November 16, 2020
As the startup cycle starts spinning faster and faster, are you looking to take the plunge into angel investing abroad? The post-COVID reality is that it’s now easier than ever to hop on Zoom and invest in great teams outside your region.
But as we learned at our Angel track at Arctic15, there are a few things to keep in mind first. With speakers dialing in from everywhere between San Francisco to Tel Aviv, we wrote down a few tips to consider first.
You have to ask yourself what Angel role you’re comfortable playing.
Investing abroad may force you to change the typical role you play as an Angel. When you’re investing locally, you might find it comforting to know you can drop by the office to meet the team and play a small operational role where needed. But it’s very hard to get the same sense of security from another location. The first question Stephan Reckie, Angel Investor and executive director at GEN Space asks is, “Are you comfortable with remote investing? Ask yourself, can I really be comfortable not being day-by-day?”
To some Angels that answer will be no, but Jeremy Yap, a financier turned Angel investor in dozens of companies across the world (including a couple unicorns) looks at this to his advantage. When he first got started in Angel investing, his mentor told him there are three different types of Angel Investors. As he remembers it, “There’s smart money, there’s dumb money that thinks they’re smart, and then there’s dumb money. The first and the third are just as good.”
Yap decided to use that advice to his competitive advantage and branded himself as purely a cheque writer in his early days. With now around 200 founders in his portfolio, he’s clearly learned a lot about running startups, but doesn’t consider himself “smart money” in the traditional sense. Instead of being the Angel that will know exactly how to set up a SaaS sales team, today he considers his value-add is his international network, fundraising advice, and personal relationships with his founders.
To Yap, being clear about your intentions before going in on any investment is key.
But you can play the board differently
As an international angel, Reckie points out that one of the biggest benefits of cross-border angel investing is that you’ve got access to “different and compelling markets” which all have certain advantages and disadvantages.
Take a look at operating costs. With early-stage startups, you need your investment to have as much runway as possible and clearly different locations can provide huge cost differences, from everything between office space to talent. We know in Finland, for example, it’s often quoted that a high quality developer will run a third of the cost of the same developer in San Francisco.
VOIP pioneer and Angel investor Jeff Pulver, puts it to us more broadly, “In life you can never guarantee income, but maybe you can manage expenses.”
And along with lower burn rates, Reckie points out that by looking beyond your local market, you’ve got access to new unique entrepreneurial ecosystems. For high tech startups this is especially key. With a global mindset, you can look for hubs that are on the forefront of where you see the world is going and go to them, rather than waiting for them to come to you.
Go wide and deep to get the best dealflow
As Tomi Davies, Angel at TVC Labs, points out, “as an Angel you’re looking at risky early-stage investments with a long runway”. The hard truth is that your investment will most likely fail, or only pay meager returns in five to eight years. Like building any other portfolio, Angel investing is a numbers game driven by power laws, where the most successful startups will see the bulk of returns.
There are ways to play a strong offense. In Jeremy Yap’s experience, people outside the industry imagine investing is a lot like Dragons Den, where you watch pitches and then it’s just the matter of picking the best one. “But it’s not about picking. It’s about seeing,” he emphasizes.
As Yap puts it, to make a real return on investment, you should be in the top 10% of deals in the industry. But those deals can be the hardest to find at the right time. For many Angel investors, that means getting outside of their local region and building deep relationships in new geographies.
One way to get deeper connected into a local startup scene is through building connections to local investors. Christine Bjärkby, member of the board at EBAN said in her workshop that Angels and VCs should follow and find good deals from each other. The big value-add from Angels is that they can coach, educate, and help founders before they get VC money.
Build trust in the age of Zoom
Legendary Israli serial entrepreneur and Angel investor Yossi Vardi noted in his fireside chat that Zoom is a good replacement for his workflow, but you have to be aware that others have Zoom attrition from hopping from call to call each day. But as we found out talking to venture-backed entrepreneurs, it’s almost easier than ever to make quick connections with other Angels and entrepreneurs without going through the motions of meeting in person for coffee.
But it can be harder to build a real connection through a screen, which challenges an Angel investor’s job. As Anette Nordvall, Managing Partner and founding investor at Cross Nordic Capital Angel Investing shared at her workshop, angel investing, especially cross-border angel investing is always about building trust.
One good way to build trust in a new geography is by mentoring at accelerators for example. As Stephan Reckie puts it, “Try not to go in cold. Work with friends that will give you trusted introductions. And get involved in mentoring– the more you mentor the more you understand the ecosystems.”
Shamma Raghib, SaaS collaboration manager at Collibra and founder of Girls Get Funded expands on this concept. “I built my network by joining various demo days, accelerator programs, and by being a judge in pitching competitions as well. I put myself out there as an Angel investor, even though I do have a day job.”
In the end, trust comes down to finding whatever excuses you can to build face time with a local audience. Raghib put this into practice by helping evaluate Arctic15’s online pitching competition.
The fundamentals of cross-border investing are the same: It’s all about the team
There are some tips and tricks to investing outside your region, but in practice you’re just applying the same fundamentals you’ve learned into new geographies. Perhaps the most important rule for early stage investing is that it’s all about the team.
Jeff Pulver has a take on this that he calls “intuitive investing”- basically giving Angel investors permission to trust their gut. “Compare [entrepreneurs] to artists or rock bands. There’s no hard facts when they’re starting out- I’m looking for leadership, for signs of success.”
When there’s no hard metrics, it’s hard to argue that there’s much else to go on. Interested in finding great teams in the Helsinki area? Get in touch with us for more info.
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