generously sharing all his learnings and insights on angel investing.

😇 If you are interested in becoming an angel investor, check out our Explorer Program.

Watch the replay or have a read through Harry’s insights from the Q&A below.

What advice do you have on building a network from scratch as an angel?
There are 2 things angels should do to build their network; the first is to become known for something. When I look back at why 20VC was successful in the early days and still is today, it’s because it’s incredibly specialised. We made early-stage our bread and butter and got a name for it.

Whether you’re going to label yourself the DTC angel, or the Bottoms-Up-SaaS angel, specialisation is important in the early days because it helps you find your crowd and become known as the person for that space. If you’ve marketed yourself well, you’ll be thought of in those circles and pulled into those syndicates.

The second thing is to build your bench. As an angel, you have to build a collective around yourself. In my case, I am the sole decision-maker of the 20VC fund, but I have four partners in my mind and I speak to them every single day. We have a set rule that whoever brings the deal has complete autonomy in terms of their cheque size and desires, but we share and win as a group. Between 5 angels, you can build real mindshare, collective wisdom and power as a group.

How do you make a great first impression on a founder as an angel investor?
I don’t focus on the business. Yes, I love business, unit economics and how to build leverage into a model. But pre-seed and seed are so transient; I’m interested in human motivation. Understanding at its core what is driving someone to build the business they’re building is everything for me.

Tell us about your 2x2 matrix of what makes a great VC.
How one should think about being any form of investor, whether you’re an angel or an institutional investor with a fund, is in a 2x2 matrix.

Harry Stebbings’ 2x2 Type of Investor Matrix

The quadrants are:

  • Proactive: you have a thesis that you go after, for example, DTC.
  • Reactive: your mind is mentally passive to whatever incredible founders want to work on.
  • Internal: you think about things privately, but you don’t share and have a very closed brand.
  • External: you share with the world, and it’s all about building the sign outside of your shop.

There is no right answer; you just need to understand which part of the quadrant you sit in as your starting point. Otherwise, you’re in a mixture of worlds.

What are your thoughts on an internal and reactive personality type?
I’m biased, and right now, I don’t think you want to be internal. Some people can go under the radar and sniper shoot very well in the thesis that they’re specialising in. But in a world of capital abundance, you have to have a brand. It’s a game of packaging. You have to differentiate yourself to founders in a meaningful way.

Can you be a great angel without having a personal brand?
You either have to build the sign outside of the shop so that everyone wants to come in. Or, if you’re building a bench, you need one person in your team who builds the brand.

I think about building my bench, like building a sports team. On my bench right now is one person who many people don’t know, but he’s probably the single best thing when it comes to product design and product marketing. He’s incredibly valuable because I can make much better decisions with him on my team. As a result, he doesn’t need to build the brand, and we both synchronously gain from one another.

How should angels think about deal flow?
People often forget that angel deal flow is a tradable asset. It’s a commodity you can exchange with one another.

I spend 90 minutes a day sending deals to different people because it keeps you top of mind in the network of deals. You’re never going to get anything back unless you give first. Be incredibly proactive with no expectation of it coming back. 90% of the time, it will come back.

When you started out as an angel, how did you think about angel investing?
At the time, I had half a million dollars. I thought if I put 20% into angel investing, that’s an amount where if I lose it, it’s painful, but I’m going to be okay, be able to pay my bills, and life will be fine. There isn’t a right or wrong; you just need to understand your risk levels.

Then I thought about how do I get enough diversification? And diversification for me was 10 deals at 10k each. Because 10k out of a 100k pool means on the upside, you’ll see some great returns. Whereas 1k from 100 people is tough to make look good.

I’m shocked by how few angels have a consistent cheque size. It doesn’t matter what the amount is, have a consistent cheque size. Make that amount known to your audience and your current investors to funds because then you’ll be held accountable to that. When people write a 75k cheque and a 25k cheque, that looks like your convictions are all over the place.

What’s your approach to pricing strategies as an angel?
Price is important, but honestly, it matters more for a VC than it does for an angel. Instead, think about choosing 2 or 3 founders that you’ll do anything for, any time of day. And if they were to give you a reference, they’d say, “Oh my god, I want Harry to lead my next round, and my company would not be the same without him.”

Do you refer deals you aren’t investing in? How do you manage signalling risk?
I often refer deals that I’m not investing in. Usually, the answer is because I don’t feel passionate about the space. Just because I don’t like something doesn’t mean someone else won’t like it. It’s often not about the material that you send; it’s about the thought and the process of sending it, which is what people remember.

I don’t worry about signalling. People like different things. So long as you’re open and transparent about it, it’s fine.

What do you think about angel investing in markets that are less mature compared to Silicon Valley?
Thinking that you have to invest in Silicon Valley companies because they’re the only ones that get big enough is total crap. With the decentralisation of talent, plug and play resources and tools we have at our disposal, anyone can build a business anywhere. The cost of building a business has gone down dramatically, as has the asymmetry of information with podcasts and educational tools.

I’m not saying Silicon Valley is dead, but to say you have to invest in Silicon Valley to be successful is nonsense.

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A venture capital fund in Aus and NZ. Working for game-changers. First round. Multiple rounds.

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AirTree

AirTree

AirTree is a venture capital fund that supports the most ambitious Australian and Kiwi tech founders. First round, multiple rounds.

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