20 Thoughts from 20 years of Angel Investing

1st January 2000: Y2K hadn’t happened (look it up…), the first dot.com boom was at its peak and I, as a young and naive 26 year-old, sat down in a Regus office in Hammersmith and said ‘right, I’m going to be a business angel investor’. With zero corporate finance experience and being about 30 years younger than the average angel investor at that time, it was a (very) fast learning experience.

Trying (too hard) to look serious way back in 2000

Now, 20 years later, I have invested in over 35 companies in 75 funding rounds with eight profitable exits to date (with a similar number of failures) and am well ahead return-wise. I also have more experience than I had back then, but I am forever grateful to people such as Nitin and Milan Shah (founder of Pepe Jeans), James Gordon of Gordon Solicitors and Modwenna Rees-Mogg of AngelNews for their guidance and support in those initial years (and of course my amazing brother Michael, who I have angel invested with throughout this time under the Avonmore Developments umbrella).

Off the back of this experience I joined the team at Playfair Capital last year as a non-exec and this has inspired me to list some things I have learnt over these years as an angel. Trying to fit it all into 20 points was a stretch, so my apologies if I have missed any good ones!

1. You really have to meet a lot of management teams to understand what an A+++ one looks like. First-time entrepreneurs are great, but understand they may need more help than those who’ve started a business before.
2. Everyone hates deal sourcing…it will probably take at least half your time and you have to see a lot of deals in order to find the good ones.
3. Good deals are sometimes like busses; you might see nothing for months and then have three term sheets out at the same time. Avoid equating success with the number of deals you’ve done though as angels don’t need to deploy capital in the way that VCs do for their LPs.
4. Valuation does matter — if you sell for £1bn then less so, but if the investment doesn’t reach its potential and you end up exiting for £20m, your investment at a post-money of £2m vs £5m makes a big impact on your return.
5. Angel investing can be a lonely business as you’re often acting independently rather than as part of a team. Find good fellow angels and other investors with whom you can share deals, ideas and due diligence work.
6. Try and avoid being the sole funder — several experienced heads around the table to help an entrepreneur is often an advantage. Also, there will be more that one pocket to pick at a future funding round.
7. Don’t invest in entrepreneurs you don’t think you can work with; early-stage investments can last longer than many marriages.
8. Porter’s Five Forces is a useful high-level framework for the initial assessment of investment opportunities (See here for an explanation).
9. Don’t fall in love with a deal and commit more money than you can afford to lose. Some early stage deals will fail (a bit like relationships) and your first failure can often be the most painful. You have to be prepared to cut your losses and walk away.
10. Similarly keep money aside for later rounds…back the winners and be prepared to let the also-rans go…it is rare than an averagely performing business will suddenly turn into a superstar with more of your input and cash alone— usually more fundamental changes are required.
11. VCs work to a slightly different model than angels…understand the differences otherwise it will cause conflict down the line.
12. The only successful angel deal is one that you exit profitability, it is not one that raises additional capital at a higher valuation (something entrepreneurs could do well to heed too).
13. Your time of maximum leverage is before you invest in a company and not after the money has gone in. If, for example, there are management changes that are needed, try to agree it before you invest.
14. Ensure that you, the management team and other investors are aligned as to holding period (as VCs are often more time constrained depending on how far through a fund they are) and scale of the business you are wanting/expecting to build.
15. Get involved but don’t be disruptive.
16. Understand that investment sectors go in and out of fashion very quickly with VCs. A hot sector you invest in now might not be in an area VCs are looking to invest in when you come to do your Series A a year or two down the line.
17. Raise as early as you can. If a competitor raises a round from a good VC, even if with an inferior product, this will affect your investment’s own fundraising chances.
18. You’ll likely hit the ‘valley of despair’ in your investment journey as it’s often the case that the ‘lemons’ ripen fastest’. By this I mean that the failing businesses in you portfolio will disappoint more quickly than the time needed for those good investments to show their full potential. This can be very demorilising and is often the point at which many angels quit.
19. If you don’t understand the business and/or technology, don’t invest in it as you’re unlikely to be able to add value.
20. Have fun (Because if you’re only doing this to make money, believe me there are far easier and quicker ways of making it).

It is impossible to fully describe the changes that have happened in the early-stage investment industry over the last two decades but they have been profound and almost all for the better. I have been particularly excited by the growth and support for women and fellow LGBT+ founders and investors and similarly the massive increase in professional early-stage capital that’s now available to entrepreneurs, of which Avonmore and Playfair are two of the UK’s leading proponents.

Now, bring on the next 20 years…:-)