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This as-told-to essay is based on a transcribed conversation with William Reeve, 52, an angel investor based in North London. Reed is the CEO of the lettings platform Goodlord.co, and a non-executive director of the homeware retailer Dunelm. One of the companies he founded, LOVEFiLM, a DVD rental and streaming business, was acquired by Amazon in 2011 and reportedly valued at $312 million at the time. The following has been edited for length and clarity.
I've been a fairly active angel investor for 25 years now.
From a young age, I was a computer geek. In 1997, I set up my first business, Fletcher Research, researching the internet for large corporates. I was in the right place at the right time. My company was acquired in 1999 for a life-changing amount of money.
I didn't have a plan for that money.
In the early 2000s, I loaned a university friend some money and from there, began making more investments. I had some connections with people I'd done a graduate program with at McKinsey who had investment opportunities.
Roughly four years after my first business was acquired, I cofounded LOVEFiLM, a DVD rental company. People I worked with there went on to run Zoopla, a well-known UK property website, which I invested in.
I've made about 60 investments over my lifetime, including repeat investments and crowdsourcing. My ticket size is usually around £20,000, around $25,000. This is relatively small, but I've got a lot of experience that founders look for in investors. I've built up a strategy for fielding opportunities over the years and learned about what makes a good investment.
I'm generally looking to invest in companies where I have expertise to offer, either because tech is integral to their strategy or I can support their fundraising and hiring.
When I meet a founder, I look for their ability to listen; the best entrepreneurs are usually naturally curious and good listeners. There's nothing more frustrating than offering advice and being ignored. If a founder only wants money and has no intention of talking or listening, I tend to pass.
I've reached out to companies I liked in the past, but it's rare. I mostly wait for people to pitch to me.
One filtering mechanism I have is that founders must contact me through another investor or entrepreneur I know. I'm a well-networked guy; there are hundreds of people I'd happily accept an introduction from. It speeds up the process.
I've learned not to invest after a first meeting. I need three touchpoints, such as meetings or emails, to sense whether my relationship with a founder is developing or if they're meeting their promises.
I also leverage my network to do due diligence. If I know someone who knows the space better than me, I'll chat with them or ask them to meet potential investees for me.
My standard ticket size is around £20,000 or £25,000, but I've invested up to about £100,000 in some businesses over multiple investments. It's stayed at that amount over the years partly out of habit, but also because I want to focus on the entrepreneur and business without getting distracted by trying to "game" the ticket size.
The expertise you can offer as an investor is fairly general, such as insights about fundraising strategy or how boards should be structured. But I've also made specific contributions: I found a CTO for one business and have supported several others in securing their main investor. However, I usually make the most impact with companies when I am on their board, which I've done for about a dozen of my investments.
I love companies that have a "MacGuffin," a term Alfred Hitchcock used to describe the hook that draws viewers into a film. I want to see the hook that explains why a business will win in a competitive marketplace.
If I'm meeting entrepreneurs, I'll point to a passerby and ask, "Those guys are setting up the same thing as you. Why are you going to win?"
The good answers are "MacGuffins." They could already have a deal with the No. 1 player in that space or have patents on amazing technology.
A bad signal for me is when I see families working together, like couples or siblings. To me, it means there are probably some non-rational factors at play, like family relationships, that make it hard for people to do what's best for the business.
The business model is most often what makes me pass. It's pattern-matching — when I've seen something like it before, and it didn't work, I won't invest. It's annoying for the poor entrepreneur, but I like to apply my experience and knowledge of business.
Angel and venture investing is a high-risk, high-reward activity. If you're not willing to lose everything you invest, it's not something you should be engaging in. You almost have to assume that investments are written off and the money's gone, and what comes back to you is a windfall.
I've seen returns several times the value of what I've invested, which is a really fortunate position to be in, and I still have some significant investments that haven't returned any cash yet, though I think they will.
I'd say the sort of people who do angel investing because their accountant suggests doing it for tax breaks aren't going to do very well. I'd encourage people to think about where their edge is — where do they have some advantage over others as an investor? The obvious option is to back people you know because not everyone knows them.
Successful angel investors are people that founders see as providing more than just money. Regardless of the company's outcome, they have a positive impact on the businesses and entrepreneurs they invest in.
Do you want to share your angel investing story? Email ccheong@businessinsider.com
