Perth Angels group, celebrating its 10th year, finds success in starting small and working together.
Only 0.4 per cent of total capital invested in Western Australian companies last financial year went to early-stage tech businesses, through private investment, angel funds or accelerator programs.
And yet, during the pandemic, the tech and electronic sectors have been two of the fastest-growing sectors of the global economy, as this column has discussed.
Early-stage tech startups are too fresh in their development for bank loans and may feel too risky for most investors.
How can you value them? What’s the likelihood of a liquidity event?
And if people do want to invest, where and how do they get started?
One answer is to de-risk such investments by joining other investors.
Perth Angels, which celebrated its 10th year of operations with an annual investor breakfast at Optus Stadium last week, is one such group.
Invest with others
Keynote speaker and serial angel Rob Nathan (with 22 angel investments at last count) offered some hard-won advice for budding investors.
“There’s a perception that you need to be really rich to be an angel investor, and that’s not the case,” Mr Nathan said.
“Even small amounts of capital – $5,000 and $10,000 – can make a difference to an early-stage company.
“Your role, in addition to providing some seed capital, is to be a sounding board, provide an empathetic ear, introductions where you can help them along their way, and to be a cheer squad.
“You get the opportunity to share in their journey and share in their successes. For every success though, there are quite a few failures.
“Many of the companies I have invested in are no longer operational.
“In some cases, I lost all my money, or half of it, and in some cases I got my money back.
“But even those so-called failures, were reasonably good experiences. I learnt from them, and for many of the founders, I would invest again, if they came back to me with another venture.
“Failure also happens faster than success. Typically, companies will fail inside one to three years, but successes can take seven to 10.
“So, in between, you may see a dip in the value of your portfolio as the failures come to light, but the wins have not made it yet.
“That’s the point at which your partner turns to you and says, ‘are you sure this angel investment thing is for you?’
“So, angel investors, much like the founders we invest in, need to have some resilience.”
Strength in numbers
Joining Mr Nathan on a panel at the event were three eastern-states-based experts and angel investors, Kate Pounder, CEO of the Tech Council of Australia, Kylie Frazer, partner at Flying Fox Ventures, and Aprill Allen, general partner of Tractor Ventures.
“It’s better and more fun to [angel invest] with other people,” Ms Frazer said.
“If you’re going to win, it’s more fun to do it with others. It’s also better to lose with others too.
“If other intelligent people can get it wrong, it can make you feel better.”
The panel suggested the goal of an angel investor should be to reach 50 investments over time.
Investors may want to calculate the size of the average investment they can make, if they are to reach that number.
None of us can really tell who can really win, although generally you will look for a good team that has found a large customer problem they can solve and can execute on their strategy.
The panel concluded diversification ruled the world.
One way to back the next stage of local tech companies is to do it with others, do a lot of it, enjoy the journey and learn along with way.
• Charlie Gunningham is founder and principal of digital strategy advisory business Damburst