This interview with Mike Lebus, founder and managing director of Angel Investment Network, was originally published in Sifted. You can read the full article on ‘How to Make a Smart Angel Investment’ with views from other industry leaders here.
Mike Lebus, angel investor & co-founder Angel Investment Network
Mike Lebus (UK)
Mike Lebus is co-founder Angel Investment Network, a platform catering to 205,000+ angels which has backed the likes of bed mattress startup Simba, geocoding business What3Words and kids media company SuperAwesome.
An angel investor for 6 years.
Number of personal investments: I try to make two personal investments a year. Through the venture division of the company (me and three others), we have a stake in over a hundred companies.
Average cheque size: I normally invest £10-25k.
The biggest misconception about angel investing is… that investors should be based in startup hubs like Silicon Valley and London. Online platforms and digital networks now allow investors to find great deal flow wherever they are based.
Do… take the time to meet and get to the know the founding team. When you invest in early stage projects the idea takes second place to the team. This is because the idea will have to change and evolve to be a success; and it’s the team who are responsible for doing that!
“Investors don’t have to be based in startup hubs like Silicon Valley and London.”
Don’t… invest in only one company. No matter how good the opportunity looks, there are so many unknowns when it comes to early stage investment. It’s a much better strategy to invest smaller in more businesses.
The biggest mistake I made was… to miss out on a great opportunity because I failed to build a good relationship with the team. In the early discussions I should have focused on getting to know them, their vision and their processes; instead, I was too blinkered on the valuation and deal terms. It ended up being a waste of everyone’s time. The company went on to do very well!
My personal top tip is to… manage your expectations. If you’re obsessed with returns and timescales, you’ll end up being a burden on your portfolio companies. If you relax and trust the team to execute on their vision, then you can focus on finding meaningful ways to help them with your experience and connections.
My most recent investment was in…Sweatcoin, an app that tracks your outdoor steps and rewards you with digital currency. It’s been the fastest growing health and fitness app in history in every country it’s launched in on the App Store. I know the founder well, so knew how talented he was. I also loved the company’s innovative approach to incentivising people to become more active and get healthier.
Sweatcoin tracks & verifies your outdoor steps using your phone’s accelerometers and GPS location. Those steps get converted into our currency — Sweatcoins.
The deal I regret missing out on is… Funding Circle. We helped them with funding very early on, but I chose not to invest personally. Their IPO last year valued them at £1.5 billion!
If I could change one thing about the European angel scene it would be…More government incentives to encourage more people to invest into startups. The UK have the SEIS and EIS schemes, which have really helped stimulate early-stage investment. I think more European countries should introduce similar incentives.
£7bn was invested into private UK companies in 2018, down 19% from record levels in 2017 but still significantly higher than any year before 2017, according to Beauhurst. Could this be the beginning of a decline? These are dark and uncertain times; and even those ‘presiding’ over Britain’s exit from the European Union are unable to agree on what the first order effects of this momentous action might be.
Angel investors have far greater flexibility than any other investor type when it comes to adjusting their investment preferences. In times of macroeconomic uncertainty, they can easily defer activity until they have a clearer idea of the road ahead.
The warning signals, then, are there on a wider level. But on the Angel Investment Network platform, 2018 was a strong year with both UK investor and entrepreneur numbers rising to over 30,000 and 115,000 respectively. We now have over 1 million users globally. Our own analysis of the user activity on the site reveals some interesting insights into the angel investment landscape. And perhaps a light for the path forward.
Threadbare Fashion Sector
The High Street has had a tough time in the past year, with high profile fashion brands in trouble including House of Fraser and LK Bennett. According to user data on our site, investor willingness to back startup fashion brands has dipped dramatically with ‘fashion’ as a sector falling from the 6th to the 14th most popular sector in 2018, the largest slide of any category.
The poor
performances of high street mainstays may have played some role in this, but
more likely it is strong performances from other sectors that have contributed
most tellingly to this dip in popularity. Judging from the performances of
software, technology and the so-called ‘impact’ sector, it seems that fashion
brands looking to raise investment will need to embrace technology and/or
ethical mission statements as part of their proposition to regain investor
interest.
Fintech Finesse
It will come as no surprise that the technology and software categories grew impressively and retained top spot for both investor interest and number of pitches looking for funding. The rise of AI and machine learning with applications across so many industries has meant that many new startups have some form of digital technology at the core of their value proposition. The prevalence of industry jargon terms like ‘agrotech’, ‘insurtech’ and ‘fintech’ speak to this intersection between specific industries and the super-industry that software and technology is fast becoming.
Fintech in the UK is a great example. London has developed a well-deserved reputation as a Fintech hub over the past couple of years, thanks, in part, to the growth of companies like Monzo, Starling Bank, Revolut, and payment-linked-loyalty provider, Bink.
Their success has inspired a surge of exciting innovation in the space with some very promising startups coming onto the scene including: Coconut – a current account with inbuilt accounting; and Novastone – ‘WhatsApp’ for the finance sector. Both of whom completed funding rounds through Angel Investment Network in 2018, taking their total funding to £1.9M and £5.6M respectively.
We
expect the fintech space to go from strength to strength in 2019 and beyond,
and it may offer some hope for carrying the UK startup scene on its shoulders
if the going gets tough.
The rise of impact investment
Another area starting to show promise is ‘impact investment’. Investor activity on the website mirrored growing societal interest in ‘impact’ or ‘profit-with-purpose’ – the notion that businesses should have some societal and/or environmental good at the core of their mission while still working for growth and profit, allowing investors to invest in line with their conscience without risking their chance of generating returns.
Investor
searches for impact-related terms were up an average of 24.9% from 2017. The
fastest growing sector was ’renewables’ which climbed from 40th to
32nd (a 25.4% increase in number of searches,‘greentech’
showed a 25.7% increase while ‘environmental’ had a 23.5% increase.
The United Nations’ Sustainable Development Goals
Some of the companies who benefitted from, or perhaps helped create, this growth in interest include: Verv – an AI home energy assistant – and Demizine – an end-to-end home water recycling system using technology originally engineered for space stations. In both cases, it is interesting to note the core role that cutting-edge software and technology plays in their value proposition.
Off the back of this, we recently launched a spin-off platform, Seedtribe, with the mission of building a community of impact entrepreneurs and investors. We are especially interested in the role technology can play for impact companies in bringing about positive change in the world, while generating returns for investors.
Equity property investments remain popular
As a
final point, I should mention the property investment category which performed
strongly on the site for the third year running. For context, our site was
built to connect startup companies with angel investors, but from quite early
on, property development companies would ignore our pitch framework (designed
for startups) and submit their equity property deals on the platform. The
appetite for their type of deal (25-35% returns per year over an 18-24 month
period) was apparently strong among our investor community – perhaps as a less
risky avenue for diversifying their portfolio. This remained the case in 2018
and we expect this to continue even with the current volatility in the property
market.
Summary
Overall, investor and entrepreneur activity on our site has outperformed the sector at large. But in these uncertain times, we recognise that our efforts to support the early-stage investment community will have to go even further in 2019 and beyond.
Whatever the political climate, UK entrepreneurs will continue to bring out innovative solutions embedded in technology across a variety of industries in 2019. The Internet of Things, robotics and AI systems including software for autonomous vehicles are creating real excitement amongst our investor community, and rightly so. It is up to these investors to continue supporting the industry with capital, expertise and contact; and to light a way in these murky times.
Originally written by Oliver Jones, Head of Marketing at Angel Investment Network, for The Haggerston Times
