Today marks the debut of our brand-new content series aimed at equipping startups with the tools they need to become #investmentready by 2025. In our inaugural Meet The Investor segment, we sit down with Phil McSweeney, an accomplished angel investor and the author of AngelThink. He unveils the serendipitous encounter that steered him toward his successful career in angel investing and sheds light on what truly influences investment choices. Phil also shares tips on avoiding common mistakes founders often make and emphasizes how to cultivate robust investor-startup dynamics.
Why did you become an angel investor?
To be honest, my journey into angel investing was quite accidental. After being laid off, I found myself with extra time and a bit of uncertainty about my next steps. Curiosity led me to an angel group meeting as a guest, and I quickly became captivated by the storytelling aspect of it all.
Which sectors or new investment opportunities are you most excited about now?
I am drawn to those crucial points where signals indicate an impending change in the market, technology, or consumer need. There’s a sense of inevitability about these changes, driven by forces such as legislation or shifts in consumer behavior. Sustainability and climate change come to mind as prime examples, along with increasing demands for productivity and competitiveness.
What are the key foundations to building a strong relationship between investors and founders?
In my book AngelThink, I delve into the concept of a psychological contract, where both parties vow to meet each other’s needs and aspirations. Trust is key, built on openness and integrity. Angel investors often seek attributes like determination, confidence, courage, and spirit in a founder. While many traits are crucial, it’s rare for one person to embody them all.
What common misconceptions do you encounter among founders about the fundraising process, and how can they better prepare themselves?
Many new founders mistakenly believe that fundraising is a breeze because they’re convinced they’ve created a groundbreaking product or service. It’s often an eye-opener for them to discover that investors have an abundance of investment options. Even if a founder thinks they have something unique, it’s common for investors to claim they’ve seen similar ideas. Founders frequently concentrate on developing products without a substantial market, often driven by their own biases and impatience.
It’s crucial not to rush the validation phase of your idea. Founders should also prepare financially in advance, with a plan to survive on savings, part-time work, or consulting for at least a year until they can secure a reasonable income or raise funds.
What are the most important factors that lead you to back startups today, and has this changed over the years?
Nowadays, there’s more emphasis on demonstrating initial revenue. A few years ago, when money was cheaper, founders with just an idea had a fair shot. That’s becoming less common today.
Can you share a specific experience where an unexpected challenge influenced your investment decision, and what lessons did you learn?
Unexpected founder breakups are quite common, even among those who have been friends for years before starting a company. This is why I now insist on seeing a founder agreement whenever there’s more than one founder.
How do you measure the impact of an investment beyond just financial return, and does social responsibility play a role in your investment strategy?
Certainly. It’s important to differentiate between impact investing and philanthropy. As an impact investor, I still expect returns on my investment and anticipate the company being managed with high standards. However, expectations for a higher ROI might be toned down. It’s vital to see that a company measures its success, at least partially, by its social impact.
As market trends and economic situations evolve, what approaches are you employing to mitigate risks while identifying promising startups?
With angel investing, a certain degree of risk is an intrinsic part of the game. Failures are inevitable; if you’re not prepared for that, you’re in the wrong field. Demonstrating revenue early on mitigates risk. It’s also critical for founders to showcase their market potential and exhibit competence in building a company.
If you could offer just one piece of advice to a young startup, what would it be?
I don’t mean to be harsh, but I would ask, "Are you absolutely sure you want to do this?" Building a startup isn’t a mere pastime or work experience—it’s about creating something transformative for a large number of people. If you’re not passionate and ready for the long haul, it’s best not to start at all. Don’t waste your time or anyone else’s.
What could the new Government do to best support the UK’s startup ecosystem?
I would propose a pilot program that provides a living wage, in the form of a grant, for two or three years to new founders chosen through a competitive process. This would be coupled with mentorship and the opportunity to earn a degree in entrepreneurship. Part of it could be structured as a loan to be repaid later, while support is given to help raise funds as their ideas develop, with the funder receiving a small equity stake.
Our recent survey of startups showed that less than 50% have a good grasp of the fundraising process. As someone who has written a book on this topic, why is there a knowledge gap, and how can it be bridged?
The sheer volume of knowledge required can be overwhelming. Many early founders hold misconceptions, often due to media portrayals and the allure of ‘celebrity founders’. They may aim for VC funding without realizing that VCs have strict selection criteria, leading to wasted time finding the right funding path. Ideally, every aspiring founder would read AngelThink to better position themselves against the competition, seek out experienced mentors, and join a supportive community for guidance.
Looking for investment opportunities? Check out the Angel Investment Network, where investors worldwide meet the future’s visionary businesses.
