My 5 Lessons As an Angel Investor
By Ragnar Sass, CEO & Founder of LIFT99,
Kadri Barclay, Head of Marketing at LIFT99
In the last 12 months, I’ve met & spoken with more than 500 startup founders. Exactly 8 times I’ve followed up with an angel investment.
Investing is my side project & I am still mostly a startup entrepreneur, with sleepless nights & 23-hour work days. But there a few things I have learned from the privilege of seeing things from both sides of the table - the point of view of an investor, as well as a founder.
The Why of Becoming an Investor
Before jumping into conclusions, it is super important to understand WHY would (or should) anyone even be an angel investor.
The hope for return of investment is an obvious answer. But that is far from the best a young founder seeking to raise funds can aim for. Best investors come with real experience. They know what they’re talking about & they know what to look for to really help the founder. They become invested in the journey of the founder & cheer for success for the sake of unique impact the startup can bring, not for the annual revenue per se.
As an active member of the global startup community, I’ve discovered there’s a big gap in the availability of Pre-Seed investments in large parts of Eastern Europe; but also in Asia, Africa & Latin America. These regions are missing an experienced community of angels.
Because of this, founders in these regions are having a much harder time raising Seed & Series A Rounds than folks in Silicon Valley, NY, or London. Also, it’s easier for a single extremely bad investor to turn a sprouting startup into a zombie. One might argue that an investor leading a startup to its early death is not a necessarily a very smart or experienced one.
And that’s precisely my point. When investors would focus on making an impact instead of money, the above-mentioned “challenging” regions would start to reveal potential we can’t even properly imagine today.
The 5 Things I Look for Before Deciding to Invest
1 - The Founding Team’s Story
I’ve said many times before - it all starts (and ends) with the team. I love getting to know the people behind a great idea & building a meaningful relationship before even starting to consider an investment.
The best examples are Dashbird & Modash. Before raising rounds, both teams were long-time members of the LIFT99 Tallinn Hub community (Modash still is to this day). Talking with them every week, even catching up with them in the kitchen & seeing them working non-stop on their ideas, really convinced me that they are extremely hard-working super-humans!
To be more concrete, here are the questions I usually ask myself as I evaluate the team:
Are they cool enough that I’d invite them to my own home for dinner?
This is something I added to the list after inviting the Modash squad over. And how much more I started to like them after seeing them open up in that environment.
Would I hire these folks to my own team?
To tell you a secret, I actually was trying to recruit Modash’s CEO, Avery. No luck - Avery was way too committed (and that’s a good sign!) I attempted to lure Taavi in even before he became the CEO of Dashbird.
Are they SO good I could imagine them as co-founders in my next startup?
Outfunnel’s founder Andrus Purde worked 6 years in Pipedrive as the Head of Marketing, building up the user base of paying companies from 0 to 40 000. I have no doubt in his capabilities or long-term dedication. A clear yes!
Will they give back to community if they’re successful?
Since the investment, Veriff has really taken off & is now one of the next #EstonianMafia unicorn candidates. And it’s amazing to see Kaarel giving out the support he once desperately needed - by now, he has helped 2 other founders to get into YC (an accelerator that launched his own startup to success). And another example - when Modash raised a round last November, Kaarel was already among the investors. This is how the chain of impact will carry on.
2 - How Far Can the CEO Jump
In a young startup, the role of a CEO can fall on any one of the founding members. The responsibilities will divide, change, and grow. It’s crucial to understand if any of the co-founders has what it takes to be the CEO of 400+ person company?
It’s one thing to be a part of a fun (yet super challenging) project & something completely different to be a leader for hundreds of employees & handle the business aspect of a scaling startup. I firmly believe that the best CEO’s are the ones who are not hired mid-way but have been with the company from the very start.
The person with the growth potential to become the CEO in the long run, is the person I’ll be spending most of my time with, if they need my help! What do I look for?
Self-confidence & positivity
A founder always has to be somewhat naive, stubborn even, to stand for what they believe in & hack their ideas into reality. When million things can go wrong, it’s much more useful to focus on what could go right, instead of what go wrong. Keeping this mindset (and encouraging your team to move forward at the same time) requires lots of confidence & a good dose of self-awareness.
CEO is the best sales-person
Can they pitch it? Can they sell it? If not, there is no hope. Robin, the CEO of eAgronom regularly travels to whatever country eAgronom’s customers are - he spends weeks at a time on the fields of Poland to keep the farmers engaged & convert new users. And fly straight to the next country to repeat the process all over again. He’ll walk through walls to deliver.
Willingness to make big risks
Life in an early-stage startup is pure craziness! To survive one has to keep on moving. Fast. And make bold moves. Avery seems to have mastered one of the tricks to achieve that: “... as you’re willing to ask someone way smarter than yourself what to do in a certain situation, you skip “inventing the bicycle” and move forward much faster.” He uses every single opportunity to connect with people who are smarter than him.
Taking big risks might seem crazy from the outside, but when there is hard work & informed decisions behind it, then maybe it’s not crazy. Maybe it’s genius.
3 - Will We Make a Positive Impact with This
Frankly, I still feel too dumb to invest into a startup without a working MVP & at least $2000 MRR. There needs to be SOME market validation for the investment to be impactful.
I always look super closely into what (and how) the founders are building right now. Even though the focus could change in future, there is always a “core ingredient” that will likely carry on throughout struggles & pivots. I want that core ingredient to be contagiously exciting!
How do I know I’m looking at a product that’s really worth the investment?
Why is the team so excited about the product?
What positive impact will it have in the world & can it make the world a better place, truly?
And an extra challenging one - have they managed to turn me into its biggest fanboy?
I still remember how excited I was about Veriff’s verification tool when Kaarel showed it to me back in November 2017. I called Pipedrive’s co-founder & the most talented techie Martin Tajur immediately. He later joined Veriff as a hands-on advisor & investor, after just one meeting.
Or when eAgronom’s CEO Robin Saluoks shared his vision about the future of agriculture. He knows his field & imagined a whole new future for it!
These “Holy Shit!” moments are crucial.
4 - Will My Network & Know-How Be Actually Useful
As a founder, I know that 90% of investors don't have the balls to be the first committed investor. And just how annoying it is to hear the exact same story over and over - “Very very excited, keep me posted & let me know if you have first committed investors”. This is wasting founder’s most valuable asset - time!
Last year I learned that I really enjoy being on the opposite side of that. My first real contribution when approaching founders could be that I take initiative as the investor who builds up a meaningful syndicate of smart angels or VC’s. The list of investors, who actually read & reply to my messages has grown now to 200+.
Things I’ve learned to ask myself before deciding to take the lead:
How useful & relevant is my personal experience & know-how for this startup?
So far I have invested only to B2B startups, as I simply understand this playing field much better. This being said, my first B2C startup was signed just week ago (it is not public yet), so this is not a 100% rule. Investment opportunities are also forcing me to grow - the impact we’re talking of is a two-way street).
How many folks in my network could be useful investors for this exact startup?
In Dashbird’s case I emailed 40+ people & Taavi met with half of them in Berlin, London & San Francisco.
Are they really so brilliant that even YC people would be excited about them?
Joining an accelerator is not something that all startups should do, especially since very few of the gazillion accelerator programs out there can actually offer any real value to a startup. But, after helping 3 startups climb to YC’s radar, I have seen how the truly great accelerators can help certain startups, in certain cases.
5 - What If This Investment Goes Down In Flames
Not to sound pessimistic, but let's keep in mind that 90% of startups fail. That’s just statistics. Many things could go wrong. And many things WILL go wrong.
My final questions are always:
What could I win & learn from this journey if the startup fails?
Can I imagine investing in the same founders if they start their next company?
Since I know & feel the struggles of a founder first-hand, I would never sign an investment document that wouldn’t be super founder-friendly & which I wouldn’t sign myself as a founder. Simple as that. I genuinely love to help founders - it is in my DNA.
So even if it doesn’t work out, it’s ok. I was in it for the impact. That includes the impact on the growth of the founder. Like myself, many of them will try again, and again. Each time that much wiser from the experience.
If they’re the kind of person that can truly learn from the priceless experience of failing & start again with something thats heaps better than what they had before, I would likely invest in them, again. Once I see myself potentially being on board for the long ride, through wins & failures, it’s always much easier to make the initial investment decision!
I am still super rookie as an angel investor, my failure rate could be even worse than 90%. And I admit, my biggest challenge as an investor is saying a fast & clear no.
But, in many cases, after saying no to a startup, I will help the the founders anyway. Seeking the impact is what I do. As a founder. As an investor.
It’s in my DNA.
Read more about LIFT99’s investment policy & history at page of Investments. As of February 2019, 7 startups (with a few more to be announced in the near future) belong to LIFT99’s portfolio: