It was a pleasure to be featured in The Sunday Times last month, where I had the opportunity to talk about my experience to date as an angel investor.
I'm such a huge believer in the entire concept of angel investment - making not just a financial investment into a company, but offering the knowledge and experience investors have gained over the years - that I could talk about it endlessly.
And so I thought I'd build a little more on my answers to the questions in The Sunday Times piece.
1. Why did you become an angel investor?
I’m not your typical angel investor in the sense I’m still relatively young in terms of building my investment portfolio. However, supporting growth-focused businesses via higher risk/higher return investment opportunities really appeals to me.
I'm keen to support talented entrepreneurs and want to work with companies that are solving a market problem; those that are disruptive and can make a difference to a particular sector.
I want to build a diversified investment portfolio and I'm keen to have an element of growth-focused businesses as part of my portfolio. Of course a financial return would be ideal, but I like to combine this with a focus on impact driven investment opportunities. Businesses that can make a positive impact on society really appeal to me.
It’s undoubtedly an exciting space, and I’m keen to broadcast and encourage young investors - particularly young females - to become involved, supporting British-backed businesses that can make a real difference and have the potential to make a true impact on society.
2. What do you look for in startup founders?
In early stage businesses, talent and the team is extremely important. The founder/founders must have deep sector knowledge and experience; they must understand their marketplace and have the ability to spot an opportunity others can’t, something that undoubtedly comes as a result of having entrepreneurial traits.
A founder must also have the breadth and depth of skills that gives them the ablity to execute their plan. In early stage businesses founders need to wear a variety of different hats to work through the startup phase and gain traction, and this ties in to being a good 'people person' and coachable, whilst having a clear vision and focus.
By understanding the market, you have a better opportunity to scale, something that’s directly supported by the dedication and tenacity founders experienced in an industry so often have. What’s more, founders must be engaging and inspirational so professionals - including investors - want to work with them.
One thing I’m always keen to get across is not to jump into investing straightaway. It’s about evaluating the business and getting to know the founders well. At the end of the day you will be working closely with the team and so it’s vital you feel you can do so confidently and effectively.
My five key areas to look at prior to investing are:
- Management; how well equipped are the founders to execute the business plan and build an A-Grade team to support?
- Market opportunity - how big is the market? What exists by way of competition? How can you differentiate from the established companies? Where is that gap?
- Model - is the business model solid and disruptive?
- Momentum - does the business have traction? Is it already demonstrating a need for the product/service on offer?
- Money - does the existing team have a clear understanding of the investment needed to scale up, as well as how it will be deployed to create value? Is the valuation fair, sensible and realistic?
3. What lessons have you learnt as an angel investor?
It's all about the team. A great team have the best chance of scaling up a business.
The importance of diversity, too. Good principles of investing always apply, spreading your risk and building a portfolio with exposure across a number of sectors. No matter how much investors are advised to diversify, so many simply don’t.
By always having a level of funds spread across different investment assets or structures, you mitigate the risk associated with your investments as a whole - especially when you remember that opportunities with the highest rewards often have the highest risks. It really is important to pick your investments wisely.
Making use of investment schemes including the EIS and its sister scheme, the SEIS, can also be particularly beneficial. The tax reliefs are very generous and help to minimise downside risk and maximise potential returns, as there's no capital gains tax to pay on any profits received.
But remember that no matter how confident you are in any given investment opportunity, it’s never a sure thing. Investments always have an element of risk, and where there’s risk there are no guarantees.
4. What do you wish you saw more - and less - of?
The one thing I would like to see more of is A Grade teams; founders who really understand their industry and have developed a solution that services the ultimate market problem. These teams can gazelle a business, finding solutions to make the business work. I want to see more well-prepared entrepreneurs with a clear understanding of the value of angel investors and venture capital.
In addition, I have a real passion for technology and so would like to see more technological advances across products and businesses - and of course more females wishing to take the entrepreneurship route, along with more younger angel investors, too.
Conversely, I’m all for encouraging entrepreneurs to establish businesses that they truly believe in and I genuinely feel that if you’re passionate enough about something you will make it a success. However, I have recently seen a lot of companies who have unrealistic valuations. As such, I want to see investment opportunities with sensible valuations - it has to be right for the founders and right for the investors, as you can only target a true return if this valuation is accurate.
5. What are your thoughts on the next disrupted industry?
Financial services needs to have a mention here. It's already happening, but in my opinion we're still only seeing the tip of the iceberg. Financial services is a huge sector and the potential impact of fintech in particular is considerable.
Artificial intelligence is undoubtedly an industry worth mentioning, too. Although it’s technically been around for decades, it’s only recently that AI appears to be on the brink of revolutionising industries as diverse as health care, law, journalism, aerospace and manufacturing.
With the potential to profoundly affect how people live, work and play, it’s exciting to see what the next five years will bring - an increase in the use of AI-based applications is almost a given, but how this will materialise will without doubt be fascinating to experience, whilst the likes of blockchain will no doubt disrupt all areas of financial services.