In this week’s episode of Nothing Ventured, Aarish sits down with Alex Macdonald, an experienced Angel investor who wrote the first cheque into Syft – an online recruitment platform that exited to Indeed in 2019.

Alex has since been reinvesting that money into more pre-seed and seed-stage companies as well as investing as an LP into a European fund.

Fear of missing out.

This episode of Nothing Ventured begins with Aarish and Alex discussing Syft and what motivated Alex to invest so early on.

Alex admits that the driving factor for backing the company was the ‘fear of missing out’.

First and foremost, Alex knew the founder of Syft, Jack Beaman, and saw his potential to become a great founder.

He also loved the company’s idea – to create a marketplace that connected temporary workers with restaurants, catering companies, and other businesses within the hospitality sphere.

Alex says, “it was an ambitious project, but no one else was attempting it at the time because it was very capital intensive to launch a marketplace in that space with the right level of betting and quality for it to be a useful product”.

However, at the end of the day, Alex could not entertain the thought of his friend having a hugely successful company and not being a part of it, and that was his main motivation for investing.

Lessons learned.

One mistake that Alex learned in his early years of investing was the importance of diversifying.

According to Macdonald, you need to access the best quality deal flow when Angel investing. He explains that there is a big range in the quality of deal flow, and you realise that the best deals are out of reach unless you are connected to the right people in Angel investing and Venture.

Secondly, you need diversification.

If you’re building a portfolio, startups have a high failure rate of approximately 90%. However, it’s more important to build a portfolio with private market investing than it is in public markets because you have the power law of returns.

Alex explains, “if you’re building a portfolio and you have one hundred startups in it, you’re probably going to have three or four return 50-100X, twenty to thirty that might return 2X-20X, and then the rest are going to have no return, and most of them are likely to fail”.

Research now shows that if you create a portfolio of at least fifty startups, it’s very hard to lose money.

Alex’s biggest mistake was putting all his investment into one startup rather than spreading it out into multiple companies. Now, he splits up his annual budget for startup investing and divides it by at least ten so that, over a period of time, he has built up a diversified portfolio.

“You are much less likely to lose money that way than if you invest in one or two companies per year”, says Alex.

In saying that, Macdonald has only invested in one company that has failed in the past.

From that experience, he learned that focusing on areas where you have knowledge and expertise when starting in Angel investing is vital.

The team.

Alex invests at the pre-seed stage predominantly, and at that stage, the most important thing that you’re assessing is the team and the founders.

After time and with experience, it becomes easier to judge the potential of the team and founder and predict their success.

Assessing the founding team at the pre-seed stage companies is where Alex spends 90% of his time before investing.

Later, Alex and Aarish discuss the difference between investing in pre-seed level companies and investing in seed or series plus deals.

Aarish says, “if you can’t access the deals at the early stages, you get priced out at the later stages”.

Alex explains that his primary motivation for being an investor is not financial returns.

He enjoys learning about other companies and having an impact on those companies.

At the pre-seed level, you can have the most impact, so that is where Alex prefers to focus his energy and capital.  

Start writing cheques.

There is an abundance of learning resources available for free for people starting out as Angel investors.

However, building a network of existing Angel investors is paramount according to Alex. Joining a syndicate provides access to high-quality deal flow and gives the opportunity to build a network of other Angels where you can test your own hypotheses and get their feedback.  

Most importantly, learning from experience is key, so Alex says, “start writing cheques”.

Aarish and Alex discuss the changing nature of the investment landscape.

Alex thinks that the next decade of investing will be defined by the democratisation of access to private markets or alternative investments. 

Alex recently set up his own syndicate company called ‘Alchemy’ to pool the knowledge, expertise, influence, and capital of the investors involved. Alchemy also enables new participants from different backgrounds who wouldn’t have been able to meet the minimum ticket sizes of other investments to get involved and participate in the venture ecosystem. 

Unlock potential.

Lastly, Alex is passionate about the democratisation of wealth creation.

He emphasises the importance of providing access to education, expertise, and capital to people from underprivileged and underrepresented backgrounds.

According to Alex, “less than 2% of VC backed founders in the UK come from underprivileged backgrounds”.

He continues to say that “nearly half of UK tech COs come from a private school background when only 8% of the population attend private school”.

Imagine the untapped talent that exists out there – people who have the curiosity, intelligence, and work ethic to build something successfully but lack the capital.

Listen to the full conversation with Alex on the Nothing Ventured Podcast.

You can also find Alex on Twitter (@alexfmac) and on LinkedIn (@Alex Macdonald).