2023 Investment Letter
We have now completed 4 years of angel investing, marking our third annual investment letter. It’s fair to say the past 4 years have seen us make a mix of good and bad decisions, but most importantly a tremendous amount of learning. While we continue to have the energy and passion for angel investing we will continue on the journey. Now it’s time to reflect on our progress over the past year
Deal-flow
Last year we wrote about the importance of good deal-flow to angel investing. Investors might have great ability to understand what is investable or not, but if they don’t have both access to good deals and a ‘value-add’ reputation in the community, they won’t get the founder of a great start-up to select them over others.
As we all know good deals are often over-subscribed, so this nullifies your ability to pick winners if no one knows who you are! However, we will continue to back pre-seed deals, from unknown first-time founders if we see something special in them and their idea. i.e., what we did with Howbout and Lapse who had only a few 100 users / were pre-launch.
In terms of sources of deal-flow and their volumes, we saw some shifts this year:
Co-investors in previous investments. This volume dropped. After the big tech crash in H1, a lot of angels understandably stopped investing. We also found a pattern of angels only investing in former colleagues turned founders.
Networking. With both of us being very busy transitioning from being employees to launching our own funds (Amir with Aurias and Claire with Haylo) we had little time for networking, so this was a sparse channel of deal-flow.
VCs. Huge increase of inbounds from quality VCs. We are often approached so we can help and/or mentor founders VCs are investing in and/or as a way for the VC to ‘reserve’ a slot in the next round, if the startup is currently too small. We can directly correlate a huge uptick in this, to when a few of our original pre-seed investments started maturing to Series A.
Inbound from our airtable [now closed]. Submissions gained pace. Last year had 82 submissions vs. >150 + countless more through LinkedIn messages or direct emails. However we have also noticed that the quality of submissions here is low, so we have temporarily paused this channel, even though it is a source of true pre-seed deals.
Whatever the channel, we replied to every founder and always explained why we said no (if we did). We always try to stay true to our mantra of “Work hard and be nice to people”.
Introducing a celebrity/influencer ‘bridge round (between Seed and Series A)
Last year saw a pattern of good start-ups finding PMF at seed but not having enough (users or GMV) volume to be able to raise a Tier 1 VC Series A. This then got exasperated by the tech crash in H1 2023.
As such we landed on the idea of introducing a small and direct ‘bridge-round’ between Seed and Series A, which would be an ASA/SAFE (discount on Series A) round exclusively for athletes / celebrities / influencers who invest in tech and would commit to bringing their followers to the platforms.
The thinking behind the model is that influencers don’t promote things for free, even if they have invested. So their compensation would be a discounted round into a quality business that is solely taking their investment for this reason. i.e. this model only works for successful startups.
We went to the market early 2023 for one of our investments and by the end of Q1 the first one of these funding rounds was completed (we can’t mention who yet). As a result, we saw both the realisation of these bridge round but also athletes / celebrities / influencers bringing deal-flow to us as “value-add investors”.
As such our newest and 5th deal-flow channel are athletes / celebrities / influencers.
Investment Philosophy
Our 4 core principles did not change in 2023:
Is the problem in an area we understand, can evaluate and (potentially) and add value to?
Is the problem described a real one that needs to be solved?
Is the solution being pitched a possible and likely solution to the problem?
Is the founding team capable of executing on the solution and do we think we can work harmoniously with them to help them?
The pattern of giving more weight to the founding team continued and this is something we see a clear correlation between success and not. Great founders will pivot or continually iterate an idea to success. Poor founders blame external conditions for failure and often give up.
In 2023, against the rest of the market, we doubled down in investing into social and consumer tech. This is due to some success we have seen (see below) but also as we think Europe is very undervalued in this arena and can crack the US consumer market. We would like to stress that we continue to invest in anything we think is strong.
Performance
After 4 years of angel investing, we finally started to see some progress (good and bad) in our portfolio.
Performance – The Good
On the positive side, we saw the first of our early investments get to Series A; Lapse. We are very proud of Lapse in terms of our conviction to invest in both their Pre-Seeds and Seeds, the fact that their Series A was over-subscribed and their new lead Teir 1 US VC was a direct introduction by Claire.
No one should underestimate the effort the Lapse team put in. They were incredibly hot and successful early on. They then made the bold decision to shut down and iterate with small user groups non-stop for over a year, until they felt they had a winning formula for both virality/growth and engagement. They then came back even bigger and topped the US iphone app charts pretty continuously from September 18th till Christmas!
The paper return on Lapse’s pre-seed, taking into account SEIS/EIS savings, is currently 34x! As the round was oversubscribed we were offered the chance to sell our full position at market price (many times secondaries are sold at discount). As we continue to believe in their strategy and their ability to execute on it, we decided to hold our full position. We understand that this is contrary to what good ‘risk management’ suggests that we do.
As a FYI, we really enjoyed tracking Lapse’s progress on SensorTower and recommend it to everyone. What a great resource.
We were hoping to be able to discuss a 2nd investment going to Series A, but the contract close is now going to happen in H1 2024, so one for next year’s letter!
Additionally, we saw Yurtle, a 2022 pre-seed InsureTech investment raise a fantastic VC led seed round. We were very happy to see this round also led by one of our contacts.
Performance – The Bad and the ugly
We finally had the first two investments (Aura Fertility and Aisle 3) to go into liquidation in December, in the last month of 3 years of angel investing. We loved the founding teams at Aura and Aisle 3 and their missions and were very sorry to see this happen. However this was the right decision for them. As a founder, the opportunity cost of years of not earning salary is not worth running a ‘zombie state’ startup, merely in hope of a miraculous recovery.
As these were our first losses (2 out of 20), this obviously did induce some doubts and concerns into what we do, which were (mostly) dealt with by remembering the statistics and theory behind how angel/VC investing is supposed to work. Even after a portfolio review that makes us think this number could lead to another 2 folding in 2024, (so increasing to a 1:5 ratio), we feel our track record still holds up to scrutiny.
Our biggest takeaway for ourselves and to our portfolio founders is not to live in a world where you expect to always get funding and if you are not experiencing PMF quickly, you have to early on have a plan around what “living scrappy” looks like if you are truly committed to making it work.
Sustainable growth
As the market cratered in H1 of 2023 we saw a complete withdrawal of liquidity to first time founders. This led to an obvious need to pivot business models and spend projections to slower and more sustainable growth. As this point we wanted to acknowledge the successful transition to this model by 3 of our marketplace investments:
Konvi – Being a FinTech marketplace (in alternative assets) they are an AUM business. Konvi drastically reduced their headcount, relocated from Berlin to Dublin, got the alternative asset funds to start paying fees to list on their marketplace and showed that they could deliver a model where every asset launched, gets funded and is profitable from Day 1. They also put a lot of work into their acquisition strategy and have moved it from an 18 month to 5 month ROI.
Homefans – Is a sports experience marketplace that has spent all of 2023 growing 2-3x QoQ, all while being profitable. They are now at over €1m annualised GMV heading quickly toward €1.5m. We see Homefans as being ready for one of the ‘bridge’ rounds we described above in H1 2024.
DRPCRD – Is a marketplace which connects influencers to brands and launched in Q1 2023. Initially the marketplace was aimed towards nano-creators and was profitable from month 1 with a 50-60% gross margin. Due to brand demand they then started onboarding influencers with larger followings. By YE2023 they are already at an Q4 annualised GMV of £1m and carrying a gross margin of 40%. We can see them doing a growth acceleration seed round in 2024, as their business model is proven, all growth is organic and they have been profitable from Day 1.
Our value-add
We have come to the conclusion that many angel investors, whether they label themselves as ‘value-add’ or not, don’t really spend much time helping their investments.
If anything, we would criticise ourselves for doing too much and we understand the maxim that “the best founders, require the least help”. Our counter to this is that when investing in pre-seed, first time founders, with some basic help, you can really de-risk your investment and give them more chance to get to Series A, VC investment and not needing your help any more.
However, as we are such active supporters of our investments, we are most likely going to invest less often (as our portfolio grows), being more ruthless in what we are willing to invest in.
2023 Investments
We did 6 investments in 2023 and no follow-ons. FYI There was a 7th investment we were trying to fund in the last few days of the year that got delayed by an issue through payment instruction issues. Another one for next year’s letter!
DRPCRD
Tim and Will from DRPCRD contacted us via this website but Tim used to work with Claire at the start of her career while at Mindshare. This gave us the comfort into the kind of founder he would be.
DPRCRD is a creator economy platform helping brands automate their social content creation. Brands struggle to create the amount of social video content that platforms such as TikTok require, because they don’t have the budget, resources or expertise to make good video content themselves.
DRPCRD allows brands to team up with social media creators, set briefs, receive submissions and process payments automatically. The platform has been built in-house and integrates with the WhatsApp API to make the experience as easy and seamless for creators as it is for brands.
IDWISE
IDWise is a disruptive eID&V & e-KYC start-up focused on Emerging Markets.
Amir met the founders Baha while at Callsign. After working on a number of deals together, Amir gained confidence in the product and their sales process. In Q4 2022 Amir then joined as a board advisor and then in Jan 2023, after seeing ARR grow 5x in 10 months, we invested directly.
We are very confident in IDWise’s ARR continuing to grow at the same velocity and their disruption of the legacy IDV vendors who cannot compete on speed, accuracy or price and the founder’s ability to innovate which was a key reason why a previous venture (ID Scan) was bought by GBG.
As things stand IDWise is a on track to be profitable in H1 2024.
Homecooks
After passing on the opportunity to invest in many different home food delivery services, we finally found one we believe in: HomeCooks.
HomeCooks’s model of being a marketplace of independent small batch chefs, allowing mixed order boxes with centralised, frozen driven logistics, is one that we believe can scale and will work. The centralised and frozen logistics model is one that has been displayed to work and profitable by ButcherBox brilliantly.
As always we were delighted to co-invest alongside Sameer Singh, who introduced us to the deal.
GlobalComix
Our first US investment is in GlobalComix, an opportunity we were introduced to by the lead investor Ishan Sinha at Point72 Ventures, via an introduction from a famous european influencer group.
GlobalComix is a subscription service that allows consumers to get access to comic books digitally. The company is the only product in the market that gives consumers the ability to consume content from large comic book publishers and user-generated comics.
The market is large and growing. There are 500M readers, 1M+ creators, and annual spend on comic books is ~$25B globally. This was our 1st US investment.
PS Amir is an avid collector of Marvel Silver Age Key Comics!
Omada
Omada is a FTP sports prediction app. Users can use their daily free coins to guess the right scores on a selection of matches and aim for the top of the rankings to win diamonds. The app also allows users to challenge their friends and compare their results.
We were introduced to Omada by Julien at Felix Capital and were delighted to hear Akin (who we consider to be the best gaming investor in Europe) was investing too. After meeting Adrien, we were easily convinced to invest in Omada’s 1st investment round and happy to see people like Harry Stebbings and 20VC also joining the cap table. This is our first EU investment.
Sooper Books
We were first introduced to Sooper Books by Leila Zenga at Kindred Capital. We then also got a very strong recommendation from Henry de Zoete, which made us very eager to meet with Simon and Charlene.
Like all great ideas Sooper Books was built for themselves and their at the time due baby. So a site was built by a storyteller and illustrator couple offering free bookshop quality storybooks at the touch of a button. What made Sooper Books get national attention was the Covid lockdowns and schools nationwide finding out about the site and telling parents about.
We are proud to support their continued mission.
PS
As always we use AI to create an image for our annual investment letter. This year’s image was generated by Stable Diffusion
