I’ve always loved building things, that’s why I spent the first 20 years of my career with startups in the security space. If you’d asked me a few years ago what I planned to do next, I would have pulled a ratty piece of paper from my pocket with a list of business ideas and I would have told you that I was going to start a business pursuing one of those ideas. As I pondered and refined these ideas, I started to meet people that were already pursuing some of them and on more than one occasion I said to myself, “I’d rather back this person than compete against them — they’re someone that I want to work with”. So, I invested in their venture and scratched that idea off the list and added a new one. This happened a few times and I started to realize that investing was scratching the itch to “build something new” in a different way and in a way that I thoroughly enjoyed. More importantly, I was able to work with inspiring people driven to achieve their vision, no matter what it took to get there. Rather than focusing on one initiative at a time, I could focus on several. Eventually, I quit my day job, went into investing full time and never looked back.

I often tell people that being an investor is like being an aunt/uncle, whereas being an entrepreneur is like being a parent. I get to do the fun stuff — collaborate with the team and share my knowledge. The entrepreneur on the other hand has to deal with everything — good and bad. As the Uncle, I get to stop by and play with the baby, but when the baby starts crying I can always hand them back to the parent who has to stay up with them all night because they’re sick. I feel very fortunate to be able to do what I do.

-Michael Sutton (@michaellawsutton)

I had been investing in VC deals for three years before I made my first angel investment. I wrote a $5K check to a friend who has since shut down the business. Honestly, I only invested because she asked directly, and I finally had a bit of cash after working for a few years post business school. But once I invested my own money, I realized I wanted to put way more of my personal cash into VC funds and angel deals, as I believe in the potential of strong returns in this asset class, especially with the network of founders and investors I’ve developed over the years. I have now invested $1K to $25K checks across 40 companies, and I continue to do a handful of deals each year, with my average check size still at $5K. I want a lot of at bats at the early stage because I’m looking for a few decacorns that can 10x the entire portfolio. I have also started making small investments in emerging VC funds, as I believe these GPs have access to unique and differentiated markets that can add strength, diversity, and alpha to my overall holdings. I always make sure there are no conflicts with my role as Managing Partner at Vitalize, and I believe putting my own capital to work has made me a better VC investor. In my angel and fund investing, I gravitate towards bold founders and GPs tackling huge markets with models I personally find interesting. My fund is focused on the future of work, and some of my angel investments align with that thesis. But I have also invested personally in new age sunscreen, rocketship materials, a circular shoe platform, an alternative medicine marketplace, next gen baby changing tables, and more. Over 90% of my dollars have gone to under-represented founders and funders because I believe these overlooked groups have a higher potential for breakout success.

After a few years of my own personal angel investing journey, I wanted to help others start investing. Accreditation rules and fees to get deal access are hurdles that limit access for many. We launched Vitalize Angels as a platform where literally everyone who is 18 years and older can invest in our angel deals. We have closed nine deals since launching our beta in July 2021, and we have 300 investing members. Our goal is to provide access and education for anyone looking for a low fee approach to angel investing, and both accredited and non-accredited investors are welcome to join. I personally invest in each of the deals that come through Vitalize Angels, as the deal flow has been phenomenal to date. Please reach out to @galeforceVC on twitter if you’d like to learn more about our angel community!

Oh, and remember my first angel deal from 2016 that didn’t make it? Once that founder launches another business, I will be first in line to write another check. It’s a long game, and ultimately the people we back are the most important factor!

-Gale Wilkinson (@galeforceVC)

My first exposure to the VC industry was in 2010. My father was invited to Minneapolis for an angel investment opportunity, and he decided to bring me as his translator. That was my first time hearing about the industry, and that experience left a profound impression on me.

I have decided to become an angel investor because:

1. The U.S. is the world’s technological and financial leader, and Venture Capital is the link that connects the two industries. It symbolizes advancement, innovation, and disruption, which are what drive humanity forward.
2. Everyone from the community, whether an entrepreneur, a GP, or a fellow investor, is an elite of our society with ambitious dreams and unique insights. I feel fortunate that I can exchange ideas and knowledge with all the greatest and most creative minds on the earth and learn from them.
3. Through angel investing, I have the opportunity to learn all the newest ideas and technologies in the world. This allows me to witness the spearhead of humanity’s advancements and stay ahead of society’s latest trends.
4. Although unable to develop technologies or medicines directly, I can contribute to meaningful changes to the world and people’s lives by investing in startups and entrepreneurs that have the ability to do so. I am happy and honored to be a part of the force that improves the world.
5. The startups’ ultimate success not only brings me financial gains but, most importantly, gives me a sense of self-fulfillment, accomplishment and improves my self-esteem. Every journey is memorable, and I share the joy with the entrepreneurs as they relish their achievements.

Thanks to continuous mentorship from friends and mentors, I am enjoying angel investing very much. I am fortunate to partake in this journey and I look forward to the voyage ahead.

-Sheng “Leo” Liu (LinkedIn)

The Early Light Syndicate is a community of early stage investors that has joined together to leverage the network effects of our experience, perspectives, and connections. If you’re interested in joining the Early Light Syndicate or learning more about angel investing, please fill out our application form here.

Why should I be an angel investor? Part 2 was originally published in Early Light Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

“I think I can. I think I can.” Most of us remember the story of “The Little Engine that Could.” This is the story of the tiny little engine that manages to pull an entire train up the mountain, against all odds.

Approximately 90% of startups fail.¹ I found this statistic to be quite disheartening! When I made the decision to enter the venture capital space, I started thinking about what it takes for a company to SUCCESSFULLY transition from an early stage startup to a scale-up company.² For those startups that managed to survive and scale-up, I wanted to know what was in their secret sauce.

I decided to write a series about these little startups “that could” and what it takes for these companies to succeed against insurmountable odds. These startups are disruptors, because entering a space and shaking up how things are done is critical in scaling up. The most successful ones manage to move into and own an entire market. (Remember, Apple, Netflix, and Amazon were once upon a time small startups!)

While researching, I came across three key secret sauce ingredients: 1) hiring and retaining the right talent; 2) strategic marketing and sales; and 3) selecting the right outside advisors. This part of the series will give a brief introduction to these critical ingredients.

Hiring and Retaining the Right People

Finding the right talent can make or break any company, but it is particularly true for startups. It takes approximately six months to find and hire someone for a startup.¹ Getting it right in the beginning is especially critical and can make or break even the best startup (23% of startups mentioned team issues leading to failure).¹

On the other hand, founders should be careful to not over-hire in the beginning stages.³ Hiring too many people, when it is not necessary, ties up much needed capital that may be used in other areas of the business, such as marketing and sales.

Strategic Marketing and Sales

The marketing and sales strategy for startups is vastly different than the strategy of established companies. Companies that spend more on the sales and marketing (as a percentage of revenue) tende to grow a lot faster than those who spend less.¹ Setting a budget early on, conducting research, and understanding how to reach target customers is critical.

Startups must understand the latest technology, specifically what technology will work best for their needs. In addition, marketing has to focus on strategic questions: 1) Who are our target customers? 2) How do we reach them? 3) How do we convert these target customers into OUR customers?

Marketing and sales tactics may sound daunting to most. However, all is not lost. This is where choosing the right outside advisors comes into play.

Choosing the Right Outside Advisors

Like a mentor helping one to navigate a career, choosing the right outside advisors can make or break a startup. However, an advisor is different from a mentor. Advisors consult with founders and executives, as needed; have very specific roles defined in signed agreements; and are typically compensated with equity.⁴

Advisors provide invaluable expertise in helping startups make the journey to scaling up. Advisors can also aid in filling gaps in your team in very specific areas, including hiring regulatory affairs, industry knowledge, and experience.⁴

Next Installment in Series

Now that we’ve gotten a brief summary of some of the key ingredients in the startup secret sauce, we will begin to hear from founders who successfully navigated the process of scaling up. Stay tuned for the next installment of “Startup to Scale-Up: The Little Disruptors that Could.”

[1]https://findstack.com/startup-statistics/

[2]https://www.scale-up-vaud.ch/en/the-scale-ups/definition (Scale-up has at least 10 employees with long-term contracts and the average year-on-year growth of its employees is 20% or more)

[3]https://www.forbes.com/sites/abdoriani/2021/02/12/insights-about-startup-hiring-in-the-early-versus-growth-stages/?sh=3698797d6861

[4]https://www.svb.com/startup-insights/startup-strategy/building-startup-advisory-board

Startup to Scale-Up: The Little Disruptors that Could was originally published in Early Light Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

Years ago, I had a paper route as a kid. And the idea of earning my own money (so I could collect sports cards, something completely logic-defying to my mother) was very motivating. I vividly remember the wonderful feeling of going to the local bank with my mother to deposit my hard-earned money. The bank teller asked me about my paper route and commended me for my hard work and ‘diligence.’ That was my first experience with financial services.

Fast forward to now and that first positive experience still lingers. While I do most of my banking online these days, I still enjoy the occasional trip to my local credit union just 5 minutes from my house. That sense of trust and security is still comforting when it comes to money matters.

Not much has changed since. Trust remains a key factor in the way people make decisions about who gets to handle their money. As the internet world exploded, so did the menu of digital financial products and services across the globe — banking, financing, payment, insurance, investments and more (crypto, anyone?). Demand for trust is higher than ever. Is the fintech world keeping up with that demand?

The current wave of fintech (post-2008 financial meltdown; history of fintech dates back to late 1800s, with telegraph and Morse code technologies enabling electronic fund transfer) has opened more regulatory doors and market opportunities for fintech. It also pitted traditional financial institutions (FIs), i.e. banks, credit unions, etc. against these newcomers in the battle to win customers’ trust.

The fintech sector has been booming in recent years, even during the global pandemic. Investments in startups in 2021 almost doubled the previous year, with an abundance of ‘unicorns’ making their way through the fintech sausage-making process. While some data have shown that younger people (i.e. Gen Z, millennials) embrace fintech products/services, there is still a trust gap in fintech across broader customer segments. A key question remains: how might fintech better build trust and consistently deliver financial peace of mind to customers, including those who have been served by neither FIs nor fintech?

Money is deeply personal, so it helps to make fintech more personalized, even as we become a more digital world. Trust is a two-way street and like any relationship, it takes serious commitment from day one. A good starting place is for fintech companies to differentiate themselves as individual brands, and not as a collective fintech. After all, fintech is simply the use of technology to improve the delivery of financial services. And how that delivery is done matters a lot to customers.

There are at least three ways fintech brands can stand out when it comes to trust. They can engender trust by the way they interact with customers, develop their products/services and business partnerships within and outside the financial sector. Let’s dig in a little further.

Customer experience

While the world functions more online than ever, humans are still social creatures and hard-wired to look for genuine interactions with other humans.

A recent PwC study shows that 70% of consumers expect companies to deliver personalized interactions. Companies that prioritize the ‘right’ technology to provide the best customer experience have the upper hand over those using technology for the sake of being ‘innovative.’ The same study shows that 1 out of 3 brand loyalists would leave the brand, even after one bad experience.

A key question for fintech brands when it comes to customer experience is: do you speak their ‘language?’ It goes beyond learning of customers’ preferences, i.e. what they like, what they don’t like; it requires at least some degree of insights about their mindset as humans, not just customers.

“What keeps people up at night?” has been, and still is, a good question to guide fintech brands as they develop their customer experience strategies. Fintech brands can be creative in developing ways for customers to interact with brands, not at a single point through their own technology, but at multiple relevant life points integrated through their and their partners’ technology. The key is to sustain engagement and not just measure customer satisfaction after the fact.

Product development

Fintech brands can build the trust journey with customers from day one of their product development process. These are some questions that can help guide the process:

· Why is their product/service relevant to (target) customers?

· How do they plan to involve customers in their sprints?

· Are there meaningful customer-centric metrics beyond product usability?

· How do they gather and integrate customers’ feedback into their product development cycle?

While the tech part of fintech is important for obvious reason, it cannot be the sole focus of product development. Capturing the mindset of customers, i.e. their culture, on the receiving end of that product is just as important.

The early stage customer discovery and development process is a good opportunity to understand how potentially the product would fit into people’s life. This type of probing gets to the heart of the WHY question, i.e. what is the product vision? And what human problem does it solve for the customers? This goes well beyond usability testing and whether a user can accomplish what the product goal, using XYZ functions/features.

Product development and user experience teams (part of customer experience) must be in sync right at this early stage, including sharing real time data about users/customers. For a small startup team, the responsibility for creating a holistic customer-centric culture most likely rests with the CEO.

Designing a good user/customer experience is about understanding both product algorithm and human algorithm. The advances of behavioral science in recent years offers many insights into how humans make decisions (surprise, surprise, not logically or efficiently but rather irrationally and emotionally) and should be required learnings for any good product development team.

An area of opportunity to illustrate this dual approach is data privacy. What if fintech brands were as enthusiastic about showing off their data privacy strategy as they do their technology? For example, how are they using advances in cloud technologies to protect consumers’ data privacy? And can they communicate that plainly? By all accounts, many consumers still have reservation, if not downright fear, about their data being misused or used without consent. This is an opportunity for the fintech sector to do better.

Business partnerships

“Tell me with whom you associate, and I will tell you who you are.” ~ Johann Wolfgang von Goethe.

This old saying very much applies to customers’ perception of trust. Brand interaction is broad and covers consumer experience across different aspects of a brand, including business partners with whom they interact.

It is encouraging that relationships between FIs and fintechs have become less adversarial, even going past the ‘frienemy’ stage. Both have begun to realize the value of collaboration — and even co-creation in certain cases — to build more trust into financial products/services. There is more they can do, whether developing or scaling a new fintech.

They can leverage each other’s strengths to benefit consumers. For FIs, working with fintechs means gaining access to the latest technology capabilities — and the potential to expand new services, e.g. non-traditional, ‘round-up’ saving accounts. For fintech, working with FIs means more credibility (or less perceived risk) with consumers when it comes to regulation. Clearly, there is no one size fits all solution. Depending on specific markets, one or the other might hold more trust among customers. There’s little doubt that collectively, the value they offer to customers is more than the sum of their parts.

A Perspective: Credit Mountain (ELV portfolio company)

Credit Mountain took the approach of packaging their AI Credit Counseling as a B2B2C SaaS solution. Credit Unions (CU) leverage the Credit Mountain platform to analyze declined borrowers and provide a personalized plan and toolkit for each member based on their specific credit profile and financial goal. For the end-consumer, the experience is white-labeled with the Credit Union’s brand creating a trusted experience which helps the member feel comfortable taking action and sharing data.

CEO & Co-Founder Nathan Pinto elaborates on his company’s alignment with the CU movement, “Credit Unions have largely operated in the best interest of their members, but in an increasingly digital world need to quickly harness scalable and personalized technology experiences in order to meet the needs of their customers. Our company has been a mission-driven fintech from day one and we are excited to work with Credit Unions to learn the needs of their employees and members in order to build meaningful products that can focus on customer satisfaction instead of generating revenue to offset customer acquisition costs.”

The global expansion of fintech provides many good lessons learned and points to another area where FIs/fintech collaboration can be extremely fruitful: localization of financial products/services. In simple terms, it means having products/services that can speak to consumers at the local level. It requires not only having appropriate language and financial contents, but also a relatable ‘tone,’ i.e. how people think about money plays a role in their life. This hybrid ‘high-tech-high-touch’ might just be a win-win-win strategy for FIs, fintech and consumers.

Final thoughts

Simply put, for fintech startups trust should never be an ‘afterthought.’ On the contrary, it should be the north star in guiding how they should design their products/services and build partnerships to ensure they reach not only their customers, but also their customer’s financial peace of mind.

The Early Light Syndicate is a national angel group that invests in the best companies across a variety of industries and stages. Apply here if you’d like to join.

If you are a fintech or other B2B SaaS founder, please click here to submit a pitch deck for review.

Fintech: A Matter of Trust was originally published in Early Light Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

And of those new US unicorns, more are being minted in healthcare than any other sector, making up over 20% of all of the next anticipated wave of unicorns (including healthcare, biotech, and life sciences). Nearly $30B was invested in digital health companies in 2021, more than 2x the amount in 2020, across 700+ deals. Mid- and late- stage investment firms are increasingly getting closer to the “source” and getting into seed investing as a way to get a bigger bite of the proverbial apple (an apple a day keeps… the investors in play). Not to mention the 272 M&A deals (nearly doubling 2020’s) and 23 public exits (nearly tripling 2020’s) have shown a strong appetite for the market and venture capital dollars seeing very solid returns.

Healthcare continues to see a rapid influx of investor dollars year over year, with 2021 being another record breaker. One reason for this may be the defensive nature of healthcare as a sector. When many are expecting a broader market pullback, an industry that is more secular can be seen as a bit of a safe haven (we subscribe to this defensive philosophy at Early Light, but also see healthcare as primed for innovation). Another reason may be the incredible inefficiencies that we have endured over the last 20 years are finally seeing real change thanks to advances in AI/ML, biotech, and even blockchain technology, along with investment from the federal government.

For example, AI is getting an injection of VC dollars thanks not only to the proliferation of data (in case you didn’t know, your Apple Watch is watching you), but also thanks to greater access to data across systems, a classical problem in healthcare. APIs and data aggregators like Innovaccer and Truveta are making it easier to acquire the massive data sets needed for accurate analysis, while newer startups like Rhino Health are using fresh approaches like federated learning to share algorithms instead of patient data directly.

Biotech also continues to see massive amounts of funding, and with emerging companies that can help with clinical trial recruitment and real-time market feedback — like portfolio company Thrivable and companies like Atomwise (that use AI to make it easier and faster to produce new drugs) — it continues to be a hot space.

And on the forefront of blockchain’s emergence in healthcare, companies like Patientory are providing real portability of patient data. Others like Pokidoc are using blockchain to create APIs for claims and pharmacy and identity management, currently all siloed data fields in today’s healthcare ecosystem.

Additionally, the proposed Build Back Better Bill has about $145B earmarked for expanding healthcare infrastructure and provides broader access to the internet with vouchers and other Medicaid development, which should open the doors to continued expansion of telehealth and remote patient monitoring. At the moment, the bill is still very much up in the air, however federal investment into the healthcare space will only continue as we shift from a fee-for-service world to a more value-based healthcare system.

So why are we excited about these advancements at Early Light? Well, as if the above advancements weren’t exciting enough, it’s because healthcare is a staple of the Mid-Atlantic and because early-stage investors are needed now more than ever. With Johns Hopkins in our backyard and other leading organizations with nationally recognized talent (hello, NIH), we have built relationships with portfolio companies like Vita Therapeutics to treat muscular dystrophy and Citus Health to get better access to home care. Using our own strong foundation of investors, we help bridge the gaps, including capital needed to get these technologies to a market that desperately needs them. Our angel network is full of investors that have often helped similar companies grow themselves and/or are ready to “pay-it-forward” to the next generation of entrepreneurs as they meet head-on tomorrow’s healthcare challenges.

With so much of the VC industry trying to get closer and closer to the “source” (i.e. the first stages of traction for these budding startups), we are lucky enough to already sit there with existing relationships in the community and a proud track record of success. We continue to be enthusiastic about healthcare, enabling the next-generation of founders and introducing new investors to the opportunity to make a difference.

The Early Light Syndicate is a national angel group that invests in the best companies across a variety of industries and stages. Apply here if you’d like to join.

If you are a founder, related to health-tech or otherwise, please click here to submit a pitch deck for review.

Matt is a Fellow at Early Light Ventures, completing due diligence, market research, and facilitating the growth of its Syndicate community. He is graduating from Georgetown’s McDonough School of Business this year, focusing on finance, entrepreneurship, and venture capital. As if that is not enough, he is also the VP of Corporate Development at Protenus, a VC-backed AI health-tech startup focused on Privacy, Compliance, and workforce behavior analytics. Ever the jack-of-all-trades, he is also diving headlong into crypto and its murky waters and wants to pick your brain about it.

Unicorns are Everywhere in Healthcare was originally published in Early Light Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

Revenue & Growth

One of the most common metrics to review is revenue. The monthly or annual recurring revenue shows the amount of predictable revenue during this time frame basis. A growing MRR or ARR demonstrates that the market cares about the problem you are trying to solve and also that the team is able to execute and make this problem scale.

However, it is important to include growth rate when reviewing revenue metrics as revenue without the growth rate is out of context. A business doing $1M of revenue per year but not growing at least 2x year over year is much less valuable (and not angel investable) compared to a company that went from $250k -> $500k -> $1M -> $2M very quickly. Three major levers for terminal valuation during acquisition or at the public level that trickle down to venture are revenue, margins, and growth rate.

Revenue Run Rate

Revenue Run rate is a methodology of projected future revenues based on current revenue and growth. This can be found by taking the revenue in a period of time and multiplying it by the number of periods in a year. Run rate is a helpful indicator of financial performance for companies that have only been operating for a short amount of time. It can be calculated by using only a few weeks and/or months of data — this leads to an accurate measure of the company’s expected performance. It is important to note one of the downfalls of the metric is that seasonal industries (such as products that would see a sales increase during the holiday season) can experience a skewed run rate that may inflate future performance.

Gross Margin

Gross margin is important to track at an early startup as it shows how well a company can spend money and get a return on this spend. It can be found by [total revenue] — [cost of good sold (COGS) ] / revenue. This can be summed up as saying it is the amount of money the company keeps after it removes direct cost and is a useful metric that makes sure a company is operating with maximum efficiency. A “good” margin will vary from industry to industry. We at Early Light look for software companies with 70%-80%+ gross margins.

Financials (especially for pre-seed startups) are not the only indicators for determining whether to invest in a compelling company or not. There are many other quantitative metrics to continue to look into and explore that are equally (if not more important) to consider, which will be explored in future articles.

Overall we look for companies that have at least $100k in annual recurring revenue, high capital efficiency ratio, and 70%-80%+ gross margins. That being said, these are only guidelines to reduce risk. There are plenty of companies that are pre-revenue, slow growing, or with low margins that still make great investments.

The Early Light Syndicate is a community of early stage investors that has joined together to leverage the network effects of our experience, perspectives, and connections. If you’re interested in joining the Early Light Syndicate or learning more about angel investing, please fill out our application form here.

How Angel Investors Should Analyze Startup Financials was originally published in Early Light Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

My biggest motivator is feeling like I can, in a small way, support a growing idea in hopes of that idea turning into something grand and impactful. I’m also fascinated by the start-up ecosystem and entrepreneurs in general. Their discipline, propensity to navigate risk, and turn an idea into something tangible is something I deeply admire. I love that I can be a building block that supports an entrepreneur’s journey through angel investing.

• Carrie Hankey (@C_Hankey)

Angel investing provides such a great opportunity for individuals. It provides large upside (financial returns). The math and history show this. It provides advocacy for founders when they need it the most. Genuinely it provides the best way to help create what you want to see created in this world.

Entrepreneurs are seeking to solve the problems they see in the world, and your investment can enable that. I personally love it. One underappreciated aspect is as an angel investor you are educated daily by the most innovative problem solvers.

I think all major executives should evaluate angel investments (likely through a syndicate to save them time). At my firm we get to know each LP, its goals and preferences, and then match unique opportunities to invest alongside VCs in opportunities where passions and/or expertises align.

• Landon Ainge ( @landonainge ) ( @asyndicates )

Angel investing has always been a way for me to work with some of the brightest, hungriest, and scrappiest founders. These individuals and teams constantly inspire and educate me, especially first-time founders. I love watching their growth — from very early revenue to running and building actual companies. The hunger, tenacity, and persistence can be contagious. The opportunity to help them go further and faster is very rewarding. While there are some obvious financial rewards from angel investing (in a deliberate, diversified manner), many of the benefits come from the non-monetary returns. I’ve been lucky enough to invest and partner with some of the best founders, especially around the Mid-Atlantic region, and I hope to continue for the rest of my life.

• Scott Garber (https://www.linkedin.com/in/gwventure/)

The Early Light Syndicate is a community of early stage investors that has joined together to leverage the network effects of our experience, perspectives, and connections. If you’re interested in joining the Early Light Syndicate or learning more about angel investing, please fill out our application form here.

Why should I be an angel investor? Part 1 was originally published in Early Light Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.