Enterprise Tech Angel Investing: The Inside Track
Partner, Octopus First Cheque Fund - Cyber Security Angel Investor
This month’s LNETM event took a slightly different form to usual… Rather than the common panel of speakers, I moderated a discussion with just one: Dan Scheinman.
Why? Well frankly Dan has enough impressive experience to make up that panel all by himself. From 18 years at Cisco to now around a decade of uber successful angel investing, he has a lot of expertise to share.
But I’m getting ahead of myself. Before we started the fireside chat, we had two brilliant presentations from emerging enterprise tech stars focusing on optimising work in the changed landscape of employment and flexible/remote working. First, Antony Vallee talked us through Teamed and their platform for enabling companies to employ talent globally. Next Christopher Batts told us about Setyl and their device and subscription management tool aimed at CFOs. Both impressive products, thank you to Antony and Christopher for sharing with us!
We were lucky enough to hear from Dan on things spanning the range of his career in angel investing, from starting (interviewing for venture funds and, in his words, being told he was ‘old and stupid’) to where he sees things going from now.
What many people listening in were of course keen to know was how does Dan select the companies he works with? A lot of that seemed to come down to the founder themselves.
He works with ‘Passioners’. People who have the drive and commitment to be a success. They should be passionate not just about their product, but about solving the problem that their product tackles. If their product is found lacking, they will look to solve it in a different way, rather than being too attached.
He also searches for people who have been overlooked. Take Zoom – rejected by many before Dan got involved. He rejects conventional wisdom around investing and due diligence and goes with his gut – does he think this founder can be a success? Then good, he’ll work with them.
There was a time when Dan strayed from his usual method, and he says he regrets that now. In a field he didn’t have much experience with, he went to experts to help evaluate a company. Of course, when looking at people who have been overlooked by the masses, the so-called experts are unlikely to advocate investment – and they didn’t; so he didn’t. They went on to be very successful and Dan says he kicks himself for not listening to his gut.
It’s easy to say be a ‘Passioner’ but how exactly do you convey that… what else do you need to do? Dan was kind enough to tell us about what doesn’t work for him… and also what does.
Firstly, the founders must be the face of outreach. It’s no good to have sales-person send a deck to Dan – he’ll disregard it. And on that note, you’re not selling to an investor – you’re pitching for investment. So, act accordingly and do not send your usual sales deck.
Dan fully believes that the founder must be the main salesperson of the company – they need to know how to pitch their own product. If they’re a technical person, for example, and not experienced in this… they should learn.
Outsourcing sales at the point of scaling generally means hiring someone who will be the CEO – and the founder will likely struggle to let go – leading to (to poach a phrase from Dan) the dreaded ‘founder drama’ and conflict.
So that’s what not to do. But what should founders do? Dan covered that too.
Investing at an early point is about investing in people, not so much product. So, it should be highlighted why a team has an unfair advantage in the market they’re targeting. Why are they the right people for the job?
Another important focus is the go-to-market plan. Without this, a product will flop. It must be clear that founders know that and have put thought into how they would approach this. Without a plan, money will simply be wasted.
We’re in a slightly unique situation right now, where the market is flooded with capital. On the surface, this sounds like a good thing for founders (even if perhaps not such a good thing for angel investors like Dan).
Well, you’d be right about one thing – Dan admitted it’s been a difficult time! Going as far as to use the words ‘existential crisis’… Worry not, he’s fine. But things are a bit difficult in this market. It’s more and more challenging to find those overlooked founders he searches for. He explained that there’s a growing arrogance amongst founders believing ‘if you don’t sign today, someone else will tomorrow’. With huge funds sweeping the landscape and throwing money at every opportunity, there’s not necessarily a space for an investor who starts with a smaller amount of money.
However, it’s not all roses for the founders either. Dan explained that though a lot of initial stage funding is being thrown around, it’ll get trickier to get funding with these goliath funds the further into the process they get. You simply don’t get that same ongoing partnership and support as you do with someone like Dan. Something to watch out for.
What does that mean for Dan? He’s not sure just yet. He said he’ll see how things play out. Perhaps it’s time to take a break. There’s no doubt that the wealth of funding opportunities will dry up sooner or later.
Finally, we concluded our conversation with some parting advice from Dan – to both founders and investors: have fun with it. The best thing you can do as an investor is work with founders who you like, and the best thing you can do as a founder is work with investors who you like.
Honestly, that’s just the tip of the iceberg of the wisdom shared by Dan on the evening – hence why you should definitely catch the next event in January live. Thanks very much to Ian Ellis and LNETM for a great experience – I took away a lot and I hope everyone else did too!