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The spotlight is usually on the most active VCs leading massive rounds across the board. But what about those relatively unsung heroes that fill the pre-Series A funding gap where others are too cautious?
We had a chat with Michael Blakey, a Singapore-based angel investor of 16 years, to learn more about the do’s and don’ts of fundraising and leg work startups should do before asking for money.
After plowing away at the UK market for 13 years in London, Blakey turned his gaze to Asia and began investing in startups in Singapore. Reason for choosing Singapore is simple: As he co-invests in all of his deals, Blakey needs to be based in a vibrant venture community where most of the funds are set up.
Among his portfolio of 25 early stage companies (five of which have exited), 6 are from Singapore. Unlike other angel investors who back companies while pursuing other projects, Blakey is going at it full-time and acts as a mentor and investor to many pre-revenue companies. While his preference is B2B, he told e27 that Singapore startups seem to be more prone to go B2C.
Above due diligence, relationship building is everything
Blakey has dealt with a lot of entrepreneurs and co-investors in his time and what he’s deduced, after almost two decades of being an angel, is it is all about building relationships.
“As a startup, people talk about due diligence — but if I’m investing in a startup, how much due diligence can I do? I’m really investing in an idea and the people. It comes down to how much I really like you. I can never invest in someone I didn’t like. Part of that is I want to feel that you want to work with me — some entrepreneurs are like ‘just give me the money and go away,’ and they think they know absolutely everything.”
He advises startups to begin engaging with investors six months to a year before expecting to close a deal. The good way to break the ice is to build a mentor-founder relationship before asking for financial support.
One tip is to go to an investor but don’t ask for money, ask for some advice. Investors are always looking for investment opportunities, so if you go to them asking for money their expectations are going to be very high. But if you ask for advice, then their expectations will be slightly lower.
Be politely aggressive and professional
After the initial meeting, Blakey said that entrepreneurs should immediately follow up and give the investor an option — whether it be penciling in a meeting in two to three weeks time or sending monthly updates.
“I always tell entrepreneurs that I mentor: Before you go to sleep that night, you should drop an email to every investor you thought was really interested and that you’d like to get on board. Drop an email and get a meeting, it shows professionalism,” he said and noted that the way startups treat an investor is a direct reflection on how they’ll treat their customers.
If you’re trying to sell to a corporation, are you going to treat them the same way you treated me? You may not always be fundraising but you’ll always be looking for investors for your next round. You never know when you need money.
Angels want to feel they can hit 10x their investment
Besides founders that exude likeability and professionalism, Blakey is also looking for the right numbers when startups are presenting their business plans. He urges startups to be realistic, not conservative with their projected sales but that those big numbers must be backed up with a savvy route to market and well thought out assumptions as to how they’ll reach their goals.
Investors aren’t just looking for successful businesses, but for high-growth businesses. I prefer to go high-risk and high-return, I want to make big money doing this. Most angels aren’t just looking to build a company to US$10-million. If they can build a company to US$100-million, they want to feel they have the chance to make 10 times.
Although Blakey hasn’t hit the 10 times as of yet, he has had one of his portfolio companies return double his investment within a year and he revealed that the best he’s done is six times his original investment. While some angels only invest in one round, Blakey stays involved throughout numerous rounds once he is brought on board. In fact, he once joined in six rounds with one of his companies which resulted in an exit. Patience is indeed a virtue.
Get a lead investor, the rest will follow
Blakey likens gaining investor interest like “herding cats” where VCs and angels alike will “sit on the fence” and ask for the terms. His advice to startups who are in this situation to filter through the inaction and look for someone to take the lead.
The first person you need to find is a lead investor, then the rest of the money will fall into place. What you want to do is once you have momentum, you need to close it but you won’t be able to unless there’s a lead investor to pull it all together. The lead investor is usually the person who knows a lot of other investors that they co-invest with.
To sum up Blakey’s tips for startups: Get a head start on engaging with investors, be realistic not conservative with your numbers and prioritise seeking out a lead investor for your funding round.
This article by Iris Leung originally appeared on e27, a Burn Media publishing partner.