Angel investors are very important people in the startup ecosystem. These are individuals—usually high-net-worth ones—who provide capital for startups, especially new ones, usually in exchange for equity, ownership, and the like.
But how do these people decide what to invest in? Does it all chalk up to personal taste? Is profitability the be-all and end-all? What should startup operators be looking at when trying to pitch to them?
To understand their thought process better, we reached out to three experienced angel investors for their advice. But first:
Get to know the angel investors
SaiKit Ng has 25 years of experience in various roles involving auditing, corporate finance, corporate development, and venture building spanning multiple industries.
Part of his portfolio is building the corporate venture capital arm of SGX-listed Captii Limited. He’s also the director at Artem Ventures, a venture capital management corporation in Malaysia.
Furthermore, SaiKit is serving as vice chairman of the Malaysia Venture Capital and Private Equity Association. He’s also a mentor at various institutions such as Endeavour Malaysia, PitchIn, ScaleUp Malaysia, and more.
As a VC, I often come across founders that I respect and projects that I like, and yet the fund I manage could not invest for various reasons. Being able to invest as an angel helps me to have a first look at their subsequent fundraising. More importantly, it is an allocation of some of my investment portfolios to take high risks for high returns.
SaiKit Ng
Lawrence Yew started his professional career as an auditor and eventually delved into wealth management as independent financial advisor and realtor.
Over the years, he’s gotten himself qualified through ACCA, CFA, CFP and obtained a law degree as well. He’s also the founder of Figara11, a local fig farm and brand that has been previously featured on Vulcan Post.
Lawrence’s investments started off more traditional with real estate, then shares, unit trusts, and private placements.
“Only in recent years did I start getting into angel investing. I’m always looking out for tech startups in education, agriculture, and health,” he said.
Hailing from Penang, Rina Neoh is an adjunct professor as well as the co-founder and managing director of Ficus Group Capital.
Before that, she also founded Mercatus Capital, a Singapore-based venture capital firm that focused on early-stage investments in technology startups in Southeast Asia.
She got her start in angel investing through funding small projects while still in university and continued even in her corporate career.
Rina believes this kind of support is critical for startups to grow and succeed, especially when it comes to startups led by women and underrepresented groups who often struggle to secure funding.
“Angel investors bring more than just capital to the table. They offer valuable guidance, mentorship, and connections to help startups navigate the complex business landscape. This support can be crucial in helping startups overcome challenges and achieve success.”
Rina Neoh
What helps them decide whether to back a startup?
The trustworthiness of a founder and their startup
SaiKit’s leads typically only come from referrals, as he doesn’t invest in people he doesn’t know. He also usually only invests when there is someone else he trusts co-investing with him.
With that, the vetting process for him is usually quick. He also believes there is not much to validate since the founders have just started anyway.
Although Lawrence doesn’t subscribe to a certain process, he said, “Usually, it takes meeting many times to really understand the founders and the business, in order to be comfortable with investing in them.”
The more outgoing and active an entrepreneur is across networks, the easier it is for angel investors to take notice of them too.
So, it’s valuable to attend networking events, use online platforms, and other resources to connect with people in the startup ecosystem, which can increase credibility.
When deciding whether to fund a startup, angel investors will definitely conduct due diligence and thoroughly analyse the startup’s business plan, market, financials, and team to determine if it’s a viable investment.
“Investment is science and art, and EQ is more important than IQ at the early stage,” Rina reminded. “High EQ is needed in managing the start-ups founders. Some has ego over the moon while promising to make money. Some start a company to fund their own lifestyles. We have seen it all.”
The startup’s potential to become profitable
When it comes to profitability, the angel investors have different perspectives.
For Lawrence to invest, the company must have a business model that makes sense. He’ll also look for profitability in the short and long run.
“While many focus only on growth of company and not so much the profits in early stages, I believe that growth is bound to happen if it is the right business model, as long as the company is sustainable,” he said. “It needs to be profitable.”
The larger impacts of the startup’s business model
“At angel investing, as you go into a deal so early in a business lifecycle, there is no way that you can even calculate and be sure about profitability,” SaiKit said.
Rather, he would just need to be confident that founders know what they’re doing and have deep knowledge and unique insights into the segment they’re involved in. To him, there are other factors that might trump profit.
“The environment and social impacts of the company I invest in also often come into consideration,” he said. “There was once a very lucrative project, but I did not invest because I knew that the temptation of deforestation to pursue profit is unacceptable.”
The scalability of the business
For Lawrence, keeping the future in mind is very important. This is why the three main questions he would ask entrepreneurs before investing are as such:
- Is the business and its business model scalable?
- What is the exit you are looking for as a founder?
- What is unique about your business offering?
Growth plans and questions on scalability are also something important to Rina. Similar to Lawrence’s third question, Rina also tends to ask about the company’s unique value proposition and how it is differentiated from competitors. This will help her get a better understanding of their market.
These questions are simple, but effective, and more follow-up questions can be built on top of them, based on how the entrepreneurs answer.
Who’s suited to become an angel investor?
An angel investor’s role in growing the startup ecosystem is noble, as they’re typically the ones to give early-stage startups a chance where venture capitalists may not.
Lawrence shared that angel investors must always be mindful that the “zero” possibility is high, compared to investing in matured or public companies. Thus, he believes angel investors should only invest what they can lose.
Similarly, SaiKit also said: “The odds are against you in the long run. Investment in an angel round is a long-term and illiquid commitment; therefore, only invest the portion of the fund you can survive without.”
“If you want a sure-win, low-risk investment, angel investing is not advisable,” Rina concluded. “And if you think you want to control the startups by investing in them, you’re the angel to avoid. If you think you only have money and nothing else to contribute to the startups, put your money in the bank, they don’t need your advice or mentorship.”
- Read other articles we’ve written about funding here.
Featured Image Credit: Lawrence Yew / SaiKit Ng / Rina Neoh
