What are investor's looking for? This article will be looking upon some of the important concepts and areas that what are investors looking for, in terms of a business as a whole, entrepreneur characteristics and personalities as well as business plans and financial records and statements. Investors thought process may be conducted prior to investment or during the businesses pitch for investment. Have a read below!
What are investor's looking for? Let's divide this question into further sub-categories so it becomes easy for us to understand. Prior to making any investments, it is fundamental that an investor goes through the process of thorough research and due diligence to understand what they are investing in and what is the return that they are receiving.
Attitudes and approach to investing are being dramatically changed by the minute because of the ever-growing business environment. An investor in one geographical region will not have the same requirements as another. Investor's goals and expectations also vary from their age and demographic.
According to a survey by Visual Capitalist, to analyse the reasons why most investors prefer to invest their money and how does it differ from one country to another. A handful of countries chosen made Canada stand at the top at 78% where the majority of investors are investing their money for the reason to save for retirement, followed by Australia at 74%, United States and the United Kingdom at 71% and Singapore at 57% respectively. Whereas, 12% of Singaporean investor also spends their investments in estate planning and beneficiaries.
Other countries showed different trends as shown below. Majority of Chinese investors, for example, chose to spend their investments towards beneficiaries and estate purchases rather than saving for retirement in comparison to North America and Europe. French population saved 26% of their investments for the purpose of needing it for emergency funds whereas UAE saw a trend of 31% savings towards starting their own businesses.
Not surprisingly, as investors get older, their goals shift away from making immediate big-ticket purchases and holding riskier investments for a higher rate of return. Later on in life, goals are more focused on retirement and maximising wealth.
What are investor's looking for in terms of entrepreneurial skills, personality, work ethos, ability to work in a team and the list goes on. There's always a clicking moment that happens between an investor and a founder that plays into the investment decision. Sometimes it's easy to identify - an affinity based on a common background, such as shared work or educational experiences -- or perhaps a co-investor that's mutually known and trusted.
In other cases, it might be harder to put a finger on, such as likeability of the entrepreneur, or merely an instinct or impression that the investor develops, good or bad, either way, the investor is going to be asking a lot of tough questions and requiring in-depth detail.
What are investor's looking for in an entrepreneurs business skills and personality traits? Initially, you might think that all investors make their decisions based on the business plan, but there’s another set of factors just as important to most investors, and it’s all in the entrepreneurs' personality.
Startups need to know how to attract investors if they want to get funded by them. In this section, there is a discussion of the key items investors look for when making an investment decision, particularly for startups.
Most potential funders wish to see a business plan as a first step in deciding whether or not to invest. What are investor's looking for exactly in a business plan that decides whether they are willing to invest or step back?
There are key performance indicators that investors will want to see in a company's financial statements before they will invest. Financial statements are financial records of a company's working consisting of many components, so which components to be precise, are investor's looking for?
What are investor's looking for in a pitch deck and how can you create the ideal pitch deck to present? Summarised below are 3 key elements of creating a successful pitch deck to meet the requirements of what are investor's looking for from an entrepreneurs pitch:
For more detailed guidance, see our insights on creating successful Pitch Decks and important components required with examples.
Are you looking for investors in Malaysia for your startup? NEXEA's Angel Investor Network
"Most people think that to become rich, it’s enough to be talented and capable. But in fact, the world is full of such people, and most of them are poor. What they are missing is financial intelligence, a comprehensive aptitude for financial subjects like accounting, investing and so forth. This lack of training in financial intelligence is a problem not only for today’s youth but also for highly educated adults, many of whom make poor decisions with their money"Rich Dad, Poor Dad by Robert T. Kiyosaki
What is an Angel Investor? This article is your ultimate guide to angel investors, who are they, what is the angel investor funding process as well as the most commonly asked questions regarding Angel Investors.
Angel investors are individuals who are providers of funds and/or capital for a business start-up normally in its early stages of the business, usually in exchange for convertible debt or ownership equity. Since angel investors are very often individuals that have been at executive positions at large firms, they can often provide useful advice and introductions to the entrepreneur based on their own experiences, in addition to the funds.
A Harvard report provided information on how angel-funded start-ups had a higher chance of survival, likely up to four years more in comparison to non-angel invested firms.
Alejandro Cremades, the author of "The Art of Startup Fundraising: Pitching Investors, Negotiating the Deal and Everything Else Entrepreneurs Need to Know", states that angel investing has not only become trendy and highly profitable, but it has also emerged into being a powerful source of fuel for the national economy, jobs and new innovation.
Taking a peek into the world of angel investors, using the United States as an example, GeekWire Statistics reveals that Angels are more diverse than venture capitalists and the majority are women with the number increasing by the minute. However, the statistics will differ in every country.
This is a step-by-step process and not something that reaps success overnight. New startup businesses or individual entrepreneurs often seek out for angel investors to pitch in capital to their business in return for a stake in the company they invest in. It's not just limited to the capital, their experience and knowledge in the industry hold immense value as well.
To put this timeline into perspective, Amazon CEO Jeff Bezos himself benefited from 22 "angels" that supported his startup, Amazon in the 1990s when it was a struggling online bookselling service. Many of Amazon’s initial investments came from Bezos’ family and friends, an input of $50,000 secured 1% of the company. Today, those shares are worth more than $8.5 billion. That investment saw a 17-million-per cent gain 25 years later! However, this is just an example and this does not mean that your angel-funded business will take decades to be successful too!
According to MintyMint, angel investors enter the lifecycle of a startup in these early stages where they are in need of guidance and capital the most.
Let's start with the most basic question: Why and when do you need an Angel Investor? This type of investment is targeted to those entrepreneurs in need of business expertise and financing for their startup. Usually, a method of recommendation and referrals also allows investors and entrepreneurs to meet together. Entrepreneurs are usually provided with the angel investor's profile and vice versa. Both parties will have their own series of requirements; a checklist of expectations.
The screening process for entrepreneurs will include their requirement in terms of investor skill and capacity of capital input whereas for investors, they need to look out for any "red flags" within the business and how attractive is the investment opportunity based on the input of time, money and attention.
What is an Angel Investor expecting from your pitch? Pitches like this can turn out to be quite stressful for the entrepreneurs because of a lot of reasons: they are time-sensitive and they need to be able to fit all information regarding their business in that time slot for the angels, the environment may also have a stressful impact on the entrepreneurs pitching and often sometimes leads them to forget their numbers. Amongst all, it is of utmost importance to remain transparent with the investors and provide them with all the key figures.
Once both parties have agreed upon working together before the angel investor funding process begins, there are some angels that might prefer to invest straight after a pitch but the majority are interested in a little due diligence at first. This may include going through scenario building or a certain checklist of things to be approved by the angel. Before ending the due diligence process, it is at this point that both parties sit down together and agree on their deal terms, goals that are mutually accepted and beneficial as well as the deal structure and meeting notes that are to be shared with the diligence report once it is complete.
Once all the legal implications are completed, a closing date is assigned, documents are signed. The process is a lot more time consuming and further technicalities are involved. Described above is a brief summary for quick understanding!
As a summary, Neil Patel, New York's best selling author, and renowned online marketer, having helped renowned companies like Zappos, Amazon, Viacom, Airbnb and the list goes on; explain in detail what angel investing is all about. He simplifies what is an angel investor in the short video below:
What is an angel investor and a venture capitalist? Many people often confuse the two and fail to notice the differences between the two entities. Here is just a brief outline to clear out any confusions you may have regarding the difference in both. Angel investors are individuals willing to spend their own money whereas venture capitalists (VCs) come from a venture capital company. Angel investors have limited funds and prefer the investment amount under a limit whereas venture capitalists prefer a large number of investments.
Most angel investors prefer investing at the start-up stage of a business in comparison to VCs that prefer entering the business when they see a potential to progress further. A few further characteristics are detailed in the diagram above detailing what is an angel investor and how is it different from a venture capitalist.
What is an angel investor's ideal qualities? Angels step in as saviours for budding entrepreneurs to help them kick start their business. Therefore, it is important, for an entrepreneur, to know and understand the characteristics and qualities to look for in a potential angel investor. This debate can be divided into three sub-sections:
What is an angel investor's ideal personality? Finding a trustworthy angel for your business is crucial because you do not want to provide your private and confidential information to someone who will later use that privileged information against you. What is an angel investor's personality trait that is suitable for your business? It is important for angels and entrepreneurs to build a relationship on mutual trust and reliability, not only for monetary assistance and protection but for guidance and knowledge as well. They must have good decision-making skills and the ability to remain calm under pressure. They have a quick eye for talent (based on their years of experience, of course!) and potential in your business and give you the verdict straight away whether they see potential in your business idea or now.
Patience is truly a virtue, a patient angel understands the business environment and dynamics and that profits do not start rolling out overnight. They possess the ability to see through the bigger picture and focus on the long-term operation and not be afraid of whatever challenges that may come their way. An angel should not only be in it for the profits but also enjoy nurturing, mentoring and have the thrill to deal with challenging situations alongside the entrepreneurs.
What is an angel investor's preferred decision-making skills? Seasoned business angels rely heavily upon due diligence before making any commitments or signing contracts. What is an angel investor's focus when it comes to investment decisions? They prefer getting into the 'nitty-gritty' details to prevent any risk of fraud, scams or other unfavourable circumstances. Angels also need to possess great networking skills, they will help bring on board more individuals if they are well-connected in the industry.
Angel investors will follow the principle of diversity and know that not all business models are the same therefore they won't yield the same results upon investment. When investing in multiple businesses, they understand that no two ventures are going to work on the same dynamics.
What is an angel investor's ideal coaching attitude? Secondly, it is also important to note that what is an angel investor's top mentoring skills that you should keep track of? Along with having the aim to make money, angels should also be relationship builders for successful business partnership and understanding. They also need to have great mentoring skills as the majority of their time will be spent engaging with the entrepreneurs and coaching them and their teams on how to make it big in the corporate world.
Other than their monetary input, angels also need to be willing to remain actively involved in the venture in terms of advice and their knowledge on brand management, networking, product and service strategies.
What is an angel investor's role in Malaysia? Every country will have their own means to approach an angel investor usually through an angel investor directory. But, if you are reading this article and in need of an angel investor, you came to the right place.
Visit the NEXEA Angel Investors Network and submit your application for approval to get funded!
What is an Angel Investor's registration process if any? It is not required that you register yourself as an Angel Investor, you can still be an angel investor without registration. However, according to the Malaysian Business Angel Network (MBAN), if you are to register yourself as an accredited angel investor in the country, you would then be eligible to enjoy a tax benefit amounting to RM 500, 000 under the Angel Tax Incentive Programme.
For registration purposes, you are to meet the following requirements:
On the flip side, if you are a startup seeking an angel investor, according to MBAN, your startup is to fulfil the following requirements:
What is an angel investor? Hopefully, this article would've helped to increase your knowledge about angel investors. Angel investors are playing a more and more important role in financing many new businesses, even though in comparison to other sources of financing, they individually invest relatively small amounts of capital in the early stages of enterprise development.
Angel investment networks have not just become trendy and highly lucrative, they have become a major source of growth, innovation, and jobs for the national economy.
For startup founders, these angel networks became an indispensable part of their existence. How do these angel networks operate? How do they provide funds? How can startup founders approach these angel investors in Malaysia?
Angel investors or business angels are commonly wealthy individuals who provide capital for startups. The injection of money can help with turning an idea into an actual company and lay the foundation for the company to offer its products or services.
Not only do these individuals provide capital, most often they also invest their knowledge and expertise to support startup's growth.
Support outside of providing capital is one of the aspects that sets angel investors apart from other more traditional investors. Other investors tend to limit their involvement in providing capital in return for a share in the startup.
Angel investors or networks commonly have a much closer relationship with the startups they have invested in. They monitor the startup and it's progress attentively and provide advice when needed. These angel investors become a sort of mentor or guide for the startups.
As angel investors are mostly individuals who have held executive positions at large corporations or have successfully ran their own companies, gaining mentors through angel investors can be just as valuable as the invested capital for novice entrepreneurs.
Fast-growing small firms often need aid overcoming funding gaps to sustain their growth. Angel investors can help resolve this issue. Furthermore, angel investors can support startups by sharing contacts and networks to secure additional capital. The fact that angel investors mostly invest locally is an added positive to the local market as a whole.
Business angels usually fill in the gap between family and friends, and larger more formal entities such as VC's. Some of these angels purely seek profit while others seek more meaningful investments.
For instance, some angels will only invest in startups that are active in specific industries or serve a certain cause. These industries could range anywhere from sustainable agriculture to education and tech startups. Since angel investors are very often individuals that have held executive positions at large corporations
Another reason startups would seek out angel investment networks would be for the fact that angel investors can provide debt-free financing.
In the case of a bank, even when they agree to provide a startup with funds, they will likely restrict the quantity you are allowed to borrow, as the bank will be much more risk-averse than the average angel investor. Contrarily angel investors will not shy away from investing larger sums if they feel the startup has a lot of potential.
Unlike loans and different forms of credit financing, angel investor funding is usually a much cheaper option when looking for seed-stage capital.
Startups are not tied to monthly payments on the capital plus the interest, instead, with angel funding, a portion of the company profits will be given to the investor relative to the investment made. The share of ownership for the angel investor usually starts at about 10%, however, the share could increase with consecutive funding in the startup.
Furthermore, unlike a loan, invested capital does not have to be paid back in the event of a business failure.
There are many angel investors in Malaysia open to funding startups at any given time. There are also many 'dormant' investors who have the capital but find it difficult to look for suitable startups to invest in. In such cases, angel investment networks provide the solution by linking startups to so-called dormant investors. Naturally, non-dormant investors are also involved in these business angel networks.
Angel Investor networks in Malaysia invest varying amounts as compared to Venture Capital – and recently groups of angel investors have been putting down investments as large as early-stage VC investment sizes. Angel Investor networks in Malaysia could invest anywhere between RM50k to RM2m or more, where early-stage VC investments could start at RM500k to RM1m.
Business angels are more often joining forces to form and participate in angel networks. In fact, the entire startup and angel investor ecosystem in Malaysia has gone through a considerable expansion in the last 10 years.
During the last 10 years, many business angels have gotten involved with business angel networks. The main reason for this is to get access to the best deals as this is much harder when working alone. Unless you already have a big name in the angel investor and VC industry, joining an angel group could be considered essential to gain success.
There are different reasons for these angel investment networks to form and operate, such as:
These angel networks can provide individual investors with more confidence which often leads to startups receiving better deals as well.
Most business angel networks tend to establish themselves within certain geographic regions. In the case of Malaysia, most of these networks would focus either exclusively on Malaysian startups or more broadly on ASEAN startups. Some of these groups focus will only invest in certain industries, mostly tech, while others have a wider range of industries they are willing to invest in.
Malaysian angel investors often shy away from public appearance. Therefore they may be hard to find and approach by startups. Angel Investors in Malaysia are usually found in angel Investment Groups or Networks. Finding the right business angel network can be very valuable for both startups and investors.
An example of an angel investment network is Nexea. Nexea ensures that both the startups and investors are a good fit before the introduction takes place.
At Nexea startups receive advice and knowledge on what and how investors think prior to making the introduction. This will help startups in preparing their presentations for potential investors. Furthermore, it will also reduce the risk of a potential altercation taking place where the deal would not go through.
Generally, finding angel investors in Malaysia can be done in various ways, for example:
Another place to look for angel investors in Malaysia would be the Malaysian Business Angel Network (MBAN). The Malaysian Business Angel Network is the official trade association and governing body for angel investors and angel investment networks in Malaysia. The main objective for the company is to support the angel investors and startup environment as a whole.
Angel investors as individuals can have a very wide range of unique characters and perspectives. Hence, finding a business angel network can be very valuable when it comes to gaining consistency and structure in investments. Furthermore, the fundraising procedure for startups can be more organized and simple.
Regardless, it is important to find the right angel investment network. The following should be considered when deciding which angel investment network to go with:
Overall, angel investors have had a very positive impact on many entrepreneurs and the startup ecosystem in general. Today there are more angel investment networks than ever before, leading to more opportunities, less risk and more impactful investments.
Startup founders could not have lived in a better time when it comes to variety and options of business angel networks to approach.
Angel Investors are defined as affluent individuals who provide capital for a business start-up, usually in exchange for convertible debt or ownership equity. Often, they are found among an entrepreneur's family and friends. The funds they provide may be a one-time investment to help the business get off the ground or an ongoing injection to support and carry the company through its difficult early stages. These types of investments are risky and usually, do not represent more than 10% of their portfolio.
Angel Investors are often retired entrepreneurs or executives, who partake in angel investing for reasons beyond monetary return. They may want to keep abreast of current developments in a particular business arena, mentoring the next generation of entrepreneurs, and making use of their experience and networks on a less than full-time basis. Angel investors provide feedback, advice, and contacts in addition to funds. A small but increasing number of angel investors invest online through equity crowdfunding or organize themselves into angel groups or angel networks to share investment capital, as well as to provide advice to their portfolio companies.
The early-stage investment is part of the angel investors definition.
Angel investing has soared globally, especially the last 5-10 years thanks in part due to the growing technology startups that had generated great returns. More than that, Individuals are seeking alternative returns that are better than traditional investment vehicles such as stocks and bonds.
But unlike most other types of investors, many angels are not motivated solely by profit. Particularly if the angel investors are a current or former entrepreneur, he or she may be motivated as much by the process and the enjoyment of helping a young business succeed as by the money he or she stands to gain, and are therefore more likely to be persuaded by an entrepreneur's drive to succeed, persistence and mental discipline. That is part of the angel investor's definition.
Granted that it differs among cases, regions, or countries, it's safe to say that the typical angel investors would invest at least RM10,000 while the average angel investors would invest around RM100,000. The maximum really depends on the angel investor. We usually see RM200,000 all the way to RM1,000,000. The numbers may have changed over time, but it's a good rule of thumb nonetheless.
Angel Investors would typically take 10-25% equity in return, according to Chron. Angel investors would take no more than 20-25% as it gives founders the right incentive and alignment with the founder to help grow the business in the right direction. If it is more than 25% this breaks the angel investors definition of being a good angel investor.
The key difference is whose money they use to invest. Venture capitalists generally use money pooled from investment companies, large corporations, and pension funds to invest. While angel investors use their own money. They are required to have a minimum net worth of $1 million and an annual income of at least $200,000 to be considered an accredited investor.
According to Capital.com.my,
Core Angel Investors are individuals with extensive business experience who have operated and owned successful businesses. They are committed to their job of angel investing and continue to be involved with high-risk investments despite their losses. They possess a diversified portfolio that encompasses all industries, including public and private equity and real estate. They serve as valuable mentors and advisors to their invested companies.
High-tech angel investors may have less experience than core angels but invest significantly in the latest trends of modern technology. Their investments primarily depend on the value of their other high-tech holdings, which can vary considerably. Many high-tech angel investors enjoy the risk of their deals as well as the exhilaration of bringing novel technology to the marketplace but some may prefer not to be actively involved in their invested companies.
ROI angel investors are primarily concerned with the financial reward of high-risk investments, hence the ROI. Their motivation behind investing is their perception of what other angels’ gross income may be. ROI angels tend to stay away from investing when market performance is poor and emerge once the market shows stability and improvement. They view each of their investments as another company added to their diversified portfolio and rarely become actively involved in the invested companies.
There are different types of angel investors within the three categories, depending on the intentions and value propositions that the entrepreneur or angel investor is seeking; They may be affiliated and nonaffiliated. The former is someone who has some sort of contact with you or your business but is not necessarily related to or acquainted with you while the latter has no connection with either you or your business.
Angel Investors in Malaysia tend to be more private about their identity. Therefore, at NEXEA, we represent them on the front before most Startups get to meet them. We ensure that startups and investors are both ready and have a good match before the introduction. We would advise startups on how to approach investors so they can be prepared to pitch their business. This would help avoid all sorts of unnecessary situations where the deal would fall apart.
NEXEA's angel investors are focused on building value for the Startups. They have guided startup founders during really tough times – many of the startups almost failed due to reasons like poor cash flow management and unsustainable strategies. Our angel investors/mentors create values through sharing their years of experience to help guide startups in avoiding common pitfalls and drive performance results, not to mention at some cases, introducing relevant industry players or even opening doors to potential partners. Find out more about our angel investors at NEXEA Angel Investors Network.
The process of angel investing is not easy, same goes with being an angel investor. Entrepreneurs may be able to raise the desired capital for their venture but may not be compatible with their investors or the investors have unrealistic expectations of them. To avoid this discrepancy, entrepreneurs are strongly encouraged to learn about the different types of angel investors before they go about recruiting one as it will help sort through and choose a well-matched angel investor for them. It can make the difference between establishing a strong foundation for a company or a failing venture.
We hope you enjoyed this article about the angel investors definition!
Angel Investors in Malaysia are defined as investors who provide financial backing, industry knowledge, as well as industry or business experience to early-stage startups or entrepreneurs. Angel Investors in Malaysia are usually found in Angel Investment Groups or Networks. They usually provide mentoring and guidance to startups. Some of the best angel investors are known to help Startups during tough times.
Angel Investors in Malaysia are plentiful. There are easily 100 angels in Malaysia that are open to funding Startups at any point in time. There are at least 1000 dormant or inactive angel investors out there, who have the money but find it hard to look for Startups. That's where we come in as an Angel Investment Network in Malaysia.
Angel Investors in Malaysia are very willing to help businesses succeed rather than just chasing for profits. This is because angels are usually people who have achieved financial freedom, and they also tend to be people that own or have owned successful businesses. Many angels in Malaysia are retired or sit on the board, and no longer work on the operational side of their business. Therefore, angel investors usually mentor young entrepreneurs as their next challenge, as part of giving back to their community and adding value to the second half of their life.
Angel Investors tend to be very founder-friendly; they usually invest in the founder and team, rather than the business itself. This is because, at such an early stage of a business, there is usually not much testing done to prove the business itself. It is then up to the founder to make changes to the business until it works.
Usually, angels do not take more than 10-20% equity when investing in a startup. This gives them the right incentive and alignment with the founder to help grow the business in the right direction, while not taking too much away from the founders as well.
Most angels at NEXEA are focused on building value for the Startups. For example, they have guided startup founders during really tough times - many of which startups almost died due to many reasons like poor cash flow management, unpredictable market conditions, unfortunate events, and unsustainable strategies. Most of the time, our angel investors/mentors help startups by introducing relevant industry players, and even opening doors to potential partners or other startups.
Our mentors in Malaysia have also created value by guiding Startups to form strong strategies that increased sales results and shared their years of experience to help startups avoid common pitfalls.
Angel Investors in Malaysia invest varying amounts as compared to Venture Capital - and recently groups of angel investors have been putting down investments as large as early stage VC investment sizes. Angel Investors in Malaysia could invest collectively anywhere between RM50k to RM2m or more, where early stage VC investments could start at RM500k to RM1m.
Angel investors in Malaysia generally invest in a larger variety of startups and are a little more involves than VCs. Their involvement usually does not touch operational matters like how to run the business, but they can offer invaluable experience and guidance in the strategies that a business puts in place. The larger the investment rounds, the less involvement there is from the investor. This is because in the later stages, Startups are more mature and stable, and in the earlier stages, startups still need some input to find the right direction.
Our Malaysian Angel Investors look for a few key things when evaluating your business. The good news is that most of these things are covered by the pitch deck. The team, product, market, traction, and so on are important factors that we take into consideration. Generally, the younger a startup is, the more we need to rely on evaluating the team because there is not much else to evaluate. The larger a startup is, the more we rely on the traction (or results) of a startup, as the results are the proof that a startup can walk the talk. Evaluating the product and market helps determine how much demand and/or how big the startup can get. Do have a look at the pitch deck guide as it explains how investors look at each piece of information.
Angel Investors in Malaysia tend to be more private about their appearance in the public. Therefore, at Nexea, we represent them on the forefront before most Startups get to meet them. We ensure that startups and investors are both ready and have a good match before the introduction. For example, we advise startups on how the investors think before we make the introduction to help Startups have a little more of an advantage when presenting their business. This helps to avoid all sorts of unwanted situations where the deal would fall apart.
If you are interested to pitch to a group of investors in Malaysia, do send us a pitch deck: Startup Fund in Malaysia.We also look at startups around Southeast Asia, and not only in Malaysia.
If you are interested to become join NEXEA's Angel Investor Network, you can visit how to be an Angel Investor.
There is so much to know how to be an angel investor! Knowing so, it is also about who you know - because we simply don’t know what we don’t know.
We gather as an angel investment group here in South East Asia because there are so many of us that can contribute to startups in many different ways. These are the things that are unique to every one of us, like what we know or how we can add tremendous value to Startups apart from just money. Our lead angel investors have introduced the right mentors from the right industries, matched startups with acquirers, and even brought huge business to Startups.
There are other things that all of us should know in common to be an angel investor, like;
Here I will highlight the many real reasons angel investors join us, as well as explain startup investment strategies that are broken into 2 categories - risk management and value creation. Before we get into angel investor investment strategies, let's look at why we got into startup angel investment.
There are many reasons why investors join us. Some investors want a challenge in life by helping founders solve huge problems. Some want to give back to the entrepreneurial community by guiding new entrepreneurs. Some want to increase their investment prowess by learning from other great investors. But none are in it purely to make a quick buck.
Non-Monetary Reasons for Angel Investing
Our investors are sophisticated and are not chasing after money anymore. In a weird way, money chases after them. They have proven themselves successful in life. Now, they are pursuing the top level of Maslow's Hierarchy of Needs - where they are now pursuing their inner talent and creativity fulfilment (in other words, to do what makes them happy).
Monetary Reasons for Angel Investment
Angel Investors know that wealth preservation is one thing, and that wealth creation is another matter. To preserve wealth, it is all about hedging against inflation plus generating enough passive income to sustain one's lifestyle.
To create more wealth, the usual safe & conservative investments won't be able to do the job well. This is where high risk, high return investments like startup or angel investment comes in.
Here are the aggregate numbers of angel investing for those who want to test their investment skills:
20-25% Annual Return is the average over 5-7 years, for a total of 2.5X capital returns average (US statistics). Compared to other asset classes, Stocks give an average of 6-7%, and 3-4% for Fixed Deposits (varies across countries). This makes startups an asset class that is perfect for the high-risk portion of an investment portfolio. It is generally recommended that it be no more than 5-10% of a high net worth individuals' net worth.
Angel Investment also gives investors much more control and transparency vs. investing into VC funds. You get to choose what you invest in, learn more about businesses, and via mentoring, learn a lot more about business from a different perspective. There is also less cost vs the typical 2% annual fees (on initial investment) and 20% carry fee (on exits) that VCs typically charge. That adds up to a huge percentage considering fund terms are typically 5-7 years.
If you've heard about 500 Startups, they are popular among the industry for employing this strategy. They invest in anything and everything where they see potential. They take it as a numbers game (luck or probability, however one can see it) betting that the successful startup exits will cover all the money-losing startups, plus give a good return. While the math does work out, it depends on successful startups churning out a minimum 50X return (more if they are lucky), and 10% of the portfolio hitting these return numbers. This strategy also depends on getting back money from startups that are not dead, and are able to pay back some of the investment.
In all asset classes, diversification is a must-do strategy - be it stocks or bonds or property. Having all your eggs in one basket is never a good idea, as Warren Buffet himself said so.
Diversification is surely needed in startup investment, but over-diversification can also be bad as it reduces the average returns as you diversify more. However, it does get you closer to the 25% average returns! By diversifying just enough, an investor is more likely to hit a big one. Typically we advise our angel investors to invest in 10-20 startups to have a reasonable chance of hitting a big one. Depending on your portfolio size, it may or may not make sense to invest in more than 20. For example, if the minimum you can invest is $10K in general, then you will find it hard to split to more than 20 startups if you've allocated $200k to invest into startups.
A good methodology for startup selection is developed over time. It is beyond just evaluating the problem, solution, market, product, traction and financials. The timing of the industry and the valuations also matter. More importantly, the founding team and your ability to add value matters more.
Joining an angel investment group or network has many benefits. You learn more from each other. You get more deals and better deals at that. You have access to more expertise among each other - allowing the startup to benefit more from investors' knowledge. This often creates value, as I will explain in the next section below.
There are many types of angel investment groups;
The best mentors create value by 80% listening and 20% sharing. We have seen mentors guide startups to find their own solutions - and this might just be the best way to do it. When asked why the mentor said he will never understand as much as the founder what problem they are facing. Of course, the experience is still shared from mentor to mentee - but every situation is different.
So, how does it actually create value?
Mentoring, being a very complex art form, is able to give founders clarity when needed. Founders have to make a huge number of hard decisions in their lifetime, and sometimes it can be quite lonely and confusing. That is why at Nexea, we gather actual successful businessmen to mentor the new generation of entrepreneurs. Only they can understand what problems and pain these founders are going through. Therefore, the chances that they are able to successfully guide founders is much higher. We have seen our mentors guide startups out of problem after problem. Problems that if left unsolved, would have left startups dead in the water.
Some other investors introduce their startups to their networks that can help. Recently, one of our lead investors brought in a large company ready to pump in business >30X their current revenues. Another investor of ours introduced a company that is interested in acquiring a startup. We also have had investors make introductions for startups to merge to immediately transform from 2 local startups to a regional startup. That is all in the realm of value creation.
Let us know if you agree/disagree with the strategies above. If you have another strategy, even better! Let me know and I will include it above.
If you are an Investor looking to help startups in any form, do get in touch!
Angel Investment in Malaysia is basically a form of early-stage investing in new businesses. The main characteristic of this asset class is that it is a long-term investment (5 years+) with a high risk, high return nature. Capital is given to a startup by angel investors to Startups in exchange for equity.
Angel Investment funding amounts vary widely, and generally, angel investment groups do have more firepower to handle larger rounds of fundraising. Individual Angel Investors do invest large amounts but not often, as they quickly run out of cash to allocate to Startup investments. Usually, larger rounds are done when an Investor is confident that they have found a winner, and when it is the 2nd round onwards.
We see some Angel Investors in Malaysia investing through Equity Crowd Funding, with amounts ranging from 20k to 500k per startup. Not to be confused with retail investors, who typically invest 1k to 10k per startup, Angel Investors in Malaysia are defined as HNWI (High Net Worth Individuals). These are individuals with net personal assets of RM3m according to MBAN. Many Angel Investors are registered with MBAN (an association for Angel Investors & Groups by the government) for the tax incentive provided by the government, without any sensitive information required.
As of writing this, there are more than 10 Angel Investment groups in Malaysia. Not all are registered or formal. Many angel investors choose to invest as a group or syndicate to spread the risks of angel investing. Angel Investors & Groups in Malaysia typically invest mostly around RM200-600k.
Recently we are seeing more and more family offices and successful business owners getting into Startup investment. Some have gone as far as creating their own VC arms under their listed companies, as well as creating accelerator programs and startup support programs.
The main difference between Angels Networks & VCs is that angels do not typically run as a fund, and therefore are not managed by professionals. Instead, Angel Investment clubs are often run by Lead Investors, who typically come up with the larger chunk of the capital for deals, for others to follow up with the rest of the investment capital. Lead Investors put in their own money, and therefore are very motivated to make their startups successful.
Typically, VCs tend to gather or hire some professionals as their mentors. In Angel groups, the investors themselves are the mentors. This means that startups then get access to:
This on varies across every Angel & VC. Some Angels and VCs have unfriendly terms and other friendly terms. This is why we encourage startups to talk to as many Angels & VCs as possible. Generally, however, Angels tend to have friendlier terms compared to VCs, with simple term-sheets. We encourage every startup to understand every term in the term sheet, as there are some unfriendly terms out there designed to protect VCs from losing money. Some get it back by using conditions that give the VC more equity, and some allow VCs to claw back capital. Here is an example of some term-sheet jargon.
VCs are the most effective for startups when it comes to stages beyond early-stage funding. This is when mentorship and guidance matter less and capital matters a little more. Typically startups in later stages require more growth and have already tested what works and what doesn't.
It is worth noting that sometimes, Angel Investment groups do come in to invest at later stages as well. Some are large Angel groups that can easily fund large deals. Although we are not too large of an angel group, we have gone into pre-IPO investments as part of a strategic play, where our mentors can provide value to the company.
Beyond VCs, there are also PE firms that will invest in a controlling stake. They are useful for exit plans, in which startup founders can acquire access to large amounts of capital to create growth prior to an exit play.
NEXEA Angels - We run with a group of experienced mentors who are/were entrepreneurs and found success in business. We also have a management team called Venture Partners handling the deals for Angel Investors. If you are an Angel Investor or want to explore being an Angel Investor, you can learn more about our Startup Investment Opportunities in Malaysia.