“Money alone is not going to help your business scale all the time. Value is what’s key”
Did you know that the term “angel investor” originated in the early 20th century, referring to wealthy individuals who provided financial support to struggling theatrical productions? But beyond Broadway, in the world of startups and venture capital, angel investors are the celestial force behind entrepreneurial growth. Today, we sit down with one such angel, Sajiv Dhawan, an active investor known for his astute investment strategies and penchant for mentoring the next generation of disruptors. Un:hurd, Fantasy Football League, and Hands In are only some of his angel investments. Read on to find out the thinking behind Sajiv’s investment moves, the joys of guiding startups to new horizons and the lessons learned along the way.
We start off by asking Sajiv how he got into angel investment.
“I was a stockbroker in India for 20 years and many clients lost money chasing “fast” returns by day trading / following random “tips” , a strategy which rarely ever works. The only ones who made decent returns were investors with a three to five year time frame and who simply bought the index! (which would beat 80% of mutual funds). Many stockbrokers treated clients as a commodity to generate commissions, via short term trading which ultimately led to retail investors losing heavily and the industry changing as more compliance came in.
In 2016, I joined the Indian Angel Network and found that very interesting because of the active mentoring it offered – when we invested in a company the idea was not just to give them money, but to help the company grow, whether within India or on a global level. Members of this network include listed companies, very experienced business people with exposure to most sectors. As my background was financial services, any start-up which came with anything finance related, I would vet and share with the network if deemed it investment worthy after speaking to the founders and seeing their business plan”
We want to know more about specific businesses he invested in.
“The first investments I did was in a dim-sum company (Wow Momo), which was super easy to invest on because they came with the product, and everyone loved it. It got oversubscribed and it got an exit within 3 years for the angel investors at 12x. The key was that the promoters were fully invested and totally committed to the business. Hard-working, fully invested companies are exactly what we look for. Another investment was in data, with a company that did a phenomenal job – that was a fantastic exit, 96 times within 4 years.
I’ve invested in about 20 companies with 3 exits (one zero). My first UK investment was in UnHurd (a music app for artists). Alex [Brees] is a really smart dynamic young man. He had one lead investor, also a Home Grown member (SFC Capital). I met him, liked him and saw business potential due to the global need for independent artists. From revenues of a few thousand pounds when we invested, the company grew fast and raised approx. 230k by the time he got on Dragon’s Den. Just imagine the pressure in that kind of situation – of course, when he was made an offer, he took it. But we as the shareholders, who knew how Alex had grown the company, thought that they were undervaluing it.
Instead, we discussed with Alex to bring other investors from the music industry who would understand what he’s trying to create and add more value. Fortunately, Alex declined the Dragon’s offer after the show. Six months later, he raised a much larger amount at a valuation five times what the Dragons offered, and he has investors from the music industry. Sometimes you have to take tough decisions and short-term risks for the betterment of your company. And that’s where I think a lot of startups get confused because money is tight. But money alone is not going to help your business scale all the time. I myself don’t invest in a company unless I feel my network or I could add value down the line.”
We pick up on Sajiv’s mention of risk and ask him at what revenue point he thinks a start-up is past the stage of risk
“UnHurd had clearly proven that there was a big market for independent artists. They went from a few thousand revenue a month to 30-40,000. So the need for independent artists was clearly there. I knew this because I tried to promote a couple of artists myself. And they got 30-40,000 Spotify streams, which is pretty good for a very low investment. So, there’s no general rule of an exact revenue amount – ideally there should be a fast growth in the first year post angel investment proving the concept and that the market exists. The risk as an angel is at the very early stages where administration and managing the funds is also important. I personally try to invest where I feel there can be hockey stick growth. So yes, a few might fail. Fortunately, I’ve only had one failure to date.”
We ask Sajiv the question that’s on the tip of everyone’s tongue: how does he safeguard himself from potential failure when investing in a company?
“We generally don’t look at the financials or projections because they’re just figures and estimates which rarely will be accurate in the first couple of years. People try to predict the stock market on a day-to-day basis, minute to minute basis, but no one knows. Experts can justify any movement after the event and short term prediction is not easy. Early stage is high risk. It’s about concept and believing in the founders. If they’re working as hard as they can, that’s a fair risk to take especially if they are bootstrapped and taking a nominal salary . If they work on the business idea that was good in the first place, the figures will come through anyway, whether in six months or one year. I look at founders who adapt, listen, leverage the experience of their investors , can work anytime of any day. It can be lonely and very tough on them in the early stages.”
According to a Beauhurst report, since 2018 the appetite to invest has stayed the same, but investors prefer to focus second round and beyond, and not really at startups. We ask Sajiv for his thoughts about it.
“I personally don’t invest often in later rounds, as I prefer the risk / reward in early stage but every investor is different in their risk profile and perception of that. The big advantage when you’re going through SEIS EIS is you’re getting 30 to 50% tax write off straight away. Individual investors are generally going through funds, whether it’s VCTs, or startup funds, or EIS funds, because they don’t have the time to study companies. And they rely on funds and experts to manage their money which is a good way to diversify an investment portfolio. In the last year the amount of active angel investors has dropped due to the economic climate and as investors are realising valuations have to be sensible. People are more risk averse as a result and hence some do feel second rounds are lower risk as the concept has been proven.
Like in every other field, the world of entrepreneurship is often swayed by trends. We ask Sajiv for his predictions on what’s up and coming in the UK.
“At the moment education, technology, medical technology are rather trendy. Everyone sees that there’s a problem with the NHS or private doctors. People are also trying to make payment gateways in banking, like Revolut – we get so many proposals for the next bank. But at the end of the day, in order to break through the noise, you have to have a good marketing strategy – you need a big marketing budget to get youngsters or people involved. So, what matters to me is that companies have a really good understanding of modern social media. If you understand human psychology and know a bit of what your target audience exactly is, you can get a lot more focused marketing. Unfortunately, I’ve seen a lot of startups spend money on SEO and digital marketing with companies who don’t specifically understand their target audience. Getting traffic is easy, getting sales is not. That’s where your digital marketing team needs to understand exactly who the client is. Is it a 20-year-old or a 50-year-old? There’s no point trying to sell your products to each group, they might come to your site/app but bounce off it pretty quickly.”
As an investor on startups, we ask Sajiv what he looks for in a successful business.
1.Commitment. If the owners are fully invested, it means they’re taking a nominal salary. They’re available, they’re working, chances of success are higher. So I always ask them how they’re living. Do they live with family, do they have some other income? If they’re in a comfort zone, they don’t have to work as hard. And they may not work as hard. That sounds a bit harsh, but if you’re fully invested in working 24/7 and you’re always thinking about your business, chances of success financially are much more.
- The business plan is also very important. I am particularly interested in the marketing strategy. I see so many companies investing lots of money in the product, but have no money left for marketing. So what’s the point of having the best product if you’ve got no marketing budget? I would much rather them prove a concept with a simpler website or app to see that people want their product. I might think you want it; you might think they need it – but does the public actually want it? If you give a service away for free and no one wants it, there’s something fundamentally wrong with your product. The business plan must have a really good digital marketing plan. However, you do it, you can’t do what everyone else does. Everyone can’t be in the top 10 page of Google, although most SEO company will promise you that. If you don’t get the top 10, you’ll be spending a lot of money per click all the time. So where’s the uniqueness in the marketing strategy?
- A co-founder. Nowadays, it’s important that there’s a co-founder, because one person alone cannot handle the workload and brain storming is great to find pros and cons.
- Open-mindedness. I find it important when the startups are open to having shareholders meetings, regularly or informally, because they are all brainstorming and discussing ideas. If they’re close minded and fixed on their thinking it’s fine, it’s their company. But things change, things change very fast. The advantage of having older or more experienced businesspeople is they get a different look at the business. I look at things from above and am quite objective / direct in my approach. It’s not meant to be critical but constructive and just my opinion. Founders ultimately will act on what they feel is the best for their company.
We ask him what quote he lives by.
“You can either live your dreams or you can live your fears, only you can decide.”
“Find what’s right and good in everything. It’s easy to find faults and what’s wrong with the world and people.”
And finally (but no less importantly) we want to know what he loves about Home Grown.
“Great atmosphere, great management team who are very friendly and helpful to help new members feel comfortable and settle into the club. I like the variety of events. Members are super friendly and every guest who comes loves the ambience of the venue. I have worked with several startups here at Home Grown.”
Now that Sajiv has shed light on the remarkable world of early-stage startups and the pivotal role angel investors play in shaping their development, we feel much wiser. If you too have found this interesting, stay tuned as we continue to unlock the knowledge fuelling the entrepreneurial spirit.
If you’re interested in enriching your entrepreneurial experience and finding a strong community of entrepreneurs, investors and business leaders then contact our membership team at Home Grown.