With continued efforts to diversify away from oil, and the growing regional competition to attract the next wave of the new economy startups, the impact of angel investing and its potential for tremendous investment returns, cannot be overstated.
Kushal Shah, Co-Founder & Board Members of Dubai Angel Investors, Head of Digital, Asia and Middle East at Roland Berger
Gary Sheynkman, Co-Founder and GP of Leyden Ventures
Sonia Seth-Gokhale, Co-Founder and Partner of VentureSouq
What is the angel investing ecosystem and how is it growing?
- Angel investors are high risk-takers who basically bet on people and ideas before the company has even proven itself. Banks and more seasoned investors prefer to see the company at a certain stage of growth before they will get involved. But angels come in earlier, and without them you cannot have the organic growth of the startup ecosystem.
- Angel investors helps a company start, not only through funding, but also by supporting the founders through their skills, networks, business experience, etc.
- The ecosystem is growing with more angel networks and syndicates being formed. In a group there is more expertise, collective decision making and a bigger intellectual pool.
How do angel investors assess opportunities?
- The first critical filter is whether the idea has come from a reference. And the second filter is whether the idea can be understood within the first five minutes.
- Furthermore, even if entrepreneurs submit the greatest pitch, that is not enough to decide. You must spend time with the entrepreneur, challenge them and learn through the process, educate yourself, ask the right questions, etc. The team is important more than the business model at the outset because this can change.
- As a first time investor, don’t write a big cheque and try to go into the investment with other people.
- Note that a typical angel investment will take at least eight years to mature.
What should a founder/company look for in an angel investor?
- The angels who can give you 5k (compared to those with 500k) are typically younger, analytically stronger, careful with their money, and want to spend time with you. If they are ready to give you the funds, its after they have already tested you. The angels who can give you 500k usually ask for more returns than money, such as when you go for your next round of funding, a first right of refusal, a super majority.
- “Operator investorsâ€, are other entrepreneurs or corporate executives, who write small but consistent cheques. If the investor has a very specialised skill that can help a company, then this is very valuable. Look for those that other founders recommend, have the right skillsets, understands financial modelling, deals with procurement, have regulations knowledge, etc.
- Seasoned ex-founders who have exited successfully become angel investors and help mature the ecosystem. They are great because they have been in your shoes and understand the journey personally.