How to Start Angel Investing, with Alap and Tony from XA Network

Episode summary

Alap and Tony explain what an angel investor is and how to know if you’re ready to be one.


Episode transcript

Philipp: Welcome to another episode of In Your Best Interest, your personal finance podcast. I'm your host Philipp Muedder, and today we’ll be talking about angel investing.

Angel investors provide financial backing and support for early-stage companies and entrepreneurs to get their business off the ground. Today, we’re joined by two guests, who’ll share how you can get started as an angel investor, how much money you’d need, when you might expect a return on investment, and more.

The first guest is Tony Zameczkowski, and he’s the Vice President for business development for Netflix in the Asia-Pacific. Before Netflix, he ran the international operations for Victorious, a Kleiner-Perkins-backed start-up in the mobile video space. 

Our second guest joining us today is Alap Bharadwaj, and Alap leads Google APAC Partner Innovation Practice, an organisation dedicated to the launch of novel applications of Google's AI and AR technology in APAC, with Google's partners. 

Previously, Alap and his team worked with several technology unicorns and start-ups in Southeast Asia to launch digital marketing strategies, product partnerships, ecosystem development, and more. 

Alap, Tony, that's a big introduction, and I welcome you both to our podcast. We're really happy to have you.

Tony: Thank you, Philipp, thanks for having us.

Alap: Great to be here.

Philipp: Yes, thank you so much. Those are impressive resumes from the both of you. [02:00] I'm really excited to get into the topic of angel investing; it's a topic that we have gotten a lot of requests about. I think maybe that has something to do with low-interest rates, and people are eager to invest their cash into different ventures other than their normal ETFs and bonds and fixed deposits.

Before you get into this, I usually ask all of our guests, actually, a lot of questions about how they grow up and kind of where they come from, especially when we talk more about personal finances. I think with your introductions and your bios, we already got a lot of those answers. But one question I do have for you is that we always ask is: What did you do with your first paycheck when you came out of college?

Tony: So maybe I can take that question first; thanks for asking, Philipp. So what did I do with my first paycheck? I put money aside for buying my very first property.

Philipp: Very good. What was the decision behind that? Any particular reason why you were going for property?

Tony: Yes. It's because of my grandparents, they always told me that I should own my house, and so for some reason, it became very important to me; to basically make that decision right when I got my very first paycheck. So it was deeply ingrained in my mindset.

Philipp: And I can tell, we have not talked about this before, but are you from Europe?

Tony: That's right, I'm from Paris.

Philipp: Yes, okay. So I'm from Germany, it's the same thing, right? Real estate is the one thing that, at least in Germany as well, everyone tells you hey, grandparents, parents, right? You should own your home.

Tony: That's right.

Philipp: Yes. Alap, what about yourself?

Alap: So mine was a bit different. My first paycheck went into buying, I think, two or three stocks. I was in, kind of graduated [04:00] and landed a job in investment banking, so it was very close to the markets, and I was working with some of these publicly-listed companies on mergers and acquisitions. 

And so it was just like all right, if I really need to be successful in my work, then a little bit of my personal income needs to go towards that as well. So I don't remember what the stocks were, but I bought a couple, yes. And then I think maybe 40% of it was just savings in the bank, so 60% went to stock.

Philipp: No, that's awesome. Thank you for those answers. We get all kinds of different answers, from people paying off the parent's mortgage to investing in Gold because that's what they were used to. So I think those are awesome answers; they're very personal; I thank you guys for sharing it. So let's accelerate the discussion a little bit and go into the topic, right? We want to talk about angel investing

So we get people listening to this podcast from all walks of life, right? So if a person doesn't know what angel investing is, how do you guys explain angel investing to people?

Tony: Sure. Happy to answer the question. So it's very simple, angel investing is essentially a high net worth individual that is investing directly in companies. And most of them are actually investing in technology start-ups. And typically, what an angel investor would do, is going above and beyond just writing a cheque and also working very closely with the founder.

Alap: Yes. The only thing I'd add to that is, there is a reason and an opportunity for this to happen. And that is because inherently, with technology companies, the return expectation [06:00] is in the many multiple. So you could have a return that's 30x to 100x, right? 

It's quite plausible if you can get into one of those massively successful companies. It is inherently very risky as well, and that's why in order to navigate that risk, what Tony mentioned before becomes very important.

Angel investors who actually roll their sleeves up and help companies at that early stage are disproportionately impactful to the success of that company. So I think there is that opportunity that most people end up wondering about, which is why would you do this so early? The reason is that there's an outsized opportunity at the end.

Tony: Definitely, it's a risky asset, right? But I think what you get is not only the return; it is also the opportunity to give back to the ecosystem and also to as an executive to sharpen your skills, right?

Because as an angel investor, you get exposed to different kinds of tech companies, different kinds of industries. So you basically fast-track your learning, which is not something you can only do when you work in a large corporation.

Philipp: No, absolutely. I think both of you mentioned one point as well; one thing is giving capital to ideas and founders, right? As an angel investor. But the other one is you bring something to the table that is of value to start-ups or add value to those start-up companies, and I think that's what I deeply resonate with. 

I've made about 10 different investments into various start-ups at the angel investing stage. And it was always, I come from a finance background, right? So most of the actual investments came about because I'm from the finance background, they're very good at the product, and they're very good at marketing.  [08:00]

But they were looking to bring people, and that can actually help them in areas that they are not so good in. For example, for me, it was always like helping them on the finance side, maybe even raising the first real round, right? A seed round or Series A rounds for them.

So, I always feel like when it comes to angel investing, the great part there is you can have real impact and really help them out with your expertise. Is that something that you guys see as well? Or is this how you bring yourself in?

Alap: Yes, I would say that that is definitely one vector. I think the other vector is that there are multiple times where we are just grateful to be involved with the company. You'll have phenomenal founders who are going after a phenomenally large market and trying to solve it in this unique way.

And then actually the onus, the impetus of providing value is on you. Where the founder is actually extremely capable, and you have to help her in ways that even they might not know because they're doing so much of it.

And so it goes both ways. You could actually help someone who's very formidable by showing them things that they are not quite seeing. You could also help someone who's maybe very inexperienced, very young with things that they know they need. So if anyone was taking these steps, I would always encourage them to look at both sides.

Tony: It's also being a trusted advisor and really helping the founder to connect with people from your network, right? I mean, I've been helping founders in a way; I open up doors for them when they need a connection with one potential customer. Or even a VC, if they are actually fundraising.

Philipp: That's great. When you first meet a potential start-up to invest in, do you believe that the idea [10:00] of the product or the idea of the business is the most important? Or are you actually looking more at the founders and the team? Is that more important to you guys?

Tony: I mean, typically, we invest in a very early stage. And most of the time, pre-product, pre-revenues, so there is pretty much no traction. So I think the most important piece is really the founding team. So you look at their background, but also whether or not you feel that they are resilient enough, that they can pivot if things go wrong, right? So for me, the founding team is very important.

And a bonus as well is when they are repeat founders. So when they had the success in the past, or when they built the company before. And then the second piece is the size of the market, but I would say the market might change, depending on how the start-up is going to pivot.

I mean, one good example would be Uber, right? Some of the VCs in the Valley passed on Uber because they thought that the Uber market was just the limousine market. And in fact, it was much bigger; it was the mobility market.

Alap: Yes. I would say just to add to that, there is an unofficial sort of understanding or statistic in the venture capital and early-stage investing community. It says that 80% of any early-stage investment, I mean pre-Series A investment. 80% of the return comes from picking the right company or founder. And so that is a disproportionate amount; it goes back to exactly what Tony is saying. 

Sometimes, even the founder doesn't know where they're going to take the company. But if you have those right ingredients at a foundational level, you can make many plants grow, or you can take this one plant and turn it into this huge tree. [12:00] And we really over-index on that, and we spend a lot of time just getting to know the person, going back and forth with them.

Understanding what their hopes and dreams are, how resilient they are to Tony's point. For me, there are two things that I always look for, what is their level of self-awareness and what is their level of hunger? I think these are superstar qualities when you put them together.

If you have someone who's extremely hungry but not self-aware, they might just go running in the wrong direction. If you have someone who's extremely self-aware but not hungry, they might not be able to move the dial as much as possible. So this is something that we index on heavily.

Philipp: Super good tips for people who are looking to invest; thank you for providing that. So next question then, we had people from Square Peg, one of StashAway's investors. One of the partners was on here before, and he talked a little bit about how venture capital invests into start-ups, right? 

So obviously, this comes at a later stage, but for people who don't know - what would you say is the difference between angel investing and venture capital? Because a lot of times, it kind of gets co-mingled, right? It's a start-up, and people think like, oh, I'm investing in a start-up. Is it the same thing?

Alap: I think there are the no-brainer differences, which you've already pointed out, Philipp. There is a size difference, right? Venture capitalists are also very incentivised to own a certain part of a company. So they will come in and say that look, it's extremely important for us to align our interests, and we would love to earn maybe 15% to 20% off your company based on this investment. These are all the right things to do, right? Because a VC is an institutional investor, they sit on a company's board, and so it's extremely important for everybody to get deeply involved in the work of the company. 

Meanwhile, I think what I would say is the difference with an angel investor is - an angel investor is like a confidant; [14:00] they're like a consigliere; they're working with you in the shadows. 

They're not going to actually come in and tell you how to run your business or do too much with respect to strategic help. The VCs are much better placed to do that. Where the angels will come in and help is what Tony mentioned before - open up the network, give you access to people that you never would have had. Help you hire, do those maybe non-obvious things that often get left out. 

And also, maybe just pick up the phone at 2am in the morning, when you really need someone to talk to and brainstorm about; hey, should I take that next Series B around or not. And so I think these are those no-brainer differences, size, the level of activity and involvement, and so on.

Tony: Yes. Just to build on what Alap just said. VCs are professional investors; they typically manage other people's money. And when the GP, I mean the general partner, is managing the fund, they invest a little bit of their own money, which is typically between 1% or 2% of the overall size of the fund.

But at the end of the day, they manage the money of other people. And those people are usually called limited partners - LPs. If you look at an angel investor, most of the time, they go earlier than a VC; they go very early.

As I said before, pre-product, pre-revenues. Well, the VC would go slightly later, and the size of the cheque of a VC is significantly larger. I think the flip side to that is network like XA Network; when angel investors are coming together, then you know the overall amount that is invested in the company can be on par of what a VC can invest. But the cheque size [16:00] per individual of the investor is actually smaller than what the VC can invest.

Philipp: So then how do you differentiate yourself then from, if you talk about the XA Network, you just said you're pulling different angel investors together, right? And you're almost on par of a VC in terms of size then when you do an investment. How do you differentiate? Is it still that you invest very early on? Versus a VC wouldn't touch those companies yet. Is that kind of how you would differentiate?

Tony: Yes, that's right. I mean, XA Network is a collective of investors that are typically coming from the tech industry, but they do invest directly most of the time in the company, right? As opposed to a VC, that is actually aggregating the amount from the limited partners and investing in the start-up. For us, XA Network, it's every single individual that are investing in the company.

Philipp: Okay, that makes perfect sense. So thanks for explaining that. So let's say, for example, our listeners are interested.

They want to learn more about angel investing; they maybe want to be an angel investor, they have cash on the side. Who can be an angel investor? Is there anyone that can start investing in companies, or is there any criteria that they should look out for?

Alap: So I'd start by looking at the local law in the country that our listeners are in; there are guidelines with respect to who should be investing in a risky asset class of this sort. In Singapore, for example, where we are based, we look at the definition of an accredited investor as someone who is par for the course to become an angel investor.

I think that's point one, and that's where we should start. I think the second is really looking inward and asking oneself how much time they have to dedicate to this, right? [18:00] People with a lot of time, or people who get a lot of energy from this sort of activity, can really afford to not just write a check but to go deep with companies.

People who do not, maybe, can band with others and provide value, but also not be spending a disproportionate amount of time helping a company. It can come in all shapes and sizes, right?

But being very self-aware about it right up-front and saying this is how I would like to contribute is a good, very important question to ask because we've seen some investors actually not do this and then end up with maybe outcomes that they weren't quite pleased with.

Tony: I would say that angel investing is not for everyone; I mean, it really depends if you are risk-tolerant. And everyone has a different style of investing, right? Some people would prefer to invest in a very safe asset class; it could be a property investment or ETF.

Some others would be way more aggressive, and angel investing might be more for them, right?

Philipp: Yes, absolutely. So like I said, I've done a few of those myself, right? I was just thinking by myself back when I did my first one; why did I do it at that stage? What I'm thinking, maybe you guys have the answer for yourselves. But when did you feel from a financial standpoint that you were ready to make those investments?

Like you said, they're more risky, like very early on, you don't know where this money's gone, so obviously there's some risk controls that we can talk about next. But when did you feel like, in your career, you were at the point where you said, okay, yes, I can do this.

It's a certain percentage maybe of my income, [20:00] a percentage of my net worth that now I can kind of like use that to bet on some of those start-ups?

Alap: So it's a great question, and now that you ask it this way, I'm just wondering why I wasn't a little more quote "deliberate" or "intelligent" about it. But I mean, my honest answer is I just love start-ups; I've loved them all my life. I've worked in technology for all 16 years of my career, so even in investment banking, I was in technology.

And one thing I realised was that the bulk of maybe the interesting conversations I was having was start-up gossip, right? To put it in that term. And I was just like, well, if this is what gives me so much energy and I enjoy this to this degree. I had also just finished writing the Google Temasek report with wonderful colleagues at Google and Temasek.

I said, listen, it's time, it's time to invest in this wonderful start-up ecosystem we have in Southeast Asia. I could talk about this all day and night; I might as well turn this into something that allows me to add some value. So I think that was just the way I thought about it.

Philipp: It sounds like you have real passion about it, right? So I think if people are passionate about a certain subject, it doesn't matter what it is, and they go deep in; it usually leads to good things, right?

Alap: Fingers crossed.

Tony: Yes. With that, given the time that you need to dedicate to do it really well, you have to be passionate, right? I mean, it's super important. But just to answer also to your question, for me, it's also a way to diversify, right? I'm not only investing in start-ups; I also invest in property, in equity, in ETF. It's a nice way to diversify your portfolio. And on top of that, of course, there is a passion.

Alap: Yes. And this is an underappreciated point, I think, and so I'll just pick up from where Tony's going. So it's not like Tony and I [22:00] invest in every single company together. One thing I do end up doing is Tony and I will almost on every single investment be intellectually sparring with each other, right?

So one thing I might advise others or planning to get in is find someone or a group of people that you can have these discussions with. Conversation always catalyses better decisions, especially when you can have them with people who have that same level of energy, that same level of understanding, or that passion.

And so, if you see the difference in my answer and Tony's answer, that is exactly what helps me and him make good decisions, I think. And after 3 years of kind of working with him, I think I would recommend it to everyone. Do find yourself someone who you can invest together with.

Philipp: Perfect. And then I think even back in college days because when I studied finance, we had the finance club, and you discussed different investments. It's kind of the same thing, right?

Alap: Exactly.

Philipp: Yes, it's super cool. So, I really enjoy that, and I think it's great what you guys have built there. So, we talked about who can be an angel investor, and how you guys became angel investors.

But let's talk a little bit about the risks of being an angel investor. So, we touched on them a little bit, right? It's a little bit riskier asset class. But what would you say are the main risks that angel investors are facing?

Tony: I think the main risk is losing your investment, and I think you need to be mentally prepared for that, right? Because, there is more chance that you are going to lose everything than you are going to get a unicorn, right?

My advice to mitigate the risk would be not to be in the middle of the road. And once you decide to be an angel investor, and basically dedicating time to do it and effort, and to do it right by essentially diversifying your risk, by investing in many companies, right? [24:00] That is really important. You need to diversify your bet.

Philipp: Is there any amount of companies you think that would be okay? When do you consider it diversified for yourself?

Tony: For myself, I would say a year making 5 to 6 investments.

Philipp: Okay.

Alap: So if we just look at the math that the Kaufman Foundation puts out, and there's many other large VCs as well as LPs who do the math. Portfolio math is quite simple, right? If you have a portfolio of n companies, one company is going to return n-1.

So, if you have a portfolio of 30 companies, one out of those companies is going to return as much as the other 29. So, to Tony's point, I guess finding that superstar, that "unicorn", is really important. And you need to give yourself shots at goal to make that happen. The more shots you give yourself at goal, the more chance you have of that happening. But inherently, of course, the more shots you take, the more at risk your capital is.

So, I think I would say anyone who is looking to go into angel investing should apportion an amount of their total net worth that they are okay to lose. So that they can create an opportunity for themselves to get that special company that will return everything and much more in fact.

It's a little bit contrarian, but I think it's needed, it's really needed. Because it's not going to be the usual: buy 20 stocks and hold for 20 years, and you'll get an amazing outcome, it's almost certainly not going to happen that way.

Philipp: Yes, very good points. All the angel investments that I've made, in my net worth statement they're actually all at zero until they actually pay out. For me, like that way, [26:00] you're also stressed less about it, right?

Alap: Absolutely.

Philipp: These things are at zero right now. If they become something really great, but you don't feel the loss, right? You don't feel like, oh, you need to be mentally prepared to make that investment and say, hey, I write this off until it becomes something. That's at least how I cope with it.

Alap: And I think you've just provided one of those nuggets that almost all successful angels have in the back of their minds. Which is you always get asked the question, how do you sleep at night when you've invested in so many companies? It is because I've done the math, and I know that maybe this amount is kind of okay, and I am all right to take that swing.

It is a swing, right? And they always say angel, pre-A venture, is a grand slam business, right? It is not the amount of hits you get; it is the magnitude of that one hit. So you want to be smashing that one shot straight out of the park because it does everything else. And so it's very difficult for the rest of us, who've maybe been investing in the markets for a long time to understand. But this is the one thing I just harp on again and again.

Philipp: Yes, absolutely. That's what I said, like you take that cash, you move it from your personal balance sheet, and you just move it to zero.

Alap: Exactly.

Philipp: Yes. Of course, it's there in the back of your mind, but at least that way, you kind of prepare yourself mentally like you said, right? It's not like you can't sleep at night anymore. 

Even when we do a lot of the financial planning and financial wellness talks at StashAway to companies and employees, I always tell them the same thing, right? There's always risk and reward. Whatever you invest in, there's a monetary number that you need to hit. You need to have a certain amount of return to retire, right? 

But you need to also sleep at night so that you don't destroy your portfolio, right? And you completely sell out [28:00] and stuff like that, and the same goes for angel investing, right? Just make sure that you have almost earmarked this as a zero, and then if it happens, great, right? It could be a substantial return.

Alap: Yes. And guess what? There is another non-intuitive point around this. When you interact with founders, if all you're about is securing your investment, they're going to feel it, and you're not going to be able to help them that much.

But if you show up with just that completely, that spirit of I'm going to assist you no matter what, that actually ends up ensuring that founders then talk you up. And when founders start discussing you as an investor, that's when you actually have a better shot at getting one of those amazing companies.

So, what you've just described has another amazing side benefit because it helps founders see the investor for who they really are. Because it helps them show up in a way that's not always money-minded, right?

Philipp: Yes, absolutely. I think, like you mentioned just now as well, it's like if you show that to the founders, right? Like you said in the beginning, you invest in the firm; you never know what they do 10 years down the road, right? They will come back to you, and maybe that now it's the right deal or they introduce other people. 

I think it's also about networking, right? I think that's the part that I enjoy a lot. I met so many people and so many different other angel investors through the companies that I invested a part of it as well. It's a very cool community to be part of, and that's also one thing I enjoy about angel investing as well.

Alap: Agreed.

Philipp: Yes, let's move on, though. So, we talked about risk; we talked about how and who. Let's talk about how to find deals. You guys are part of a network, so I assume start-up founders are getting introduced to you guys, or maybe they even like reach out to you from the website.

Again, network overtime is being built, right? [30:00] But if someone is new to this field, what are your tips for people to become part of a network or even just get involved in this Eco-space?

Tony: I feel it can be very intimidating to start angel investing. And as I said earlier, you don't want to be in the middle of the road, and you really want to commit to it. And in order to do so, I think it's important to be surrounded by like-minded people: people that you can trust and have a discussion of investment opportunities.

More importantly, as you said, is the deal flow. I feel that when you're on your own, you have your own network. But if you are part of a broader group, then you can leverage this entire group and this entire network in order to get a better deal flow. So basically, it's almost a way to augment your own deal flow.

So I would definitely encourage people to be part of an angel group or a larger network. But it doesn't mean that you shouldn't go out there as well yourself and attend demo days and talking to VCs. I think you also need to build your own network and your own deal flow. But I feel being surrounded by a broader group can be reassuring.

Philipp: Tony, did you do your first angel investing when you joined the the XA Network or did you do one before, by yourself?

Tony: My first investment was when I was in Hong Kong, back in 2013. I did it as part of an angel network at that time based out of China called Angelvest. So, I was part of that network.

Philipp: Okay. I was just interested to hear how you got into it. What about you, Alap?

Alap: Yes. I have some very tactical advice here. [32:00] Job one, add angel investor to your LinkedIn profile.

Philipp: Very good.

Alap: You will receive start-up founders reaching out, and they will want to speak to you. They will send you their material, their decks. My ask is that everybody who does this, of course, is extremely respectful of any founder's time. Founder time, in my opinion, is the most precious time in the world.

So do go through their material with great care; please never share it with anyone else because they shared it with you in confidence. But what that will allow you to do is to actually figure out A: whether you have energy for this. And then B: you can start to develop that muscle memory, right? Like I like to see this in a company, but I actually probably don't like to see that, and this is my personal style.

Coming up with a personal style is deeply important in the world of angel investing. Because your brand really matters, and you can only build a brand if you can add value. And when you can add value is when you find something that you're passionate about, that you like and so on and so forth.

So that would be just my tactical step one. And after you see about 15 companies, I would say start writing small cheques, and then see if you're okay. If you're not sweating it too much, and you're still getting a ton of energy, you know you're ready for angel investing at that point. And then I think Tony's advice around a network, around like-minded people, you should go full all-out to try and find those networks and people, and then you can start investing with them as well.

Philipp: Yes, very good tips, especially on the LinkedIn one. I think a lot of people will start doing this now after listening to this. Let's see what the feedback is and how many people are reaching out to them.

We now know how to find deals, what do we look for in deals before we start investing? Like you both probably get [34:00] tonnes and tonnes of founders reaching out, right? What are the top things that you look for before you start investing?

Alap: So, going back to where we started, I think it is incredibly important for every start-up to be able to communicate to tell a story and that the founder should be able to tell this story. So, the very first thing I look for is, believe it or not, how simple and easy to follow the deck is, right?

If that is in great shape, then I think a 60-minute call with the founder where you go back and forth is incredibly important. Because then you can start to get a feel for the business. Post that, there is work at the end of it as well. Everybody exits those calls as investors having more questions than answers.

It's time to start contacting people in your own network, to ask those questions, do some due diligence in the background. See who else is operating in that space, do a little bit of a competitor analysis. And then when you feel like you're at 60% to 70% of information, I would say go for it if you're comfortable.

If you wait for 100%, you're waiting too long. The best start-up founders will get picked up by other people, and you won't get in. So, I think there's a very fine line you have to manage there. Don't invest at 50%, don't wait till 100%, go at like 70%.

Philipp: Just enough, just above, right?

Alap: Exactly.

Philipp: Yes.

Tony: From my side, and Alap alluded to it before on the investment thesis, and that's something I developed over the years. One of the very first things I'm looking at is why the funding team or the founder is actually based in Southeast Asia.

Because typically, I invest only in Southeast Asia, and I feel that it's very important when a founder is in this region that they are here for a reason. [36:00] And they are here to solve some of the biggest challenges of Southeast Asia. If the answer is no when I ask this question to the founder. 

Usually, I pass because I feel the company can be built somewhere else. Like in the Silicon Valley, for instance. So just to summarise, the founder has to be here for a reason because he or she can make an impact on that part of the world.

Philipp: I think it is exactly; you're commending the point from Alap before, right? That you need to find your own DNA of investing, right? I think you just basically lined out yours and why you would make an investment into one of those companies, so that's awesome. 

Moving on then, what's the usual investment amounts? A lot of people will ask themselves, hey, yes, we talked about how you have to be an accredited investor in Singapore and some other countries you don't have to, or you have different requirements. 

But for your own, what are the typical cheques for an angel investor? Do you have to invest $100,000? Can you start at $5,000? What's usually that amount?

Tony: I can tell you what is the average I've seen so far. Typically, the average is around 20,000 USD to 25,000 USD per investment. But again, it depends on also the amount of conviction that the person has, right? I mean, I've seen people write in checks of 100,000 USD and others writing checks of 10,000 USD right? But I would say, on average, 20,000 USD to 25,000 USD seems to be the right number.

Alap: Yes, I would agree. I would also say that there are platforms that allow you to take that number down if you'd like. There are syndicates that you could join on AngelList, which is a very trusted platform that is used globally. You would most likely get more access to a [38:00] US centric deal flow in this case.

I would also say that there is another, maybe underappreciated, point, which is how do you back up that initial investment that you put in? So, say an angel investor invests at the pre-A round, a seed round say, and then the company ends up raising an A. At that point, you can actually double down on your investment, maintain your ownership and so on.

So this is not something I'm going to give advice on; it is just another consideration when it comes to how much do you want to deploy per company. It can be the 25,000 USD that Tony mentioned, but it could actually be 20,000 USD and then another 30,000 USD when they raise the next round.

And you could have a total of maybe 50,000 USD. So, these are things that are very important to consider once you have some experience. So, I would encourage everyone to take those baby steps before getting there.

Philipp: Absolutely. I think with those numbers; I think people can kind of like when we talk about 5 to 8 companies or maybe 10 companies to invest in, maybe I have now a little bit better of an understanding of what kind of capital is required to actually start this as well, so that's awesome.

What's the time frame, then, for a profitable angel investment? So say you guys do angel investment pre-seed, seed round, kind of thing. What has been in your history of investments so far been the time frame until you say see any kind of returns?

Tony: I mean, it's typically more a marathon than a sprint, right? I mean, you have to be prepared that it's illiquid as an investment. So, it's not like when you invest in equity or ETF, you cannot liquidate your investment easily.

So, you at least need to be prepared to have your investment stock with the company for a minimum of 5 years. I would say sometimes even 10 years. [40:00] The other thing I wanted to mention is, and it's also back to your previous question, is when you invest in a company, say you invest 25,000 USD, you also need to be prepared to follow on.

So, for instance, you invest in a seed run, you might want to double down your investment and take on your product for the Series A round, right? So, you also need to put money aside for the following rounds.

Philipp: Anything to add Alap on your side?

Alap: No, I think we've got it covered. I would say that 7 years is my horizon on timeline. And I think that this is something that we probably should have said at the start as well, right? One, you have to be ready to maybe let it go to zero. Two, it can take time to go to zero. So, it'll take that 7 to 8 years.

Philipp: Yes. Which I actually quite frankly like. A lot of people, if they're jittery about investments in general, when you have just a portfolio of ETFs, or like some stocks and you can easily buy and sell them, it can also be a detriment, right?

Whereas, like I said before, I always just mark them as zero on my own personal balance sheet, these angel investments. The great thing is you don't think about them, right? They take a long time; you can't take the money back out.

But it kind of forces you to invest and stay with it, right? There's no way in or out.

Alap: In fact, Charlie Munger has this line where he says never interrupt compounding unnecessarily, and that's what this gives you, right? It's just there, and hopefully, it compounds, and it gets to a great outcome. [42:00] 

Philipp: Absolutely, that's awesome. A couple more questions and we're done, but one question I have for you is what is your best investment so far? And happily, for you guys to share also some of the companies you invested in if you want to give them a shoutout for the listeners to use their services maybe or not. But what's the best or the most exciting investments you have?

Alap: This is a dangerous question you ask us.

Philipp: Because they're all going to be exciting, and they're all going to be good, right?

Alap: Of course, and we love them all. I think the way I would answer this question is there are companies that end up showing a lot of traction very quickly, and then there are companies that take some more time. I'll answer the question in terms of traction because I've got maybe something to share on that front.

So, the company that I've invested in that's kind of shown the most traction in the least amount of time has been a phenomenal business out of Indonesia called BukuKas. It was very privileged and honoured to work with one of my favourite people in the Southeast Asia ecosystem, Krishna.

And, of course, his amazing founding team, and when we backed that company, they have since been invested in by Sequoia Capital. And just to watch the simplicity of the product, the simplicity of the problem that they're solving, and the outsized impact, 2.5% of Indonesia's GDP now goes through the BukuKas app.

And BukuKas, in its very simplest, is a ledger app for warungs in Indonesia. And just to see that that sort of pain point is getting solved, it's so inclusive, it's so heart-warming, and I'm so proud of what that team does. It's just an honour to be an investor, and you feel so good about this because you're getting to participate in this [44:00] sort of impact for this wonderful region.

Tony: Yes. From my side, I made 20 investments, so it's very hard to pick one of them. But I would also answer along the same line as Alap in terms of traction. And I'll also give an example from Indonesia; it's a company named Sampingan. And this company has created a platform for an on-demand workforce. So really enabling the gig economy. They just raised the Series A with Altera Capital. I invested at seed, together with Golden Gate Ventures. 

And the reason why I invested, apart from the fact that I really believed in the model, it's also the founding team, and particularly the founder of Wisnu Nugrahadi, with a former Gojek executive.

I was very impressed by his drive, his resilience, his clarity as well, and I really decided to back him, more importantly than of all the overall business, even though the model is, I think, very exciting.

Philipp: That's good, they're super interesting companies. I have to research them myself. So, it sounds like really cool projects that they have going on. So, to finalise and to leave the audience with something to take away, if not that they already learned quite a lot about the topic, this was awesome both of you.

But what is something that you guys are excited about? Maybe it's something you're researching or some field that you might be wanting to invest in? Is there anything particularly maybe in Southeast Asia or anywhere in the world that you're really fond of or looking forward to?

Tony: I'm particularly excited about any kind of start-up or industries [46:00] that are the backbone of the Southeast Asia economy. So basically, anything that can help grow the internet economy in the region and solving some of the biggest challenges, I'm all for it. 

Examples would be start-ups in the logistic business, in the e-commerce business, in Fintech, solutions for SMEs. So, all of those are vertical that I'm particularly excited about in Southeast Asia.

Alap: Yes. For me, it's just the last bit that Tony mentioned; it's SME tech. So Southeast Asia has the distinction of an incredibly productive SME ecosystem. If you look at the fact that Southeast Asia has about 70 million SMEs, so there is volume there, right? There are 70 million small and medium enterprises in Southeast Asia.

These 70 million contribute about 60% of the GDP in the region. So not only is there volume, but there is a large amount of dependence; there's a large amount of excitement and value that these SMEs are creating. So, I am just incredibly, enormously excited about backing companies and start-ups who are digitising the Southeast Asia ecosystem in partnership with these SMEs.

So, I think that's something that just the more I see of, the more I want to invest in. And it just feels like this will stand the economy, it'll stand Singapore, it'll stand the rest of Southeast Asia in such a good stead going forward. So I'm very excited about that.

Philipp: Great, that's awesome. Last but not least, do you want to mention where people can find you guys or find more about the XA network? Are there resources that people can take a look at online?

Alap: Yes. So, we have a very active LinkedIn page, so please look us up at XA Network. Our website is [48:00], and you can follow us on Twitter @networkxa.

Philipp: Awesome. We'll add those links also to the show notes under this podcast, so you can easily reach Alap and Tony as well. So, both of you, thank you again so much for being with us today; we really appreciate it. I know it's always busy, and thank you for making the time, really appreciate it.

Tony: Thank you, Philipp.

Alap: Thank you so much.

Episode notes

In this episode, Alap and Tony from join Philipp as they share what goes on behind the scenes of angel investing. They talk about how it works, how much to invest, and when you can expect to see a return on investment. 

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Episode contributors

  • Alap Bharadwaj (Managing Partner at Google APAC Partner Innovation Practice)
  • Philipp Muedder (Head of Financial Planning at StashAway)
  • Tony Zameczkowski (VP Business Development Netflix Asia-Pacific)