Business Angel of the Year: Dave Brown
Stefan Kyora14.07.2016 09:36
Dave Brown invests in start-ups since the sale of his own company in 2008. In our interview he talks about his investments, the problems of financing start-ups in Switzerland and why it is unavoidable for inexperienced business angels to waste some money.
Each year Seca, the Swiss private equity and risk capital association, selects a Business Angel of the Year. Through the Business Angel of The Year Initiative and the publicly held annual Election Seca would like to contribute to further network integration of Swiss Business Angels in order to advance the investment into innovative high-growth companies of this country. The award ceremony was part of the 15. SECA Private Equity & Corporate Finance Conference.
This year Dave Brown was elected Business Angel of the year. Dave Brown is a startup CTO, serial entrepreneur and angel investor. He co-founded buy.at, an online affiliate network, which was sold to AOL in 2008. He has his onw blog called Hightechfondue.
Startupticker: Congratulations to the award. How did you became a business angel? Was it more or less by accident or were you actively looking for investments opportunities?
Dave Brown: I started after the sale of my startup in 2008. It is a natural progression from engineer to startup founder to business angel.
In how many start-ups did you invest since 2008?
On average 5 per year.
Do you have some criteria that must be fulfilled before you invest or is it just pure gut feeling?
You either have to focus on a sector that you’re a real expert and with an extensive network or you have to use a lot of gut feel unless you wait until the growth has been proven. I’m fascinated by technology so I don’t want to be restricted to a single sector. I like the hardware sector and some algorithm based platforms. Setting specific criteria for investment is difficult but clearly I need to believe that the team can deliver a brilliant product.
At the Seca award ceremony you said that you invest in start-ups with a high tech risk and a low market risk. Why and what are typical examples?
For example most of the startups connected to EPFL. Lemoptix, Sensima Tech, Actlight, Gamaya, Flyability, Less Optics, Fastree3d, etc. They have all ideas which are very technically difficult but our high-tech ecosystem really helps to reduce this risk and get a product ready for market which is significantly better than the existing competition. I think the Swiss ecosystem is better adapted for these cases rather than startups where there’s a high market risk - lots of competition, low barriers to entry).
It’s a separate question about how to scale these “high tech risk” startups so they become big employers rather than early acquisitions for Silicon Valley, and I don’t have the answer.
How active you are in companies in which you have invested?
The feedback I get is that I’m very helpful without being very active (I’m not a professional investor). I recognise that startups want a response quickly for a lot of issues, and they also want to know investors intentions for re-investing at the subsequent rounds.
What was your biggest success as a business angel?
Building a portfolio!
What was your biggest mistake as a business angel?
Inexperience. Doing some investments that, now I have more experience, I know that I should not have done or should have invested less. It’s unavoidable that you waste some of your money.
What makes a successful business angel different from a business angel losing money?
Luck, getting the timing right, skill, etc. - the usual things! It’s also about your network and experiences. You need to be able to evaluate tech, markets, teams quickly - having shared experiences in a network gives points of reference to discuss and evaluate new start-ups.
Why did you join GoBeyond? What are the advantages?
I joined the first Go Beyond angel group in Geneva in 2008 and made most of my first 10 investments as part of that group. Joining a group was the right structure for me to get up to speed quickly, and avoid a lot of errors. The Geneva group led investments in Poken, Lemoptix, Sensima Tech, Factionskis and many others - clearly the group dynamics worked well. There is a danger with any group that you make only “low risk decisions” and avoid the best and worst. So I think you need to discuss and analyse as a group but also make your own judgements.
Is it easier to find seed money in Switzerland than to close a Series A financing round?
Clearly the majority of the interesting startups can raise CHF1M and then a lot find it very difficult. But I think we need to address problems with the first CHF1M which make it harder at the series A (CHF2M to CHF10M) level rather than just complain about the Series A issue.
Firstly, almost no investors wants to be a lead investor at the seed stage. We are missing "institutional seed" and “super angels" which play this role in most other ecosystems. In Europe institution seed is mostly financed by EU funding and this is missing in Switzerland. We need ten times as many Swisscom Ventures and Fongit Geneva as we have today. At the same time, angels in Switzerland don’t want to be lead investors because if you professionalise then you have a lot of legal and tax consequences that are complex and expensive to deal with. This needs to be sorted out.
Secondly, I think there is a real mismatch between founder and Series A investor expectations. Normally at the Series A level the investor wants to see the growth strategy proven. My experience is that startups have 3 phases: the initial hypothesis (the initial idea), the value hypothesis (figuring out the product/market fit), the growth hypothesis (how to scale sales). Too often the startups use their seed money without progressing far enough to really demonstrate the product/market fit or the scaling and then the CEO gets stuck spending a lot of time trying to convince investors who want higher proof of growth/scaling. This is frustrating for everyone. Seed investors loose out as well, as we make lower returns :-(
With more structure at the seed level we would have more follow-on seed investments which would better prepare startups for a “growth” Series A.