When Jennifer, a Silicon Valley VC visited Puerto Rico, she ended up staying. The Anatomy of Angels in an emerging market. Building from the ground up!
Let’s go through a series of Essential BIG Questions together so we can collectively understand the anatomy of Angels in an emerging market.
“Whosoever desires constant success must change his conduct with the times.” 1
After selling her software company in Silicon Valley, Jennifer forayed into Angel investing. She was invited to Puerto Rico to judge an accelerator pitch competition; and enjoyed it so much, she kept returning for the next three years. She got very involved within the startup community and eventually relocated to the island. She started her VC fund ATO, since moving to Puerto Rico, which focuses on very early-stage startups in the tech sector.
“What was so special about Puerto Rico I asked?”
“They had the same level of drive, intelligence and ingenuity and all the things you see in the startups in the Bay area but the attitude and the culture were different.…They took time to see their families, visit the beach and attend church. They are hardworking but flexible…. they had a different view of the world.”
Jennifer brings her knowledge and connections from Silicon Valley but she made an important point in the conversation. She mentioned that investing was all very new when she arrived not because there was no funding but simply because there were no startups. She now has seven local investors in her fund who have taken the lead to invest in the new entrepreneurs on the island.
🌱 Essential BIG Question: What is an Angel investor and how are they different from venture capitalists?
Angel investors tend to be HNWI who use their personal finances to take on the risk of investing in a business which they believe has potential. Outside of providing startup funding they also invest their time as a mentor and offer practical experience to founders based on their expertise. They are hands on and lend their support beyond just funding. Conversely, venture capitalists do not invest their own capital but are backed by professional investors (LPs) who invest mid-stage to IPO. The mind map below provides a detailed breakdown of the two, based on key characteristics.
👇Have a Glance 👇
Source: Bigger Plate
Must Read: Y Combinator-Different Types of Investors and Their Incentives
Angel investors are an important component in the startup ecosystem. At the early stages of a business, the odds of failing are high and these individuals tend to take on the risk. More importantly they do so in groups, through associations or networks. As Angels work together they pool capital, which is necessary for startups to grow. It is the ultimate win-win as said investors are able to seek out promising startups and founders gain access to the initial funding needed to get their nascent ventures off the ground.
Whilst Angel Networks face many challenges, there are many advantages. A few outlined below:
- Consistent and efficient deal flow
- Improved due diligence and enhanced quality of deal reviews
- Better portfolio diversification
- Shared goals for government lobbying
- Mentorship and education to new investors
- Enhanced deal process through collaboration of resources
🌱 Essential BIG Question: What are some of the challenges faced by Angel investors in emerging markets?
As Jennifer mentioned in the podcast the investors in her portfolio in Puerto Rico are not particularly concerned with her associations from Silicon Valley. There tends to be a lack of knowledge about the market and many local investors are in fear of losing money. I remember in Series 5: New Frontiers of Africa Tech of the Rare Birds Emerging Market Podcast, whilst in conversation with Adeshina John, CEO and Founder of One Kiosk Africa he mentioned clearly that many investors in his native Lagos have lost considerable sums of money and having been “burned” refuse to invest again. This later sparked a bigger conversation in the podcast around how this creates difficulty for other founders to secure funding.
There are clear biases in emerging markets towards local investing. As Jennifer mentioned the creation of groups and other educational networks are necessary to counteract this phenomenon. Creating visible annual events and promoting angel investing as a respected profession with membership benefits is also important. As mentioned in last week’s newsletter, celebrating and sharing success stories goes a long way too!
🌱 Essential BIG Question: What opportunities currently exist for Angels?
Must Listen: The Emerging Markets Enthusiast: On investment opportunities and portfolio construction – A deep dive into angel investing with Alex Galvez (Co-Founder @Sila)
In this episode Alex discussed Angel investing in emerging markets. He mentioned the rise of the solo capitalist as well as rolling funds and special purpose vehicles (SPVs) which are all giving options to those interested in investing in startups. Financing led by individuals as opposed to funds is an example of the democratization of capital. What has become apparent is that individuals now have the capacity to invest large sums of capital beyond the early stage startup phase.
Said solo capitalist are defined as being the only investment member of the team, writing checks in excess of $50M and competing against traditional funds. In simple terms they are both the firm and the brand. In January of this year Anthony Pompliano of the “Pomp” Podcast interviewed Jeff Morris who shared what he learned as a solo-capitalist and why he has decided to take this path.
👇Have a Watch 👇
Source: Pomp Podcast
⚫️Speed of decision making
⚫️Confidence in his own abilities to invest
⚫️Preparation of mind to enforce his goals
Jennifer visited the island, met the startups and was smitten. Years later, she remains. Nigerian, Tomi Davies believes in supporting young entrepreneurs. As a serial Angel investor he has pioneered startup investing throughout the African continent. He started investing before it was popular and has witnessed the many changes in the ecosystem. He is the President and one of the Founding Members of the African Business Angel Network (ABAN). The network has three primary objectives:
⚫️Identify and educate angel investors across the continent
⚫️Help Angel investors form networks that are sustainable
⚫️Engage with policy makers on the continent
Suggested Reading: Creating Your Own Angel Investor Group
Capital flows to Africa are considerably small when compared to the rest of the globe but this hasn’t deterred Angel activity. There are various Angel networks in existence around the continent.
👇Have a Glance 👇
Source: ABAN Angels
This is only the beginning, similar to Jennifer when she first landed in Puerto Rico! Out of 55 countries on the continent almost 50% have an Angel network. What do we need to do to ensure there are more Jennifer’s and Tomi’s? I believe we need both to build a robust network of Angel investors across emerging markets. What are your thoughts?
Jennifer and I covered quite a bit in our conversation:
- Jennifer Started Investing In University
- Learning About Venture Capital
- Moving to Puerto Rico in 2016 via Parallel 18
- What Jennifer Believes Makes Puerto Rico Special
- ATOS Ventures-Early Stage Venture Capital Fund
- An Overview of the Puerto Rico Startup Ecosystem
- Puerto Rico Within the Context of Latin America
- How to Develop an Angel Network in an Emerging Market Ecosystem
- Experiences Working with Companies Pre-Launch
- General Startup Challenges Faced by Puerto Rican Startups
- The Future of Puerto Rico as an Innovation Hub
- Tips from an Investor