1/10/100: A simple strategy for aspiring angel investors

Before getting into that, let me provide some basic context and state clearly that:

1. I’m no “expert”
2. I’m learning every day
3. I don’t have millions of dollars to invest (right now). I invest anywhere between $250 (ECF) and 10k (pre-seed rounds, group angel deals etc.)
4. I’m investing primarily to back companies I think can help design a better tomorrow. Economic upside is a supplementary outcome
5. I do only invest what I can justifiably ‘lose’, and
6. I’m sharing in the hope it benefits folks around the world who are in a similar position and just want to get started

My story (short very version)

I started investing a little over four years ago (at the rime of this writing). My first investment was 5k. Rather surprisingly, 18 months later there was a liquidity event (IPOs tend to happen much earlier in Australia than in other jurisdictions i.e. North America). Although the stock price has fluctuated a lot since then, it turned out to be (selling on the day of the IPO) about a 5x return.

I then made another investment in 2018. Yup, just the one.

Since the start of 2019 I’ve made an additional 42 investments. This is mostly because I committed to make 20+ investments per year. The number is less important than the intentionality of the approach. It’s about learning by doing. It’s about becoming better so I can eventually transition more of my focus towards ‘professional’ investing (with the backing of a fund).

Check out my LinkedIn profile for more.

My thesis (the short version)

The most trustworthy organisations will develop the best relationships with their stakeholders. These high trust relationships will result in greater value, meaning and engagement. Greater value, meaning and engagement will result in a competitive advantage. These organisations will take leadership positions in their ‘category’.

This is backed up by a more nuanced moral philosophy (not for this post). I only invest in firms I believe exhibit:

1. The qualities of trustworthiness, and
2. Have excellent value, meaning and engagement potential (a distinct model called VME Designed is used to determine this)

I’m explicitly investing in organisations I believe can help solve meaningful problems that will make key aspects of our existence fundamentally better (better technologies, better social systems, better political systems, better economic systems, better food systems, better energy systems etc.). I’m doing this in alignment to my ethical position/s. As a result, although I believe I can effectively evidence and justify my positions (after all, ethics is a decision-making process), there’s a lot of subjectivity at play here. I recognise and am comfortable with this.

My process (as of right now)

It’s important to note upfront that the ‘deal flow’ part of any process depends on lots of different factors. I don’t have a fund. I don’t have an amazing network. I’m not a high profile investor. Therefore my deal flow might best be described as pretty ‘weak’.

As a result, my deal flow results from a combo of:

1. Me directly reaching out to founders on LinkedIn
2. Founders directly reaching out to me on LinkedIn, and
3. Equity Crowdfunding platforms

I don’t use AngleList etc. effectively. I also don’t spend much time doing this. It’s not yet my ‘day job’.

From there, I’m looking first and foremost at the startup’s mission (long term view of the world and specific problem/opportunity space), the governance structure, the founders, the progress and behavioural demonstrations of trustworthiness.

I’m effectively looking for ‘ethical fit’ here.

If it’s a pass, I move onto the specific problem/opportunity space in a little more detail. I’m trying to understand if it’s a problem worth solving (PWS) ie outcomes people value a lot but are dissatisfied with current solutions.

If it’s a PWS (that is growing by more people wanting it or the same number of people wanting it more frequently. Both is better), I move on.

I then look at the VME of potential of the startup. Given the amount I’m investing, this is usually a speculation from my part (Likert Scale 1–7 for each of the three categories). I don’t actually conduct formal VME research with their customer or stakeholder base.

If things look promising, I ask specific questions of the founders and then make a go or no go decision.

For the purpose of brevity, this is grossly oversimplified. If you wanna dive into the specifics, reach out and we can talk.

My portfolio (as of today)

Because of the above, my portfolio might appear very broad.

Here are three examples to demonstrate this:

1. Joyn Social Media: I wrote the first check for JT and Soph. They’ve made great progress since. They recently won the Betaworks ‘Fix The Internet’ hackathon. They’ll have product in market early 2021. Although it’s unclear whether their approach to social technology is ‘right’, I’m confident that they can contribute to meaningful progress.
2. Element Apothec: There are a lot of problems in health care (sick care) today. Although the endocannabinoid system and therapeutic/medicinal uses for cannabinoids aren’t super well understood, I think the current research suggests there is promise. This is a market worth paying attention to for lots of different reasons. The founders of Element Apothec are explicitly focused on designing an organisation for the qualities of trustworthiness. When it comes to stuff like our health and wellbeing, knowing where to place our trust matters. I’m excited to see what Davina and the team can achieve.
3. Heaps of food stuff: About half of my portfolio is food system related. Here’s why.

Environmental impacts of food production

With the context out of the way, let’s get onto the strategy.

The 1/10/100 strategy

A plan of action designed to achieve a long term or overall aim.

That’s a usable defintion of “strategy”.

So, assuming your longer term aim is to become a more active, and potentially even ‘professional’ investor (one of my longer term aims), here’s a simple strategy that makes it easier for a lot of folks to get started on the journey.

Every year you invest in 10 companies. Each investment is $100. You do this via Equity Crowdfunding Platforms like Crowdcube.

This will get you started. This decreases the difficulty and helps make the desired behaviour easier to do.

Once you’ve got momentum, better deal flow, better exposure and more capital to invest, you can evolve and ‘mature’ the approach.

My challenge to you

It’s pretty simple. Give this a try. Share what you learn in the process. The more of us learning together, the better.