y unlikely to look much like the last big success.
For many years after Trade Me people would ask me specific questions about how we did things at Trade Me, and often my answer was “it’s irrelevant, because that was 1999 or 2000 and the world has changed since then, so you can’t do it that way now”.
Similarly, lots of people have been inspired by how Xero was listed so early, for example, without thinking about the specific things that enabled that to happen at that time, which are very unlikely to apply to any other ventures
There is also a huge survivor bias that influences the narrative around successful start-ups. We typically only hear from those companies that achieved great things, when actually we’d probably all learn a lot more from understanding what went wrong for those that didn’t.
So it’s all kind of interesting, but not very useful. For founders and investors today, I think the challenge is much more about understanding what things are required in the current moment to be successful, and what things are going to be influential in the future, than in deeply understanding a small skewed sample of successes from the past. The people we’ll talk about and study in the future will be those who come up with unique and impactful answers to those questions.
So does this mean you bias towards first-time founders? Does being a “serial entrepreneur” confer any advantage in your view?
No, I think I actually have the opposite bias — two-thirds of the ventures we’ve funded have second-time or third-time founders. But I’d make the distinction between those folks who have been really successful and now think they can just apply that same pattern again and again to future ventures vs. those who have had a more difficult time, but come away with some useful scar tissue that informs what they will do differently in their next venture.
How have you built your portfolio? What does it look like today?
One venture at a time, and never with the intention of building a portfolio.
I only invest where I have pretty high conviction and want to work on the business for years to come. I’ve passed on investments which I wasn’t sure about for various reasons which have gone on to be great companies, but that’s okay — I’m relaxed about others getting rich from them if and when they go well.
In recent years that hurdle has gotten quite high, because my constraint is time not money.
In total I’ve invested ~$8m in 29 ventures since Trade Me. Of those, 16 are still active investments today, including Xero, Vend, Timely, Atomic, Melodics, Aroa, Memtemia, Parkable and Thematic.
For finance geeks: our IRR over 14 years is ~44%pa. The exact returns and valuations are private, but the multiples are healthy! 😀
What do you look for in an angel investment? Has that changed over time?
When you invest in the early stages there isn’t often much to go on. It can sometimes feel like trying to grab a cloud.
The one thing you can judge is the founder/s, so I spend quite a bit of time on that. I love founders who are scrappy generalists, with a diverse mindset, who are numerically literate and who demonstrate they listen and keen to learn (the very best pitches start with “We’ve learned…” imo). Interestingly, if you look at the investments I’ve made that have been successful one thing they all have in common is I knew the founders involved for some time prior to making the investment.
I make a conscious effort to get to know new founders I think are interesting ahead of any investment discussions. In the past we’ve hosted events where founders can connect with other founders, and specifically invited people we wanted to get to know so that group continues to grow.
But, it has changed over time. In fact, the way I have invested successfully in the past may no longer exist, because now there is so much more support for great founders. There are a lot more people who have relevant experience working in high-growth teams like Xero and Vend who can apply that directly to new things, and there are many more different ways to raise investment to fund those teams than was true in the past. So folks can typically get much further themselves without needing the sort of help I’ve provided in the past. That’s okay — I see that as a positive sign rather than something I’m sad about. For a long time people have talked about wanting to build an ecosystem from the top-down, and I’ve always been skeptical and critical of that working. But what I’m seeing now is an ecosystem emerging from the bottom up, and that is exciting.
What are you most excited about right now?
Right now, I’m not actively looking to make new investments; I’m focussed on the things I’m already working on.
The latest is All Hands, which is something new we’re starting with Nik Wakelin, who is one of the great founders I’ve worked with multiple times now.
Working in a larger engineering team in London, Nik learned how expensive and ineffective traditional “everybody stop and listen now” team meetings can be. All Hands is a better way to keep your whole team in the loop.
It lets you pre-record updates from you and others in your team,even if they are in a different location or time zone, so everybody has the information they need to make better decisions and they can each decide when and where to watch. Plus, we create a feedback loop for organisers and presenters so they can improve and meetings get more useful over time.
We’ve just recently opened this up to some early customers, which is always an exciting stage in any new venture.
What would founders you’ve backed say about you?
I’m interested to know that too, you should ask them!
[John side note: the founder’s Rowan has backed say incredibly nice things about him. The themes are: hands-on, respected, pragmatic, founder-centric, reliable.]
What advice would you give to founders seeking their first angel investment? What advice would you give to a first-time angel investor?
Most people, when they start out investing in early-stage ventures, think that their job is to pick the best ventures to invest in. But actually it’s the other way around — the best founders can pick their investors. So the job is to be the kind of investor that the best founders are going to pick. That means focusing much more on the value you can add to the venture over time than on the amount you can invest on day one, or what the criteria or due diligence process you use is going to be.
In my experience very few investors actually add much value beyond cash, so if you can be one of those then you are already going to stand out from the pack.
If you are a founder looking for investment, my advice is similar: choose your investors carefully. Don’t get sucked into the trap of start-up busking — i.e. pitching rooms full of investors for relatively small amounts of money, in a contrived reality-television format. Work out who can actually help you, then think carefully about what is going to motivate them to be involved and then structure a deal around that so that if you’re successful everybody wins. Prefer people who can help you not just in the immediate round but beyond that as the company grows. Investors are a pain in the ass, mostly, and once you’ve got them you’re stuck with them for a long time, so it’s good to be selective.
What do you know now that you wish you knew when you started angel investing?
I know that AAPL is over $350 per share and AMZN is $2692 per share (compared to ~$10 and ~$40 per share respectively back then). Maybe that would have influenced some of the decisions I made. I thought I was pretty bullish about the impact that technology would have, but I can’t honestly say I expected it to be as dominant as it has been. It’s easy to forget that Xero pre-dated the iPhone, for example.
But, apart from that I don’t think I’d change much! Even the things that haven’t worked out as I’d hoped have shaped the things I’ve done next. I’ve learned a lot, I’ve worked with some really great people, I’ve been able to contribute to a number of companies existing in the world that I’m proud of and it’s been lucrative. Plus I don’t feel like I’m finished yet.
