This spring, I have been introduced to angel investing by participating as an investor in a startup program and contest called Angel Challenge in Oslo, Norway. It has been a truly an educational and rewarding experience. Not only am I now officially an investor in a cleaning company (yup – its´true – check out the winner, WeClean), but I have met a bunch of inspiring entrepreneurs and expanded my network of likeminded business angels interested in helping Norwegian startups grow.
I thought I´d share some of my experiences, so that more people can get started with angel investing. It is a vital and important part of the investment journey that startups go through, and the business angel community in Norway needs to grow. We are putting way too much of our funds into our homes. Angel investing is an exciting, inspiring and hopefully lucrative way for you to take part in “building Norway after oil”.
My motivation for getting into angel investing
I had some experience investing in early stage tech companies from before, but mainly through investing in companies I was fully or partly operational in, either through investing my own funds or working through sweat-for-equity models.
Getting access to an interesting deal flow seemed difficult and performing due diligences on the cases during my own stressful workdays I soon realized would become a challenge. I started investing in tech shares on the Oslo Stock Exchange, but soon experienced that I did not really feel comfortable or inspired investing in listed, more mature companies.
The way I saw it, I had a couple of options:
- Investing in companies listed at Merkur Market – the Oslo Stock Exchange´s marketplace for smaller companies
- Invest in a seed or venture fund with a portfolio to my liking and a management team I probably did not really know anything about
- Network my way into some early stage investments by myself
I decided to do the latter part, before I got tipped about the Angel Challenge program by someone in my network. This seemed like an easy way to get started and learn more about early-stage funding models.
What is an Angel Investor?
Wikipedia has the following explanation of what an Angel Investor is: “An angel investor or angel (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.”
I have not myself experienced a huge exit, and therefore my capital base is quite modest when it comes to angel investing. One of the angel investors we met during Angel Challenge had started with USD 5 million 4 years ago, and was now invested in 44 companies, and had so far invested 70% of his funds. This is not your typical Nordic angel investor.
The investment in Angel Challenge is NOK 50.000,- per investor. This is a rather small amount, but it is a good start. Most angels in the Nordics spend between NOK 50.000,- – 500.000,- on their angel investments.
Who can/should become an Angel Investor?
Anyone can really become an angel investor. Since the startup who is seeking angel investors tend to be in an early stage, it helps if you have some experience or competence that the startup needs to help them grow. They are often on a really bootstrap budget in this stage, and are working hard to get their product out into the marketplace. They will need help with anything from introduction to potential customers to marketing advice to legal competence.
What do startups expect from angel investors?
Don´t be shy about what you can contribute to help a startup grow, but remember, the founders and employees in the startup probably know their business best, as they are working on it day and night. Be sure you are not in their way, and rather than helping actually become a hinder to grow. The entrepreneurs will expect you to be available if they reach out to you asking for help.
Most often, angel investors don´t do followup investments, and most entrepreneurs know this. Therefore, it is not expected that you will do followup investments, but they might expect you to help open some doors to other investors in your network down the road.
Where does angel investing fit into the startup journey?
Startups go through several stages when building the company. Angel investments tend to come on board during the earliest funding stage, when there are only the founders and perhaps some of their closest family and friends who have invested in the company. The company is not yet making money, and there is high risk related to investing during this period. Not only does it rely on a product/market fit, but also future access to funding will decide whether the company ever will grow into break even scenarios.
Be prepared to lose your money – angel investing is high risk. You should not put a large part of your available funds into angel investing (I will cover more about investment portfolios and recommended percentage allocations during a separate post). Below is an overview of the different investment stages of a typical startup.
How much owner stake in the startup can an angel investor expect?
Don´t become greedy and ask for too much of the company. You want the founders and the ones that are operational in the company to have the majority by far, as they need to motivation and drive to grow the company. Also, down the road, later stage investors will not be impressed and perhaps even shy away from the case altogether if early stage investors have too much stake in the company. Angel investors should preferably hold about 10-30% of the company.
I hope this inspired you to evaluate whether angel investing is for you, see here for a post on my experiences from Angel Challenge this spring. #BuildNorwayAfterOil