Never mind what UK angels actually do look for, what kind of company would I put my own money into if I were a business angel? True, given that I’m not writing this from a Home Counties mini-mansion with a £250K mini-fund in the bank for speculating with, this is a somewhat idealistic exercise: but run with me, you’ll see where I’m going with it quickly enough…
As with anything like this, there are numerous things I’d specifically look for:-
- Trend awareness: the older I get, the more it seems to me that businesses consciously aligned with underlying societal / global trends are the most substantial and tenacious. So I’d look for entrepreneurs that have not only a short-term tactic in mind that genuinely needs capital to exploit a market opportunity, but also a longer-term business fit that is aligned with larger-scale trends. Basically, a ‘project‘ / ‘hack‘ that clearly has the capacity to be nurtured and grown into a business.
- MVR: a “Minimum Viable Raise”. Unless someone comes up with a better way of funding companies, opening and closing multiple small (£20K? £40K?) rounds will always be a waste of everyone’s time. Even £100K is questionably small from my viewpoint: so £200K and up is probably sensible as of right now.
- Marketing: particularly if it was a tech startup proposal, I’d scrutinize the marketing side closely, because few tech guys I’ve met seem to fully grasp how commoditized most technology has become – and hence how crucial marketing (& particularly PR) has become. Basically, managing supply efficiently is useless without simultaneously stimulating and managing demand: “it’ll go viral“? I don’t think so, sorry.
- Sector focus: I’d also prefer hardware startups, partly because I believe that hardware has become “the new software” (one of those mega-trends I mentioned above), but mainly because I think hardware (and specifically manufacturing) is so out of fashion that there’s enormous contrarian opportunity there.
- Temperament: I’d also look for entrepreneurs who combine persistence and risk aversion with a talent for not spending money. While planning how to spend a pile of money is easy (business schools are a good preparation for fantasy football, though not so good for running real-world companies), creatively finding ways to avoid spending it (in order to keep your long runway in place) can be hard, and not everyone has the temperament to do this.
- IP structure: the three most important things of all are arguably IP; IP; and, errrrm, IP. And this is not just because patents offer a quasi-monopolistic state licence (that VCs, in their own endearing way, sometimes call “choke points”). Rather, because VC funding is coming in ever later, I think that we will see startups sidestepping VC funding completely by consciously structuring IP ownership for securitizability – by which I mean placing intangible assets into an SPV, exposing the cash-flow from them to the accounts, and then setting up some kind of mezzanine-level borrowing against them. Hence I’m really not sure I’d be comfortable funding a startup that didn’t have a deliberate IP structure in mind right from Day One.
All very clear and rational: but what I don’t get is why the angels I’ve met don’t appear to think in anything like these terms. Only one has shown interest in marketing mechanics; trend awareness is held hostage to their cashflow concerns; while none genuinely has a hardware sector focus, not even those few angels who have made money out of manufacturing. What’s more, IP structure seems to be a total non-issue to them: all talk of SPVs / securitization / mezzanine funding comes across as ‘fantasy business’ Powerpointery to them, because they collectively seem to have lost belief that any growth curve beyond ‘miserably-bumping-along-the-bottom‘ is possible. Do I need to extend this miserable list any further? No, not really.
Ultimately, the point of this post is that between the mechanics of funding and the mechanics of actual business, I think a broad gap has opened up – one which moreover seems to be trending ever wider. I suspect he business world has changed too significantly since the days of the “soft money” bull markets where nearly all angels made their money for them to be truly comfortable: perhaps they are unable to see business circa 2010/2011 for what it really is.
Could it be that different days simply require different angels?