iAngels Founding Partner Mor Assia on stage at the 2016 NOAH Conference

At the 2016 NOAH Conference in London, iAngels’ founding partner Mor Assia discusses key challenges and opportunities that lie ahead for accredited investors. In times of volatility and slowing economic growth, investors look to innovation as the main source of wealth creation. After all, asset classes where you can see the potential to 100x your money are few and far between.

In this talk, Mor Assia discusses the importance of creating a diversified portfolio and how Israeli high-tech fits into the global economy. In a mobile-first world, learn how iAngels has pioneered a fresh approach to angel investing from the comfort of your smartphone. Combining prominent co-investors with thorough due diligence, iAngels provides visibility and access to proprietary dealflow, changing the way that accredited investors build exposure to the venture capital asset class.

Watch Mor showcase the iAngels due diligence process on stage at the 2016 NOAH Conference, the preeminent European event where Internet CEOs, executives and investors gain deep insights into the latest proven concepts, network with senior executives and establish new business relationships.

What To Know Before Co-Investing

One of my investors candidly asked me recently, “Shelly, if I have an opportunity to invest with people I’ve just met, how do I avoid getting screwed over?” This is a good question; for most investors interested in startups, co-investing is the de facto way to invest.

Just like you scrutinize the entrepreneur, the technology and the market opportunity before investing, you also need to assess the people with whom you’re investing. Why are they investing?  What is their track record?  What type of value do they bring to the startup? Why did they present the opportunity to you?

Here are 10 tips for successful co-investing.

Invest with people who are in it for the returns

This might sound like stating the obvious, but you’d be surprised. I see investors invest in companies for various reasons. Angels sometimes invest because they have a relationship with the founder or want to help. Corporates may invest because there is strategic value of the technology to the company, not the potential for a big exit.

If you are partnering with other investors, take the time to understand their motivation behind the investment, and always strive to co-invest with people who are in it for the financial potential of the opportunity.

Track the track record

Aim to co-invest with people who have a proven track record for identifying talent (a history of successful portfolio companies) and adding value (opening doors and securing investments). These types of investors see the most deals and attract the highest-caliber entrepreneurs. More importantly, their superior access and active involvement increases the likelihood that the investment will succeed.

Fear the infrequent

When an investor brings you deal flow on a regular basis, you should feel much more comfortable co-investing — as opposed to an investor who sends you a deal once in a blue moon. In the former case, you don’t have to ask why the deal is coming your way, especially if every deal is shared. In the sporadic case, the investor may be having trouble closing the round, and you should evaluate with caution.

Do due diligence

Although you can leverage the due diligence your co-investors have performed on the company (to save time and energy), reviewing the deal terms proposed by your co-investors is just as important.

Startup investing should be fun.

Notable investors who get involved in the company’s day-to-day often will demand preferential terms in the form of kickers (options or warrants), effectively reducing their entry valuation. Your job as the co-investor is to ask yourself whether this special treatment makes sense, and if your price points reflect the risk adequately.

Be mindful of adverse selection

When you see a company for the first time, assume others have seen it, as well. Try to understand on what grounds other angels and VCs passed. Some investors may have wanted to invest, but already invested in a competitor, have a past history of conflict with the founders or lack the industry connections necessary to add value.

See if you can identify insights that others likely missed (with respect to technology, team, market, etc.) to strengthen your case for investing, and avoid the notion of doing the deal that no one else wanted.

Beware of biases

It’s always great when investors from previous rounds follow-on their investments and continue to support the company. But be aware that these investors already have a working relationship with the founders, inside information on the company’s prospects and knowledge that new investors are watching carefully for a signal.

If they don’t believe in the company, this puts them in a catch-22… invest, and they risk more money in a losing bet; don’t invest, and the company may fail to raise a subsequent round, resulting in guaranteed losses. In contrast, investors seeing the deal for the first time lack an emotional and/or financial attachment to the company, and their investment conviction will come from a less biased position.

Be wary of co-investing with the co-investor

In venture capital, everyone is co-investing… accelerators, angels, VCs, corporate VCs, PE funds. Even most of the professional VCs that “lead” rounds co-invest 90 percent of the time.

To avoid this circularity, try to identify at least one smart person with a track record. It can be an angel, an industry expert, a partner in a good VC — someone who understands the industry and has conviction in the opportunity, regardless of anyone else’s opinion. This is a true lead.

Skin in the game from a portfolio perspective

You want to invest with someone who is truly vested. In dollar value, that means different things for different investors. For an angel investor, $200,000 could mean a lot of money and a real bet on the company. For a VC, it could mean just a foot in the door. To illustrate, when a $200 million VC fund invests $200,000, they are risking only 0.1 percent of their capital on the opportunity.

In such a case, you can guess that the amount of attention this company received is limited. Furthermore, if the company doesn’t evolve into being a huge opportunity, the VC might not be keen to make substantial investments down the road, which will hurt the company’s chances to raise from other investors.

Alignment of interest

Alignment is more natural when you invest with someone who has the same disposition as you. For example, if you have a net worth of $3 million, co-investing with a professional angel investor who has $20 million creates more alignment than co-investing with a $300 million VC fund.

Like individual investors, angels are usually sensitive to valuation, while VCs are sensitive to ownership — the reason being that angels typically won’t be able to follow-on on their investments indefinitely, while VCs have deeper pockets, prefer larger opportunities and allocate smaller amounts in the beginning to double down at later stages when the company does well and they want to maintain their position.

Consider each potential co-investor’s motivation when evaluating the deal.

Strategic investors (corporations) often do a lot of ground work and due diligence around their investments to ensure they create a viable exit strategy for the company, or to understand how the technology will integrate into one of their product lines or IT infrastructure. This can benefit the co-investor if the startup quadruples revenues by selling through the corporation’s distribution channels.

But if the company signs an exclusivity arrangement that prevents the startup from doing business with other companies, or a right of first refusal that discourages other strategics from bidding in an M&A situation, it can actually hurt the company a lot. Consider each potential co-investor’s motivation when evaluating the deal.

In trust we trust

Startup investing should be fun. Invest with good people you trust and build your reputation as a good, trustworthy co-investor that others want in their cap table. Each startup investment is a partnership with the entrepreneurs and co-investors. These are long and bumpy rides with much that can go wrong if you are doing it with the wrong people.

I have witnessed tense boards, investors putting down entrepreneurs, aggressive financing rounds… and other such instances that reduce your chances of success and, frankly, take out all the fun from the ride.

If you can check off the majority of these boxes, you’ve got yourself an interesting deal.


This article originally appeared on Techcrunch

Crowdfunding in the Context of Portfolio Management

iAngels’ Founding Partner, Shelly Hod Moyal, recently published a white paper that explains how crowdfunding fits into the context of portfolio management.  Below is the introduction of the piece.  You can download the full version here
With interest rates at zero and the introduction of crowdfunding-based financial innovations, investors are seeking both alpha and diversification in a new class of alternative assets: start-ups, consumer loans, private equities, and real estate projects.
While investors have deployed capital into venture capital and private equity funds, credit funds, and REITs for quite some time, “alternative alternatives” or “A2 “, represent the possibility of investing in specific securities within each of these alternative asset classes. Just like the public invests in and lends to public companies through individual stocks and bonds — not just mutual funds, the investing public can now invest in and lend to private companies and individuals through crowdfunding.
Yet, although start-up investments have a low correlation with traditional assets and can complement an investment portfolio, start-up investing is not suitable for all investors. Due to their small size, start-up investments are both illiquid and highly volatile. (For more on whether start-up investing is right for you click here).

This white paper discusses the risk/return profile of A2 with respect to diversification, a changing investment landscape, strategic asset allocation, and the prospects of A2 investing – specifically start-ups– as part of a broader investment strategy.

Should You Invest in Alternative Alternatives?

With interest rates at zero and the introduction of crowdfunding-based financial innovations, investors are seeking both alpha and diversification in alternative assets: start-ups, consumer loans, private equity, and real estate projects.

While investors have deployed capital into venture capital and private equity funds, credit funds, and REITs for quite some time, “alternative alternatives” or “A2”, represent the possibility of investing in specific securities within each of these alternative asset classes. Just like the public invests in and lends to public companies through individual stocks and bonds — not just mutual funds, the investing public can now invest in and lend to private companies and individuals through crowdfunding.

Alternatives Went Mainstream, A2 to Follow

Once considered an investment vehicle only for sophisticated, high-net-worth individual investors, alternatives — real estate, private equity funds, hedge funds, managed futures, commodities, and venture capital — have become a standard component of almost every professionally-managed investment portfolio, growing twice as fast as non-alternatives since 2005.


Click here for the full article

Strategic Asset Allocation: How Much to Put in Startups

For decades, retail investors have been persuaded to invest in financial products that both under-perform​ the market and correlate highly with the market. As discussed in Diversification and Startup investing, the ability to now invest in an emerging class of individual startup securities motivates investors to rethink their strategic asset allocations and achieve better outcomes. Naturally, an investor must have the necessary desire and capital base (at least $1m in investable assets) before then determining first the appropriate “start-up” allocation based on his/her personal objectives, constraints, and capital market expectations.

Click here for the full article

Diversification and Startup Investing

The rise of crowdfunding platforms have introduced new private market investment opportunities to private and institutional investors alike. In order to invest in these nascent financial products successfully, diversification, a concept fundamental to responsible investing, is discussed below to refresh basic investing principles and remind investors of the importance of considering each investment in the context of a total portfolio.

Click here for the full article