Why should you become an angel investor? Hear from the AIS community!

Why should you become an angel investor? Hear from the AIS community!

A few weeks ago we published an article on What is Angel Investing?

However, before becoming an angel investor it is not only essential to know what an angel investor is but WHY you want to angel invest.

This is why we reached out to the AIS community and asked them why they angel invest. Here is what they said!

Craig Riviere

“Angel Investing for me is the chance to be a part of the future, to shape what my world and my family’s world could look like. Every company started out small and the initial efforts, energy, investment, belief and support is what made some companies so impactful that they became a part of our everyday life. There is a beauty in helping a founder take their idea from thought to manifestation, one of the greatest things we can each offer to the world as individuals is bringing our ideas to life and not letting them die with us.

In addition, the connections we make with the founders as Angel Investors vs just typical Stock / Index Fund Investing is special, to be allowed join the founders’ journey is a blessing worth paying for, telling people you helped on their journey, owning a piece of that company and just seeing your money go to something that lives beyond the initial “dopamine” we get from buying useless items, it definitely feels priceless.

Angel Investing is about putting your money behind something you believe will be impactful to not only a founder’s world but the world that surrounds us too.”

Katharina Wodenitscharow

“Angel investing is not just another asset class for me. It is an opportunity to be challenged every day, and learn from people who are shaping the future for the better and in a way it allows me to make a small contribution to this exciting future. Whether it is about learning how to market direct to consumer brands, how to acquire new customers or selecting the correct business model for B2B SaaS products, angel investing allows you to never stop learning. 

I have a tremendous amount of respect for founders who choose the road of entrepreneurship over certainty and comfort and I consider it to be a privilege as an angel investor to join these founders on their journey. Learning about an industry and what it takes to build a business is one part of this journey but what I enjoy the most is learning about by working with founders how to develop a winning mindset, learn from mistakes and keep going even if your back is against the wall. 

Angel investing also allows you to meet like-minded individuals. Many other angel investors share a similar passion and reason why they angel invest and as a result you meet many exciting and interesting people who shape how you think. I have also had the opportunity to meet many new friends through angel investing due to our shared passion.  

Of course I think it is important to assess startups based on future returns and potential growth, however, if money was the main motivation to be an angel investor then I believe there are less riskier ways to make a good return on an investment. Angel investing is much more than about returns. I believe it is about feeding your curiosity and collaborating with interesting people who want to build something great. 

If you are somebody who is a life-long learner, loves being challenged and is looking to join an ecosystem full of interesting people then this is the industry for you and if you are looking for individuals who share this passion then the Angel Investing School is for you.”

Nithin Bopanna

“Everyone’s personal approach to learning is different, but mine was always amplified by having skin in the game.

My early career was working within the sell-side of Investment Banks around product and technology. Despite being hugely enriching in terms of gaining a broad skilllset and being around some amazingly sharp minds solving complex problems, often I felt disconnected from the nuances of ‘real-world’ businesses and their broader value and risk.

There were outliers amongst my IB colleagues who left this environment and went on to found startups. Many times, these departing friends would come from underrepresented backgrounds and would (naturally) go on to build successfully diverse teams  – a huge difference from the uniform profiles I was familiar with seeing in an IB C-suite.

I became intrigued in this ecosystem, its breadth of opportunity and the ‘worldy’ type problems that motivated people were looking to solve.

The curiosity led to me joining a startup, finding jewels from Andy and ultimately Angel Investing School, where I gained a much clearer understanding of the ground rules for this brave new world with some great team mates on my cohort to support me into my first deals.

Investing has allowed me to feel greater connection and above all, agency. In building a portfolio, I get to learn from – and around – some incredible human being on a regular basis. Being familiar with new technology, business models and approaches all help to make greater sense of the world and its complexity.

The dynamics of this past year has really sharpened the motivation for me to continue to improve and be as diligent an Angel Investor as I can be. My recent strategy has been to narrow focus to founders who are tackling some of the most significant problems the world is facing . As this often involves high tech innovation in engineering, or significant scientific discovery; yes, the risk is multiplied, but I guess the learning is exponential!”

Finally, we wanted to hear from one of the co-founders themselves at the Angel Investing School and why they angel invest?

Andy Ayim MBE

“I am in the business of changing lives, for me purpose is when I can be a full expression of myself doing meaningful work in service of value-aligned people who care.

At a young age I learned about saving clubs that my parents and other Black British families were doing called Susu or Pardner saving schemes. Susu is a rotational savings practice where a group of family members or friends contribute an equal amount of money into a pot every month to saving together. 

When I was 20, I wanted to do something similar with my family and friends. So I rounded up 7 family and friends and we saved £250 a month together for a few years. Whilst saving I was immersing ourselves in property investing communities, listening to podcasts and learning from other investors. I took all that I learned and shared it with the group. Looking back that was like AIS 1.0. 

We got to a stage where we saved up £40,000 then one by one each member of the group grew impatient and withdrew their money. I learned three vital lessons during that experience. 

  1. I lacked the leadership skills at the time to inspire everyone to trust the journey
  2. I love leveraging my network, skills and knowledge to teach others
  3. I love going on life-long journeys with incredible people where I can learn and add value

All three reasons are core to why I angel invest. Angel investing enables me to trust the journey and support entrepreneurs in unlocking their potential and scale their impact. It provides me with a platform to add value through introductions, supporting with my skills and coaching entrepreneurs from my personal experience as an investor and serial entrepreneur.

My one word of encouragement to anyone reading this is to start from where you are and realise from all these stories above that your primary motivation will be personal and meaningful to you. That’s ultimately what matters most. “

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    What is happening to Valuations and Funding Rounds in 2023?

    What is happening to Valuations and Funding Rounds in 2023?

    2021 was a year of astronomical growth and, simultaneously, the beginning of a tragic downfall for many startups. That year saw some of the largest funding rounds and highest valuations in history in the VC world, with Discord raising $500M, Databricks raising $1.6B, and Gorillas raising $1.3B.

    To illustrate this point, we looked at data published by Crunchbase about the state of the market, funding rounds, and valuations. Crunchbase analysed in this article the “U.S. funding from Series A through Series C between 2018 and the first half of 2022 to look at average and median check sizes to see how they have changed.”

    Despite valuations not falling in the first half of 2022, according to Crunchbase data, why do VCs feel like:

    Kirby Winfield, Founding General Partner, Ascend VC: “Gotta be like 80% no longer worth $1 billion if you’re using public market comps. I think maybe 5%-10% will fail in 2023, but maybe 40% by 2025.”

    Ba Minuzzi, Founder and General Partner, UMANA House of Funds: “We kicked off 2022 with five portfolio companies that had ‘unicorn status’ and two of those have already lost that status. I believe this data is indicative of the overall theme — that two out of every five unicorns will lose, or have lost, their $1 billion valuation. I do see this trend continuing in 2023.”

    We are also observing headlines such as this one. In October 2021, Gorillas raised a $1 BN, but less than a year later, TechCrunch posted another article about Gorillas planning to lay off 300 employees and struggling to stay afloat due to lack of funding. Gorillas shared that the reason why they are laying off 300 people is that “it seeks to shift from “hyper growth” (burning tons of cash to win new customers and expand its operations) to “a clear path to profitability.”

    So, what happened and how can a company that has raised $1 BN be near bankruptcy 8 months later? And why, despite all-time high funding rounds, do startups such as Gorillas seem to struggle with cash? Gorillas was eventually acquired by its competitor Getir at a valuation of $1B, a nightmare scenario for VCs.


    What are Valuations?

    To understand what is happening in markets with funding rounds and valuations, we need to go back a few steps and understand what a valuation is. How do VCs and founders decide what a startup is worth and, most importantly, how much it is worth?

    We reached out to Joe Kinvi, who specialises in the FinTech industry and is currently working at Paystack in Financial Partnerships, a Community Manager at HoaQ, and an angel investor. Previously, he used to be the Head of Finance at Touchtech Payments, which was acquired by Stripe and later joined Stripe to work in Growth.

    Joe shared with us why valuations matter:

    “Valuations dictate the potential return for an investor. 

    This means that the lower the valuation when you invest, the higher the upside when you exit. For example, when you invest $10K in a company at 1M and the company exits at $10M, then your return is $100K. However, if you invested the same amount at a $500K valuation, then your return would be $200K.” Please note that Joe is using a simplified example and he is not considering the impact of complex investment ideas such as dilution or deal structures.

    Joe continues: “The importance also matters depending on the stage of the company. Valuations can be broken down into art and science.

    Valuing startups at a pre-seed stage is an art. Art is subjective and appreciated depending on who’s looking at it. Pre-seed and seed valuations are often the same.

    Valuing a startup during a Series A and upwards is a science. Science is 1+1=2. Investors are able to use numbers and other relevant benchmark and market data to arrive at a pretty accurate valuation of a company. For example, a company making X amount in ARR, with Y multiple in their industry should be valued at Z.”


    How did this happen?

    “The market is resetting again from its early 2022 highs but this height was mostly driven by a lot of capital chasing many little deals. At the growth stage, you have founders with lots of term sheets, meaning that they can inflate their valuation and give the deal to the highest bidder. 

    It’s simple economics: the higher the demand, the higher the price when supply is limited. Valuations are readjusting because investors have more options to generate a return on their capital (fed increasing the interest rates to cool inflation) and many are quickly realizing that many companies will never grow into the valuations that they raised at. We’ve seen instances where some companies are worth less than what they raised and this has been a cause for concern (Bird is a great example and we will be discussing Bird in the next section of this article). While there is still lots of dry powder (some are calling it damp powder), investors are more cautious and are reverting to valuations fundamentals, after ignoring them for a couple of years. 

    Valuations will continue to decrease at the growth stage (post series A) while we see more growth investors move downstream to Series A and the seed stage. This is going to put more pressure on seed stage investors but could be good for angels who invested at a friends and family round or pre-seed stage. We haven’t seen much movement in pre-seed and seed-stage valuations due to the art vs science dilemma. With growth investors moving downstream, valuations at pre-seed and seed can quickly become inflated, making it more challenging for existing angel investors to follow up on their existing investments. If there are liquidity options for these investors, they can earn a decent multiple on their money and recycle that capital into other early-stage deals.”


    So what can we expect?

    Many startups, such as Gorilla and Bird, are suffering due to changing market dynamics. Bird, an e-scooter company, is facing potential bankruptcy, according to the Financial Times. Venture capital investors have poured more than $4bn into loss-making e-scooter rental companies over the past five years, creating a bubble that is now bursting.

    The Financial Times reports

    E-scooter rental pioneer Bird has warned it faces possible bankruptcy within the next 12 months unless it can raise more cash, in a sign of a dramatic change in fortunes for one of the hottest tech sectors of recent years. Bird became the fastest start-up to reach a $1bn “unicorn” valuation in 2018, but is now fighting for survival after warning investors it had overstated its historical revenues by tens of millions of dollars.

    Venture capital investors have poured more than $4bn into lossmaking e-scooter rental companies over the past five years, according to investment tracker Dealroom.co, fuelled by low interest rates and a wave of hype that small electric vehicles would reshape urban transportation.”

    As mentioned Gorillas and Bird is going to be one of many startups that will be facing similar fates. 


    Future market trends for valuations?

    The glory days are over.

    The FT reported European tech groups lose $400bn in value following funding crunch. No more peak valuations as VCs have been reporting write downs to their LPs across their portfolio. As a result many startups have been raising downrounds, bridge rounds or sadly closing down.

    As valuations reset, deals will become less competitive, giving GPs more time for due diligence and getting to know the founders. In all honesty, after cases such as FTX along with falling valuations, LPs will be putting pressure on GPs for results. Additionally, we can expect to see more bridging rounds for startups, so they can avoid running out of cash and make it to the next round. This will help them achieve sustainable growth and avoid bankruptcy. Don’t be surprised to see startups raising enough cash to survive for the next 24 months + to avoid fundraising in this unfavourable climate.

    GPs will also be forced to be more selective in their investments, as well as more strategic in their approach. Companies will need to make sure they have a sound business plan and the right capital structure to survive the changing macro environment. Moreover, entrepreneurs should be aware of the need to be flexible and adjust their growth strategies accordingly to remain competitive. 

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