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“Angel Operators” are shaping Southeast Asia’s startups… here’s what we know about them so far

Angel Operators are a fresh category of investors who have quickly emerged in Southeast Asia’s startup landscape.


Investors in this category are angels with deep operating experience within various sectors who can provide value besides capital. Typically, this means they add operational information and networks within tech companies for early-stage founders looking to figure out processes and hire.


This is what I learnt about some of the operational mechanics of angelling:

  • There are 3 main reasons why Angels invest: Strong domain relevancy, Relationship Bet, Momentum

  • The biggest gap between VCs and Domain Expert Angels

  • Investing as a group matters


There are 3 main reasons why Angels invest: Strong domain relevancy, Relationship Bet, Momentum


Just like it is crucial to understand how a VC invests, it is crucial to understand the investment style of angels in the ecosystem; to understand the signal value of their angel investment.


There are 3 main reasons an Angel invests:

  • Momentum: They have a good idea of what type of teams/business models drive momentum investments by VC firms

  • Strong Domain Relevancy: They deeply understand the industry and the problem that is being solved

  • Relationship Bet: They have a relationship with the team, and would have invested no matter what the team built

Of course, even though it is obvious that a Relationship Bet may have lower signal value than Domain Relevancy, it takes a long time to collect data about the signal value of their investment, which brings me to the Angel Limitation of Time.


One quick note that for momentum plays especially, which form a significant proportion of successful angel bets — a lot of these investments are kept within a tight-knit group of founders, VCs and politically connected folks, and more frequently than not, one is not within these circles. Those who have attended any of the Saison Capital VC Scout sessions I host would be familiar with the Financial Value Chain concept of VC momentum investing.


The Gap between VCs and Domain Expert Angels


Experienced domain experts, or Angel Operators, can see if a problem exists/value is being generated by the business model, but tend not to accurately gauge if a model is VC-fundable.


Not to be unfair, on the other hand, VCs tend to accurately gauge if there is momentum/FOMO behind a business model, but sometimes due to a lack of domain expertise, fail to see if it may actually build long-term value.


This creates a situation where Angel Operators are investing in models which are revenue-generating, and perhaps even profitable, but that may not be fundamentally VC-backable.


VCs may also be investing into hot business models which domain expert angels may not necessarily feel that that investment makes sense.


It is too easy to say that you should invest in the intersection of the two (likely an extremely competitive deal), but it does highlight some common pitfalls when discussing deals with either types of investor.


Separately, one of the issues Angel Operators may face is that the sheer level of data available to VCs allow them to make benchmarks far better than angels. After all, a VC may be better equipped to answer what operational benchmarks are or can be possible/good/vc-backable, given their overview of the market and the data they collect, and the longer-term framework with which they practice thinking. Some Angel Operators, while useful within their domains and companies they work at, may also not necessarily have full visibility into some of the fundamental business levers of their employers [i.e. E-commerce CMO may not fully understand the logistics aspect of an e-commerce business.]


To be explicit, this can also definitely (and from some perspectives, almost always) apply to VCs, but I find it affecting Angel Operators more simply because of the part-time nature of the Angel role.


Investing with a group matters


One way Angel Operators can build a level playing field with VCs, especially in regards to deal sourcing and building a robust data set to adequately benchmark is to work within closed groups of Syndicates, particularly thematic ones.


The shared responsibility for due diligence and deal sourcing lowers the average effort per person, and helps build a better idea of the benchmark required for a startup to be VC-backable.


One thing that some Angel Operators come in with the belief in is that they need to invest a large ticket size to ‘play in the game’. Adopting a ‘Help the Founder first and ask for/be given allocation later’ approach ends up with the situation of Founders frequently being completely agnostic to the ticket size you want to deploy.


One of the things I built on top of this is a Whatsapp group syndicate of Founders that I have invested in, who have now built their companies to a large size and looking to also deploy their own small angel tickets into their friends’ companies.



That being said, my most common advice to folks who are looking to get into it is to be prepared to spend a lot of time observing, talking and learning, and yes, burning money.


I have described angel investing before as the cost of the privilege to work with standout founders, and I think that attitude is the most reliable way to stay competitive, and profitable, as an angel in the long-run.


 

Chia Jeng Yang, Principal at Saison Capital, dives into consumer, SaaS, and fintech investment trends across the U.S. and Asia, builds projects in the venture capital and public policy space, works closely with early-stage (Pre-A) founders and can be contacted at jengyang.chia@gmail.com. Previous work here:http://chiajy.com


Thinking of being an Angel Operator or getting involved in early-stage investing? Check out Fintech Angel Operators or the Saison Scout Program.

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