In a nutshell, ExpertInsights is where we showcase some incredible people whose domain expertise is to help founders succeed, which usually involves raising capital or unlocking business growth. They have insights into the startup fundraising landscape and have a knack for nudging founders in the right direction and thus, will have many gems of advice for founders.  

So, let's dive in!

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So, first of all, let's just start with a bit of a brief introduction. What's your background and how did you get into Angel investing?

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I strangely started out life as a designer illustrator. My claim to fame was that I illustrated Charles and Diana's wedding stamps. That was a longtime ago now! I then ended up as a group sales and marketing director in a very big print-based organisation.

I left there, as it was bought out by a VC and decided to go and help more medium sized companies grow and scale. I focused on putting in sales processes, systems, and showing them how to just evolve to that next level from a growth point of view.

I very quickly realised that I was putting a very big pressure on cash flow for those companies from all of this growth activity. It's one of the things I don't think businesses necessarily appreciate, that growing costs money, and you've got to manage that cash flow otherwise you quickly overtrade.

It's a killer. It really can creep. So you might have the best growth aspirations in the world. You might be knocking the sales out of the door, but your bank balance won't look good today because of it. It might look good in two months when everybody's paid you but you need to manage in between.

So from that point, I decided if I'm going to start raising money for people, I need to understand it.

That decision sent me on a journey where I went to do a master’s degree at Edinburgh University and really got to understand angel investment asa subject, so I could help businesses to successfully raise and scale.

Then courtesy of Archangel, which probably still is Scotland's largest and foremost angel network, (who really established angel investment in the UK), they introduced me to the great and the good of investing and that gave me the opportunity to do some real research into this space.

So, it was a really good grounding. I was able to take my commercial background and now apply that to the investing world.

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"I always say to businesses, if you want investment, you've got to speak the appropriate language. Founders speak French and investors speak German and it is our job to translate!"

You can’t just go and talk about product, because if you go and talk about your product, they can only relate to it so much, but they can relate to a P&L, they can relate to a supply chain problem or staffing issues as that's the world they’ve often lived in and understand.

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What does angelgroups do for founders looking to raise funding?

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We’re a Tech based Angel Group. It’s what differentiates us from most of the other Angel groups in the country. So, Founders come to us and we ask them first to register on our platform.

When they register, we've created some smart rules that automatically match business to potential Angels at registration.

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"Our platform will match businesses with investors by sector, the technology and their skills. So we can go in prior to making a decision for interested founders and say okay, there's 100investors potentially interested in this one, okay, that's big enough for us to take it on."

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We’ll look at their information. If somebody comes along and they register and there are only three or four potential angels, then my approach might be different. I might just pick up a phone, speak to the three or four and see what they think if it’s worth pursuing.

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How much time has your technology and process actually saved from the previous and manual matching of Angels to founders?

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It saves a huge amount of time for every deal. We've invested significantly in our technology and continue to do so as it takes out so much cost, streamlines processes and it qualifies people out quickly and effectively.

Because of our model and the time involved per deal we're not the type of organisation people should come to if they're looking for less than £100,000.

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"There is a cost and time associated with raising money, so it’s a really important point for founders to understand. Raising money costs money."

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We’ve spent years building a network, so we know which doors you need to knock on to get the level of funding that you need at each stage, and which doors you shouldn't knock on. So you are more than welcome to knock on ours at the appropriate time.

A lot of founders feel aggrieved and begrudged to actually have to “pay to pitch” and it’s vital for them to know we don't charge to pitch but we do charge to prepare, and I often have this debate with founders all the time that they feel aggrieved so why do they think it should be for free?

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I have a business, and, in my business, I have to pay for everything, it’s no different.

If you don’t want to pay to access our network, there are people out there that will do these things for free upfront then they're not necessarily motivated to do so, nor will they have our level of technology and network.

We won’t put our reputation on the line to introduce ill prepared founders to our investors. Our investors come to us because they know that we won’t waste their time.

To make them suitably prepared takes time, effort, and skill. That's what people are paying for, just like in any other walk of life.

We fully appreciate that a lot of founders don't have that money to pay upfront, so just like in any walk of life, you've got to cut your cloth accordingly.

If our model doesn't work for people, I'm desperately sorry to hear it, but we have costs associated with our service which we need to cover.

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"Just consider we are no different to the way Seedrs or Crowdcube charge to raise funding. They get the deal done because of the tech they’ve built, the amount of time they spend in due diligence and the preparation and getting things right to start with and that's why investors keep going back to them. We have a reputation to maintain to provide quality."

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The charge for our initial process is £1,500+ vat.

That makes perfect sense. You've got one of the largest curated & engaged Angel networks in the UK. You've honed and refined your proposition to get them pitch-ready.

You've dramatically simplified the process to put them in front of qualified investors quickly, plus the Smart money value within that network is immense. There's just huge value to that.

If someone wants to go and try and find a thousand angels, filter them themselves, then rather than grow your business or pay a small fee then that’s their free choice.

So, when you break it down like that, it's actually so cost effective, it's untrue.

What does the actual process look like?

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Very simply, they don't pay a fee until we've agreed we can help.They go in and they register, and the platform tells us how many suitable investors there are.

If we don't have angels that match the criteria, then we won’t agree to work with the business. Of course, establishing a list of potential investors is no guarantee that they will invest.  If we identify an appropriate number, we'll take them through the process. They pitch at two of the four sessions we hold every month and those can be physical or online. We spend a lot of time preparing them, getting them ready to go in front of the investors. Because, asI say, it's our reputation on the line.

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"After they've done the two weeks of pitch prep, they'll be pitching. It then usually takes about eight weeks to the cash on average - note it can take longer, relative to the complexity & circumstance of the deal."

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How has the recent £250k rise in SEIS been received so far?

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Yes, it's been well received. A few people started inquiring with regards to it. We're busy throughout the year, but for nine months of the year, from April through Christmas, it's us taking messages to our investors.

Then for three months of the year, it's our investors coming to us and saying, right, I've got to get this money invested in something before the end of the tax year, so what have you got?

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"For 9 months of the year it’s us going to our investors with deals, then for 3 months of the year it's the investors coming to us before they have to pay the taxman!"

So it becomes a little bit more intense. They are really pushing to find the right opportunities in that window from January to the end of March.

The period is when investors literally phone me and say, you know,Martin, I've got a million. If you don't find somewhere to put it, HMRC is taking it. So help me out. What have you got?

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That's a very nice problem to have. Music to founders’ ears! So, what's the average raise size and valuation level that tends to work for angelgroups.

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You know, I get asked this question an awful lot. It’s actually the third time today!  

It's the most misleading question for various reasons, that said, our average is £235k and our sweet spot is up to £500k. It’s misleading because if 30 businesses ask us to raise £200k, then our average would be £200k. Our average is not determined by us but by the businesses.  People will come to us if they want £100k to £500k typically and for anything larger we typically syndicate it with other parties.  

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Do all of your investments tend to focus on (S)EIS or are they non-qualifying?

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I'd say the majority are EIS and some SEIS. But we do consider non-qualifying businesses because not all investors are working, so they don't have the tax to offset against the benefit.

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Do angelgroups’ investors tend to lead rounds, make up the entire round or be a small percentage?

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All of the above and it varies per deal. We've just done quite a large deal that ended up about £3m. A company came to us we introduced other syndicates.

One of our lead angels involved the Angel co-fund and collectively, about £3m went in. We put circa £750k in, but we weren't going to put in the full £3m.

That's the angel network benefit. Again, that's making sure that a business fishes in the right pond. If you're raising £2m - £3m, I don't know any individual angel investment networks that will do that amount on their own.

You need a strategy, you need a plan as to how you're going to pull all that together, because you're unlikely to get it from one angel network.

You won't get £2m, you probably need four or five to syndicate.

That's such an important point, about how you need to try and break down your round into chunks and figure out where those amounts are going to come from and what level suits each different source.

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Well, yes that’s the other challenge that we see. For example, if you go to Angel Network number one and you say you are looking for £400,000 aspart of a £2m round then it's conditional upon the other money going in, which can take time and could be perceived as high risk as an approach.

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It may have been a tactically better move to raise less, achieve the investment and then raise again; that's the same for non or syndicated rounds. The more variables added the riskier and more challenging it gets.

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If it does take too long then the Angels could lose their interest because something else big, new and shiny comes into their orbit and it's like, oh, this is a perfect opportunity, so forget that other one.

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Absolutely, that's one of the really important points where some founders want to try and raise too much too soon, especially in the early days.

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Well, it also comes down to the valuation as well.

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It's likely that first £500k is going to be the most expensive. So, if you can find a way to strategise that so that it becomes less expensive and is broken down into parts.

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The downside of taking that approach is you spend more time raising money. And often founders come to me and say, “yeah, but Martin, I want an 18-month runway”.

I hear this challenge from investors all the time, where some investors will turn around and say, we're not going to give you it because they become lazy and they start spending the money on frivolous things, so if they only have six to nine months cash it will make them more prudent. They should make every penny count and work really-hard and as they've progressed, then they can do the next raise at a better valuation.

However, on the flip side I've got other Angels that will argue the complete and utter opposite and say, “no, no, you don't want to be spending all your time raising money. You want to raise as much as you can, give yourself a good runway and really go for it”.

So, make out of that what you will, different views, no right or wrong answer.

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It just shows there's no one size fits all. There's different approaches and people have to see which one is right for them.

It's such a delicate line between how long you spend raising investment and therefore not growing your business.

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Ultimately, it takes a lot of time and effort.  So, the choice is simple, is it your time and effort or is it our time and effort?

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How much do angelgroups investors invest overall per year?

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We never set a minimum level. It's not for us to set. We introduce them to the founders. We light the touch paper and walk away. We have a goal overall of about investing £8m a year.

I imagine it's going to get a little bit tighter this year with the economic environment. I've already seen signs of it, but it's going to get tighter. And I think valuations are going to become more competitive.

Valuations follow the basic rules of supply & demand, it's always the same. When money is tight, then it becomes a buyer's market.

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Moving across now to the type of founders you see. What's the ideal founder for angelgroups look like?

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Honestly. I just want people to be honest.

They think that they can wrap it up in clever messaging and wording and using soundbites like we've had 100% growth in the last three months. But that's from a start point of £5. It's like you're trying to mislead us and you would be just better to be honest with people because they will find that out in due diligence anyway.

Also, it goes back to the point I was making earlier around being able to talk business. Don't just talk about tech or product, understand what the investors need to hear to make an investment decision. I always say that when you're pitching, you're not pitching for investment, you're pitching to goto the next stage in an investment process. So please understand the process.

And that next stage is due diligence.

That's your job. Your job is to get into that room with the investors. So, what's the criteria to get into that room?

"Largely, it's you. Do they like you? Do they trust you? Do they want to work with you?"

They won't get that information by reading slides. I'm not the one for having lots of information on slides. I'd have two or three words on a slide. I want to force the audience to listen to the founder, because it's that passion, that enthusiasm that people need to see.  You don't get that from a slide but from listening to a founder.

What you hear on the likes of Dragons Den and you'll hear it in our network when somebody goes out of the room and they'll say, I don't care what that person does, I'd invest in them as they are excellent.

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Agreed, as they say people invest in people!

What percentage of pitches do you think actually raise funding successfully for?

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"Our target is to fund 50% of pitches which is incredible because the average in the UK is less than 5%."

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Not everybody will be successful unfortunately and the reason that a lot of people become unstuck, sometimes it's a lack of honesty.

Sometimes they also don't value the angel. They want the money, but not the angel which is such a shame as the angel brings so much more than just cash.

We have such a high conversion rate because our technology provides us with a matching service, speeding up the process and ensuring contact with the relevant investors.

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"You've got to decide, what do you want? Active or Passive investment."

If you want passive, maybe crowdfunding is the route to go.

But if you want active support then an angel may work for you.Trust me on this when I say that what you do not want is twelve active Angels, as they will drive you and each other insane! A couple of strategically aligned Angels is perfect that can help and support in the right areas at the right time.

This way the others will become passive. But you've got to find the right couple that will help you and support you on your journey.

Yeah, that's such a key point to identify who can add the most value and where they come from. As you say, you don't want twelve people having twelve different voices because it becomes far too much of a distraction and conflict of opinion.

What do you see if people try to raise and they're unsuccessful? Is there a percentage that come back when they've got some more traction or they are more ready?

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Yes, they do. They'll get a lot of feedback from the Angels. Sometimes an Angel will say “look, I don't think you're ready, but come away and I'll work with you and give you some support and help.”

Then they'll often come back in a better place. I've heard from people literally three years after an initial approach, they’ve done the hard yards and taken the advice on board!

That is a long time, but it shows that when companies first start out, that initial two years can see an awful lot of learnings and general feet finding. They may pivot a few times alongside some indifferent decisions along the way. So it just takes time for them to get to a real solid place, to ultimately raise.

What are some of the most common mistakes that you see, when people approach you? We've said honesty is obviously one of the big ones but anything else that jumps out?

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Firstly, it's not talking about the business enough. Founders tend to talk about what they're comfortable talking about, which is the product, because everybody wants to feel confident. But I go back to the French - German analogy. Everybody understands numbers. If you only talk product there's only so much they can listen to and maintain interest.

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When you talk numbers, everybody in the room will understand you. So you have to be able to communicate the business opportunity, not just the technical opportunity, alongside the real market problem that you have a solution for.

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Secondly, you've got to be able to validate what you say. If it's just you saying it, then people don't always believe you and are left on that page thinking about what you have said. Meanwhile, you have moved on. But if you can say for example that someone at the World Bank says it, then all of a sudden it’s credible.

Here’s a great example!

I was part way through a pitch of my own, when the Chairman of Lloyds bank, stood up and said; “Sorry, Martin, I don't believe you.”

So my heart was racing, as you can imagine.

I said to him, “I'm really sorry to hear that. Would you be kind enough to explain to the room what it was that I said that you didn't believe”?

The way that you should handle an objection like that is you question the question. So, I questioned the question!

Whilst trying to gain my composure and force my heart back in my chest, I said to him, “Well, thank you for that, but I'm not going to answer it.” I paused, using the power of silence and I could see everybody looking.

I could feel my team behind me and everybody looking, and I could feel their eyes burrowing to the back of my head, thinking, oh, what's Martin doing here?

I said, “I'm not going to answer that and I'll tell you why!Because if I answer that, the rest of the people in this room are going to ask one question. Do you believe the Chairman of Lloyds Bank or me?

So I paused again and said “What I'm going to do is I'm going to let my Non-Exec, Dave take that question. He used to be head of e-commerce forNorwich Union and is far better qualified than me to answer, so, Dave, will you stand up and please deal with that question?”

In that move I’d changed the power dynamic in the room as I know I couldn't win that battle and this is where a lot of founders go wrong in a pitch.

They get very defensive and they get very argumentative and they've got to learn when to choose to push a point.

They've also got to learn to be humble and just to say, do you know something, you raised a very good point there that maybe I can't answer that today but I'll come back to you.

Anyway, Dave stood up and answered the question, and the chairman turned around and said, “My apologies, Martin, I totally misunderstood what you said, I 100% agree with you.”

At that moment I could hear the money falling into our account.

So sometimes it's the honesty, the integrity. It's knowing when to push, when to be humble and when not to speak.

Another key point is to understand the funding landscape. I speak to so many founders that say, “I've been talking to ten VCs and they will be interested if we can get to 330k pm in recurring revenues”.

Of course they will!  Why are you going to speak to VCs, when you're only looking for £250k?

They don't do £250k. They don't do your stage of investment. Why are you wasting your time?

You've really got to understand the investment landscape and who is the right partner for the stage you are at.

We're right for a certain stage. We're not right for others. When somebody comes to me who isn’t right, I just say, you now need to be speaking to XYZ and I'll simply introduce you to somebody that is a better fit.

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That's the perfect way to finish! Fundraising is about knowing who to approach, at what point, what stage, and then make sure it's all focused.

Well, one final quick question. Is there anything exciting that you're working on, that you would like to share at all?

There’s so much that we're working on. Yes. We're doing a number of things at this moment in time that will grow our network five times.

So we should hopefully, by the end of Q1 FY23, end up with something approaching 5,000 curated angels within our network. Curated is the important part so that we can quickly get the right angels to support and invest in the right opportunity.

Wow, I think that's a pretty compelling proposition and I think especially as we go into 2023 with the economy as it stands it is going to be even more important than ever to tap into such a curated network.

With an even bigger network to access I expect there are going to be a lot of knocks on your door this year!

Well, I hope so. We would just ask the business to start by registering on our platform. Then we can see how they match with our investor base and then we can see and how best we can help.

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Martin's Bio:

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‍Having successfully launched angelgroups-Leeds during the summer of 2015 he has now established angelgroups-Hull, Sheffield, York and Lincoln.

His angel funding platform www.angelgroups.co.uk introduces businesses looking for investment to a range of high-net-worth and sophisticated investors across the North of England. The angelgroups platform allows the individual investors to syndicate their own groups deals across the platform.

You can connect with Martin over on LinkedIn here.

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