Insights from a New York Angels investor

In this article, David Hemenway shares his valuable insights as a US-based angel investor with The New York Angels, while outlining the group’s investment process.

Tell us about The New York Angels

The New York Angels are among the largest and most active angel groups in the U.S., investing millions of dollars in innovative young companies every year. The most unique feature of our group is the incredibly diverse membership and that we have members with experience in virtually every area.

When companies apply to the New York Angels for funding, they get access to many different types of investors – some are investing solely for themselves, others for family offices or small funds. Many members also have their own investor networks, which offer access to many resources and creates a multiplier effect for the companies. Although we analyse investments as a group, we invest as individuals in the companies we choose, often also serving in advisory or board roles in the companies we invest in.

Tell us how you got into Angel investing

My angel career began by accident. I started my first company right out of college before there were many angel investors or advisors, and I struggled with issues like sales, management, and the basics of how to run a business. I had a great idea, but very little actual knowledge about what it took to succeed in business.

I was very fortunate, and over the course of about 15 years, I grew the company and was able to sell it to a larger industry player who was doing a national roll-up. After my experience, I wanted to help other entrepreneurs get started in business, so I created and taught a college course in sales for founders, fundraisers, and other people who did not come naturally to the business world. From there, I started a consulting business called Persuase, and it was through Persuase that I met companies of all sizes, many of which needed to find investment in order to grow. This led me to become an angel investor, helping businesses scale and succeed as they develop.

Tell us about your investment preferences (sector, stage, etc)

Since much of my experience was in advertising and marketing, I thought I would invest in those businesses first. What I learned pretty quickly, however, was that the biggest advantage of being part of an angel group is that you get the benefit of other members’ expertise, and they get the benefit of yours.

I am now sector agnostic, driven by opportunity rather than the type of company. It’s hard to find really exceptional ideas, so why limit yourself to a small space? It takes a lot of work to learn about new areas, but that’s also part of the fun.

I also prefer to be a very early investor, and I’ve worked closely with several founders to help formulate their business plans, as well as sourcing contacts and customers for them. Since I myself started from scratch, that’s where I am most comfortable as an angel, and where the best opportunities to invest at a low valuation usually exist.

Can you outline the New York Angels investment process?

The process at New York Angels means that we look at thousands of companies a year. Anyone can apply on our website, or a member can refer a company to the screening process.

Members rate and review companies for their investment appeal and portfolio fit, then 10-12 companies are selected each month to present to our members at screening day. Their 10 minute presentation is followed by a question and answer period with the goal of getting a group of investors interested in their idea. If that happens, the group goes to discovery, which is a two-hour session in which potential investors do a deeper dive into the particulars of the company, the industry in which it operates, and the investment opportunity. From there, the group of interested investors proceeds through a series of due diligence sessions until they agree on investment terms, or don’t.

What are the most common mistakes you see pitching entrepreneurs make?

Entrepreneurs often spend too much of their limited presentation time telling potential investors what’s important to them about their company. Instead, they should spend their few valuable minutes talking about what’s important to investors: How big is the market? What evidence can you give us that your solution is viable and that people will pay for it? Most importantly, who do you think you can sell this company to down the road, and why should we have faith that you’ll be able to do that?

Angels don’t get paid until the company gets sold and investors want to see the potential of how that might happen.

How would you describe yourself as an investor?

I have both passive and active investments, but I much prefer to be active if I have expertise that can be useful to the company. To me, being involved in a company’s growth is the real fun of angel investing.

What is the appetite currently for U.S.-based investors to invest in UK companies?

Covid has changed our process dramatically. While we used to primarily review local companies, we now regularly receive pitches from companies all over the world.

Angel investors used to say that they had to be able to “drive to their investments,” but technology has changed all that. There is an incredible appetite in the U.S. for good companies at decent valuations, regardless of where they are based because they have become increasingly harder to find. U.S. investors are ready to look further afield, and what better place than the UK, where we speak the same language and engage in similar business practices?

Anything additional you think readers should know?

I recently started The Angel Nest Podcast, which offers entrepreneurs the chance to tell their story to help find the right investors. I am always looking for new and interesting companies to profile.