Robin Leigh is a highly experienced private angel investor and deal structurer, with extensive knowledge of investing in the UK and Asia. In the first of our two part interview, Robin details his shift from corporate finance to early-stage business support and the importance of trust and transparency in investor-founder relationships. He also reveals his key criteria for backing startups, why ‘under promising’ and ‘over delivering’ is key.
Why did you become an angel investor?
With my background as a qualified City lawyer, corporate finance adviser and McKinsey consultant I realised I had a wide range of skills, useful to small businesses but which they can’t typically afford. So as well as investing I enjoy taking an active role in business-building where I can lend those skills to the startups.
My focus is less on particular sectors or types of opportunity, since I recognise that I lack the depth of expertise to spot future directions in particular industries. Also current macroeconomic uncertainty with geopolitical and interest rate volatility make predicting the future very difficult.
Instead, I look to back entrepreneurs with the expertise to spot opportunities which are either unserved or poorly served. So I start with the specific business opportunity and then dedicate time to understanding and assessing the relevant sector, rather than first prioritising sectors and then looking for opportunities within those sectors, a common approach for an angel investor.
What are the key foundations to building a strong relationship between investors and founders?
I’m afraid I’m unlikely to offer any great novelty here…it all comes down to trust, and the foundation of trust is transparency, at least for me. I also have investors and partners in many of my projects, and my approach with all of them is to communicate fully, openly and promptly; no one likes nasty surprises, especially if it’s too late to do anything about them.
I operate on the basis that people can choose not to read information that I send them. If they don’t feel the need, but they clearly can’t access whatever I don’t share. My approach, and what I prefer from founders, is both ‘under-promising and over-delivering’, and ‘more rather than less’ when it comes to communication. A long email explaining a problem and asking for input might not be welcome, but it’s a lot more welcome than just being told after the event that something has gone irreparably wrong. Especially when there might have been a path to a better outcome if only timely counsel had been sought when dealing with an angel investor.
What common misconceptions do you encounter among founders about the fundraising process, and how can they better prepare themselves to address these?
Being so close to their idea, and so committed to it, that they find it hard to understand why an outsider isn’t immediately excited by it as well – and sometimes even offended when asked questions testing the robustness of the idea or to understand what makes it so compelling.
Not understanding that, at least for more nerdy investors like me, passion about the idea is necessary but not sufficient; I also want to see financial projections, based on reasonable and justifiable assumptions, to show the economic viability and potential of the business. Importantly I want to understand what the exit is, as well as what protections I have along the way as a minority investor. That’s something every angel investor should consider.
Not being familiar with the details of the process, and therefore both how long it can take and that formal, quite detailed documents are required. This is mainly to reduce the risk of disagreement in future by ensuring that everyone has a clear common understanding about deal terms, rights and obligations on both sides, and general expectations.
What are the most important factors that lead you to back startups today and has this changed over the years?
I only have a few key preferences. Some of which are more personal to me than being generally applicable, and these are in part based on my experience that many investments are unsuccessful. Before they fail they can consume a huge amount of my time as well as the cash that I’ve invested. So I would rather focus in part on reducing the risk of failures, to preserve time and capital, even if it means not backing something that could be ‘the next Facebook’. These preferences include;
(i)Business-to-business rather than consumer-facing, as acquiring consumers directly, no matter how amazing your product or service, can potentially involve significant cash burn on marketing for uncertain results in a very crowded market for consumer attention.
(ii) A sustainable, defensible competitive advantage which will make it hard for ‘me-too’ competitors to steal share after the concept is proven. Ideally this is in the form of relationships and know-how which would be hard to copy, rather than hoping to use formal legal action to fend off would-be competitors since this is expensive, time-consuming and uncertain in outcome.
(iii) Preferably some form of realisable assets on the balance sheet, which give potential collateral for borrowing (providing capital without dilution) and/or residual value for investors if the business fails.
(iv) Founders who are unafraid to say “I don’t know” or “sorry”, to ask for help and to share problems as soon as they happen. Also responding to problems as an exciting challenge to be solved and not a disaster or something to be hammered in to submission. Being trustworthy and having high integrity, with the ability to build and inspire a team, go without saying when partnering with an angel investor.
(v) Reasonable market potential to get to a scale supporting an exit, ideally without the huge step change in complexity that can sometimes come with relying on entering a new geographical market to achieve this scale.
These preferences haven’t really changed over the years since I’d already developed most of them whilst investing at UBS.
Can you share a specific experience where an unexpected challenge influenced your investment decision, and what lessons did you learn from that situation?
This is surprisingly difficult to answer, and nothing specific springs to mind. The only answer I can think of is more generic, and this is that I often look to structure an investment in tranches, so that I invest subsequent amounts once agreed milestones are met. This approach aligns interests between the founders and the angel investor.
The milestones are based on the founder’s own business plan, with cash requirements linked to stages of development in the business. This helps keep everyone focused on delivering what has been agreed and driving the business forwards, but also makes sure that we all sit down and discuss how to proceed if the milestones aren’t met.
In next week’s interview Robin reveals key strategies for navigating evolving markets and the benefits an experienced investor can bring a startup as a ‘thought partner’.
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