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Finance Focus helps businesses navigate the ever-evolving world of finance. Each episode features expert insights, practical advice, and in-depth discussions on topics such as crowdfunding, trade finance, angel investing and debt. Hosted by Tracy Smart from The Smart Team and Sam Jones from Satellite Finance.
[00:00:00] Tracy Smart: Hello and welcome back to the Finance Focus podcast. And to our new guests, a very warm welcome. I hope you enjoy this episode. Today we're going to be talking about angel investing and we're joined by a very esteemed guest, David Ford, one of our local angel investors in Oxford.
[00:00:25] David Ford: Hi, Tracy. Thanks very much. Good to be here.
[00:00:27] Tracy Smart: Thank you.
[00:00:27] Sam Jones: Brilliant. I'm really excited about this one because being a finance broker, my background's all in debt. my experience of angels is all Bibles, Robbie Williams and puddings. So I'm all ears, ready to learn.
[00:00:39] Tracy Smart: Just set the scene, angel investors, typically you would invest in what is known in the trade as the seed round or perhaps even earlier. Do you want to explain a bit about that and yourself as well, obviously, how you started in this?
Sure. Great.
[00:00:52] David Ford: As you say, I'm Oxford based. I invest predominantly in life sciences, healthcare companies, which is relevant for my background.
Originally I was a biochemist at university and then moved to the city, spent my entire career as an investor.
It was probably seven or eight years ago now, slight change of emphasis from a life perspective. and actually we started dabbling in something called angel investing. I didn't really know what that was. but I thought I knew about investing because that, that has been my career for 20, 25 years.
And it was this idea of, as you say, investing in seed stage companies, early stage companies, really, as they're starting to get going, they maybe have an idea. But they may not have revenues, they may not have much traction from a customer perspective, or from a product perspective.
But there is this idea that they have, or this vision they have for their company. And that's really, as an angel investor, what we're looking to back at that very, very early stage. It's unreasonable to think of these businesses as being fully formed. So you're really looking to back an entrepreneur, back a founder, in their vision and their sort of, vision for the future, as much as anything else.
So that's what, that's how I tend to think of angel investing.
[00:02:05] Tracy Smart: Other typical investors would be a venture capitalist or something like that, or an organisation like that. I guess the ticket or the size of your investment as an angel is typically a little smaller than that?
[00:02:19] David Ford: I tend to think of it as being, there's a continuum almost of, the life cycle of a company and the type of financing that it perhaps needs. So certainly when I'm getting involved in a business or investing in a business, that's very much before a VC or venture capital fund is getting involved.
And I see my role essentially as being investing to get the business going. So almost like thinking of it as being a sort of proof of concept financing to allow them to then go and raise significantly more from a VC fund. So I'm probably getting involved before a VC is involved or looking at the opportunity, and then I'm working closely with the company to help them raise that first bit of institutional VC funding.
[00:03:08] Sam Jones: How did it start then with your first investment?
[00:03:11] David Ford: I think now it's certainly, it's a lot easier to, to start looking as an investor when you're interested in angel investing. It's now with online platforms, crowdfunding, and you make available a suite of information and you dig into the information and you make a yes or no decision. And most of the time the answer is no anyway, I'm certainly very selective in terms of the opportunities I look at. But what I, found, and this is really why I was persuaded, I persuaded myself rather, to make that leap from full time career in the city to being an angel investor full time, was that I found just looking at information online and being therefore quite passive in terms of my decision and therefore my involvement in the company going forward, quite frustrating. I actually wanted to meet the entrepreneur. I wanted to build relationships with that person or that team to be able to back them with more money and back them for the longer term and potentially work with them and hopefully add some value.
So that's what persuaded me to make that jump into thinking of it as a full time career because most angels typically are, they are angel investing in their spare time. They might be retired, semi retired, or just doing it because it's a little bit of fun in their spare time. Whereas it is very much for me, it is a career choice.
[00:04:25] Tracy Smart: And do you get involved then as the business develops? I mean, you've mentioned you want to get to know the team, the CEO and the founders and develop relationships. Do you get involved in working with them on business decisions and,
[00:04:40] David Ford: Selectively, I do. As an investor, my background is as an investor. I'm not an operator or an exited entrepreneur, and exited entrepreneurs make amazing angel investors because they've lived that, they know what it's, they know that experience and they know what it's like and the peaks and the troughs of having to raise money and develop your business.
So they make fantastic angel investors, but that's not my background. There's a balance there as an investor. You don't want to be treading on the company's toes or the founder's toes and second guessing them, you're backing them as an individual, as a team, you want to let them get on and run the business.
But at the same time, if I think selectively, I can help, whether that's from bringing in new investors, dealing with existing shareholders, then that's where, or governance from a board perspective, say, then that's where I'll typically get involved.
[00:05:30] Sam Jones: And if I was coming to you as a prospective client, somebody who wants some investment, what would you want to see from me? What makes a good case?
[00:05:38] David Ford: It's about that vision. It's about being able to communicate. You know, I'm not looking for you, certainly at a very early stage, I'm not looking for you to have the answers to, where you're going to be in three years time or five years time.
That's unrealistic. Ultimately, this is a journey that we're going to go on together. So first of all, I want to be able to feel as if we're going to have that closeness of relationship and there's a level of trust there. I mean, that's incredibly important, and that works both ways.
As a founder or as an entrepreneur, you need to trust your investors who are coming in as well. Potentially in the future, you're going to have to ask some difficult questions of them, to support you in decisions, put more money into the business. So that trust and relationship absolutely needs to be to work both ways.
But more than anything else, what I'm backing you is as a team, and I'm backing your vision, rather than having to have every answer fully baked.
[00:06:32] Tracy Smart: I know that we've worked together in with a particular client, and I guess one of the things is quite important for an investor is to know that the finances are well looked after and well managed.
Do you find often that is lacking when people first come to talk to you?
[00:06:47] David Ford: Very often, because I think if you think about your technical founder, whether that's a scientist, or a techie, or whoever, that doesn't really matter, whatever their background. They have a business idea, and that business idea has come from a passion of theirs, an idea of theirs.
So how could they possibly know about finances or board or governance or any of these things to do with managing a business? They're the product person. That's great, and that's what you're backing. You know, absolutely, there is that, need, I think, to bring in skills from the outside and entrepreneurs, founders, whoever, shouldn't be afraid of bringing in those skills from the outside. I think sometimes there is that feeling as if, almost of embarrassment, as if I should know all of this. One of the things I'm always trying to do is identify actually where are the gaps in skills and where can we, if we can develop it in house, of course, that's better because it's free, effectively. But if we need to bring in expertise from the outside, then that's what we should do, because that takes the pressure off the founder, ultimately. Because what you're wanting, what I'm always trying to do is isolate, where are the risks in the business?
Actually, for the most part, certainly the things I'm invested in, what I'm trying to get to isolate is that scientific risk. If science works, it's great. If it doesn't, well, that's life. And science is inherently risky, but you want to put a framework around the science, to, allow the entrepreneur or the team to focus on what they're good at, which is delivering something, and it's not finances or board, and that's not what they should be good at.
[00:08:24] Tracy Smart: One of the things I would say is I've experienced, particularly with scientists, because they're very detailed and very, specific about making sure that their experiments are done accurately and at a very detailed level.That's not always the case when they have to make a commercial decision. You don't always have perfect information.
And being able to take information that you may only have 90 percent accuracy on the information, often that's quite difficult for them as a mindset, and like you say, bringing those skill sets into the team is often very useful. One of the things I wanted to ask you actually, you mentioned about trust and again it's something that I personally find is you have to build it and it's a very difficult thing to do.
At some point you've got to make that first step and then you can sort of, build on experiences and how they're going.How do you do that? Do you spend a long time getting to know them as individuals and how do they find you and how does those relationships usually develop?
[00:09:25] David Ford: For me, it's about time. Very rarely will I make a decision quickly. I'll be as quick as I can be, because of course, your fundraising company wants to get going, wants to raise the money as quickly as possible, and that's fine.
But for me, ideally, I'd like to be introduced to a company before their fundraising, they're just getting going formulating their ideas. Because that allows me to see and get a sense of how the team are thinking about things. So you're just seeing day to day how responsive they are in terms of questions. are they open with information?
Do they have the information to hand to be able to share that information? How organized are they? And that's how you over time build up that level of trust. So for me, it's about time, it's about multiple interactions. But also respecting their time as well, because of course, you want them to be able to focus on running the business and focusing on the opportunity. So, there is a balance there, and that's the advantage of being somewhere like Oxford or a sort of very active cluster from an innovation or from a startup perspective, is that you're meeting these people all the time.
[00:10:29] Tracy Smart: Yeah.
[00:10:30] David Ford: And to your second point, which is about, how I see the opportunities in the first place, absolutely comes from, network and just being embedded in a place. So people know who you are, but you're going along to events and that there's a lot of serendipity as well in angel investing about the people you might know, people you bump into, people you happen to just chat to at dinner or something like that and that leads to an interesting opportunity. So you've got to put yourself out there.
[00:10:58] Sam Jones: So when you enter as an investor, obviously you're investing your money, but also emotionally as well, because you want this to work, and then you're obviously quite involved in the success of the business.Do you go in with an exit in mind? Do you have a way out that you want to achieve as soon as possible, or are you just in it to follow the journey and see where you end up?
[00:11:18] David Ford: I think in my naivety, when I started this journey of mine, if you like, as an angel investor, which probably was eight years ago now, I was thinking, I'm an experienced investor. I'd like to think I'm a good investor, but, we'll find out how good I am at angel investing, and I'll know that after two or three years. And of course, after two or three years, very little has happened in my portfolio. If you look at, certainly, health care or biotech companies, your average sort of time to exit is ten years, ten years plus. So I have no idea whether I'm any good or not at all. So I think probably, to answer your question, if you'd asked me that question seven years ago, I'd have said, oh, three to five years is where I'd expect to exit. But the reality is it's seven to twelve years.
But interestingly, I think angel investing, it's a very hard way to make money. There are far easier ways to make money, frankly. If I was doing this just to make money, I probably should have just stayed doing my own, my old job, back in the city.
My desire actually comes from, yes, of course, I'm in as an investor. But actually my desire is to try and build something of interest for the longer term. So if I look at the businesses that I'm involved in, actually, if I'm still invest in some of those businesses five years from now, 10 years from now, that's okay, provided they're doing something that is really interesting and building something of scale rather than that sort of, and a lot is talked about how we can support businesses in the UK.
And one of the criticisms, and sometimes I think it's a very fair criticism, is that we sell out of businesses too early. And there's an overseas purchaser just takes the technology and takes it to the US or to Europe or to Asia or wherever, and we don't back some of these businesses for the longer term.
Whereas, so actually I'd quite like to be involved in some businesses where we're just building something meaningful
[00:13:07] Tracy Smart: Making a difference.
[00:13:09] David Ford: Yeah, making a difference in the UK.
But it is very difficult because as a business develops and brings in new investors. Other investors have different time horizons and how you marry their own expectations with your expectations and the company's expectations. The Founder, of course, might want to sell out, the Founder might not want to sell out. So you've always got to balance the competing interests or those competing, views and opinions as to what that ultimate exit looks like.
[00:13:37] Sam Jones: And have you had any, for want of a better word, disasters. Any case where you've said, I'm out, this isn't working, or, perhaps the business hasn't grown as you thought. and what sort of lessons have you learned from that?
[00:13:46] David Ford: Failure is just a fact in early stage investing and we shouldn't be afraid of that. You try something and sometimes it works, sometimes it doesn't work. So, as long as you have some successes. Then that's okay. Unfortunately, as an angel investor, your failures tend to come quite early and the exits come later.
So you've got to sort of hold your nerve a little bit and sort of back yourself and back your judgment. There aren't necessarily common threads towards underpinning some of those failures. There just wasn't a market there sometimes trying to develop a product.
There just wasn't a need for it. Interestingly, of all of the failures and I've had three failures in my portfolio, none of those have been to do with management. Literature or research, which will say that it's all about the management team and the biggest cause of failures is just management, not executing right or, not, getting along and there being a, it's a split of the founding team or what, or whatever happens to it, just management in general.
That hasn't seemed to have been the, case with my failures. It's just been about, they tried something, it didn't work, they moved on. That's okay. I'm very comfortable with that.
[00:14:57] Tracy Smart: So that investment in time that you put in the first instance to evaluate the team, obviously is making a difference there then.
[00:15:05] David Ford: I hope so. I mean, I hope that, I hope that is validation of that, yes, we'll see as we move forward, I'd like to think that's, yeah, that does, that certainly plays into that, yeah. But, in terms of disasters, I wouldn't describe them as disasters.
I think they're just, they're failures, and that's statistically, 70 to 90 percent of startups fail. So, it's gonna happen. I've invested in 29 businesses to date, I think it is, 25, 29, something like that. most of those businesses sadly are going to fail. The hardest thing actually is not the day to day, but the sort of, the variation on a sort of quarterly or semi annual, on an annual basis is just, companies just take longer to get going, and the difficulty of fundraising, companies do go very close to the wire in terms of cash resources.
It must be, awful. I could never be an entrepreneur or founder of , I am much happier being on my side of the fence because that's, that level of stress is immense, where you're just pushing the business, you know you need to raise funding and you will raise the funding. Tracy, you will know all about this takes a lot longer than you think to raise financing.
[00:16:13] Tracy Smart: I was going to ask you about that because you mentioned time right at the beginning and the time you invest in terms of getting to know the team. Typically how long in your experience does it take if you start a fundraising journey, if you're trying to raise equity through eithera seed round or a series there using angels or VCs.
What's the typical length of time that it takes to actually get the cash in the bank?
[00:16:38] David Ford: Yeah, I think it does depend a little bit on the company and clearly how much you're raising. Of course, if you're trying to raise a large series A round from VCs, that's going to take 12 months, 18 months, something like that. But I think if you're raising a pre seed round from some smaller angels and you're raising, say, up to 500,000, something like that, then I think that's, it's three months.
Because you're just going to have to have a lot of conversations, a lot of hand holding, explaining the idea. And then documenting it, just working with lawyers takes time, right?
Because three months feels a bit quick for me. Yeah. Well so I think...
[00:17:16] Tracy Smart: I'd allow six to nine minimum.
[00:17:18] David Ford: Yeah as I said, I think my range would probably for, say you're raising 500,000, I think it's yeah, three to nine months.
Yeah. It can be done quickly. You know, if you have a good set of angels that work together repeatedly, and they trust each other, then they move a little bit as a, as a group, that brings a bit of momentum.
[00:17:37] Tracy Smart: I have heard that as well. You just need the first one to take the stab then the rest often, like you say, they do work well, especially if it's, a second round of funding or something.
[00:17:48] David Ford: And I think the helping that is having a strong or an experienced lead investor. May not be the largest investor. Often it is the largest investor into a particular funding round, but doesn't need to be. But it's someone who perhaps has a deep background in the industry, maybe a very good track record as an investor that other people will look to and think, well, if he or she is doing it, I'm going to follow them.
And that creates a momentum and a life of its own around the funding round. and that's the art of a funding round as well, is trying to create that momentum, and also I think, having an entrepreneur or founder who's done it before, if you've been through that, you know some of the issues, some of the questions you're going to get asked. investors should move as quickly as they can. but it's also, beholden on the company to be as responsive as they can be in terms of, being responsive to questions, being open to meetings and discussions.
And I think the brutal reality from a founder perspective or founding team perspective is that raising money is a full time job, and I think sometimes founders go into it thinking, I'm just going to run my business and the funding will take care of itself. The reality is it doesn't. And the moment you've closed one round, you're probably thinking about your next round and so that's, and to your point earlier on, about bringing in external support. That's actually where you need the external support as well to be able to take some of the burden off you as well, I think.
[00:19:16] Tracy Smart: From our previous guests were mentioning it works well if there's more than one founder, because then you can split the responsibility because you've got to keep the business going. I think they were talking about at least 60 percent additional time. So you said, it's almost full time on top of that.
So that's a common thread that we're hearing, isn't it?
[00:19:36] Sam Jones: Divide and conquer. So the, the life sciences is particularly strong locally for us in Oxford, university spin outs, et cetera. And actually I think globally, Britain does quite well, don't we? But are there any significant challenges or opportunities you can see coming up to help with those industries?
[00:19:51] David Ford: Yeah, I think the challenge is availability of capital. I think we're great at, and this is very well discussed now and very well documented as an issue, we are great at starting businesses, getting them going around some fantastic science and fantastic people, and then we just can't keep them here.
We can't raise enough money here to be able to grow them sufficiently or to take too long to be able to move some of those businesses forward. So that's the biggest challenge is really availability of capital and having, our own large, and that's not an Oxford thing, that's a UK, or it's not even UK, it's a Europe wide problem where there just isn't that availability of scale up capital, to be able to move some of these businesses forward. I was in San Francisco last week for a large healthcare conference. And the difference in emphasis between a British startup or a British company getting going, raising money versus a U.S startup, where orders of magnitude in terms of what they're asking for, in the U.S. The U.S is just able to communicate a larger ambition, a larger vision, because the capital is there. There's just that plethora of funding opportunities, which we just don't really seem to have here.
[00:21:07] Sam Jones: And that would be an incremental gap, wouldn't it? If we're asking for five million, they're asking for 50, they take bigger steps. Their steps only get bigger and we're not catching up.
[00:21:15] David Ford: Exactly right, and with that extra funding, of course, you can move quicker, you can do more things, and it just makes it even harder for us to really scale those businesses by staying in the UK, and that's the challenge, I think, is trying to grow businesses here, but keep them here and keep that knowledge base here because that creates that virtuous circle, of course, by keeping a business here. Creating all these jobs here, well paid, and when there's an exit there, that's money that then flows back into the ecosystem in Oxford, the UK, or wherever.
And that's what the US has got, it's that virtuous circle, that sort of flywheel effect of raise money, build a big successful business, that a business exits and then goes back into the ecosystem. And that's what we need to try and create more routinely here. It has changed here. It's got a lot better here, but it's still not to the same extent.
[00:22:11] Sam Jones: So if anyone's listening with a chunk of change in their pocket, get out and start investing.
[00:22:15] David Ford: Exactly. There you go. Come and find me.
[00:22:18] Tracy Smart: Well, that's fantastic. Thank you, David. Very much appreciate you sharing your time with us.
[00:22:24] Sam Jones: That was thoroughly entertaining and I learnt a lot. So thank you very much and hopefully everyone will be back next time. All the notes will be in the show notes on whichever platform you're listening on. Links to mine and Tracey's LinkedIn and emails as well if you've got any further questions.
Thank you very much.
[00:22:39] David Ford: Thank you.