As a tech startup entrepreneur, funding is always on the back of one’s mind in order to grow the startup and build traction. I usually do not recommend to approach an institutional VC or any angel-staged startup (an idea and no MVP or traction). VCs tend not to place bets on such risky ventures and would give you the standard goodbye salutation of “Come back when you have more traction / developed your MVP.” Even if you did convince a VC to put money in at so early a stage, it becomes the most cumbersome bureaucratic experience, and you find yourself spending more time being accountable to the VC rather than focusing on building your startup. (Sorry dudes, the VC has a reporting structure to follow, so you have no choice but to follow it since you took the money.) Entrepreneurs should seek out angel investors instead to fill in the initial funding gap. Angel investors are an interesting breed in Singapore and greater Asian region. Given that the startup ecosystems are fairly less mature than US or Europe, the angel investing community tend to be less sophisticated and comes in very interesting shapes and sizes. Gathering from the many conversations from my 1-to-1 advisory sessions with startups, I consolidated a list of characters of angel investors that Asian startup founders shared with me.
Angel 1: The friendly old retiree uncle who wants to do good deeds
This angel is a man (or woman) who has retired and built up good finances. His children have left the nest and migrated overseas, and he spends most of his time playing golf to tide his time away. He could be your friend’s father, or just introductions via mutual family members. You get the chance to meet him and he dotes on you like a newfound son whom he never had. As you share your pitch deck to him, he smiles warmly, even though he cannot understand you as you stammer through the pitch. He then says, “How much do you need to start this?” You ask US$50k and he nods as he pulls out his ancient-way of issuing money: a cheque book. And he tears the proliferated part of the cheque and passes it to you. As you feel so grateful to him for believing in you, you promise you will send him the agreement. He brushes it off and says, “I trust you.” No directorship? No preference shares? Just a 5% stake in the company? You start to think what his ulterior motive is. He shares that he doesn’t have much needs in retirement and wants to give back and nurture the next generation. Maybe this man is trying to build good karma for himself for helping you? Or maybe you just got lucky? You end the meeting with tears of gratitude, ever wondering if you will ever pay this nice angel back with good returns. Also read: The Philippines needs to develop a good angel ecosystem; muru-D Singapore Head
Angel 2: Supportive family and friends
This is quite a common theme I get from startups which can be both heartwarming and treading a fine line in relationship dynamics. Some entrepreneurs are just lucky. When they want to do a new startup, family and friends rally to their cause and they will each invest a small amount. Together it becomes the angel round where many just want the entrepreneur to succeed. But the expectations and pressure become different. You don’t want to be seen posting pictures on Instagram for a holiday soon after receiving money. Or when you are facing some crisis in the startup, it becomes hard to share to your newfound angel investors, as they are more worried about their money than your emotions. Nevertheless, if entrepreneurs are able to tap into this funding and having clear expectations on how the fund is used, family and friends will become great ambassadors and supporters for the startup.
Angel 3: The fu-er-dai former classmates
They studied in school or went partying together with you until the wee hours of the night. You could have also visited or stayed overnight at your buddy’s huge expensive house or went out with him in his flashy sports car. This is something that is rarely spoken in the startup world, but connections, money and power are important components to aid a startup to success, especially in Asia. The term fu-er-dai was defined as children of the nouveau riche in China. And while the term is considered perjorative, it is now a general label of anyone with rich parents and privileged upbringing. Chatting with private bankers who work with generational families, they have seen their clients’ children having disinterest in continuing on with the family’s traditional business. A good number also open to investing new risker challenges, given life’s needs are well taken care of. These fu-er-dai are also interested more on vanity, where they like to humble brag among high-net worth friends that they have invested or got involved in the next rising startup unicorn (which is you). While they may need to seek approval from their parents to release funds, it is generally easier for a millennial entrepreneur to obtain angel funding from them, given the prior relationships. They may also provide you necessary connections from their family business to get your startup running. Also read: I met with some of the biggest angel investors in Southeast Asia, and here are some insights I learned
Angel 4: Wealthy busy successful PMEBs
Another interesting source of angel funds come from fairly successful PMEBs who are above 35. They are newly minted low-digit millionaires with established and stable investing portfolios that generate good returns. In order to excite their portfolios, they would look to investing a small amount into businesses. They are very busy in their current line of work, whether they are bankers, lawyers or consultants. It is a common occurrence that these PMEBs would invest in more traditional businesses like restaurants, bars or education centres. However, I have started to notice a rising trend of startups that I advise are now having angels which come from this category. The angels are usually more receptive to SAFE agreements, rather than traditional ordinary shares, and more sophisticated in understanding the business. These angels will be useful in terms of supporting the business, like advising on business contracts or how to structure a company for investment. They are usually also tied up at work and usually leave the entrepreneur to build the business and get updates on a quarterly basis.
Angel 5: Strategic customers / suppliers
Lastly, a startup, which may have identified a gap in the industry, may also have champions and supporters via its future customers or suppliers. Suppliers have stepped in to offer a small amount of funding to take a strategic stake, believing that it will help in the future forward integration or as a new developed sales channel. For would-be customers, they see the potential of how the startup will help them resolve their pain points. They would feel that it is prudent to invest into your startup to gain access and knowledge to your steps and eventually hope to acquire you to integrate into their group, should your startup prove strategic value.
While people may be amused at the types of angels available in this part of the world, entrepreneurs have taken the step of faith of working with these angels to obtain their funding. Who knows, after reading this article, it might just have triggered you to realise how close an angel is to you now. —- This is part of the “Startup Clinic Advisory” series.
This article first appeared on e27.
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