Leaders of legendary investment club the Sydney Angels reveal what they look for in startups

SuppliedThe Sydney Angels committee. L-R: Vivian Stewart, Adrian Bunter, Philip Argy, Sandrina Postorino, Richard Dale, Peter McWilliam, and David Jackson.

Funding a startup can be tricky. Bootstrapping is an option but sometimes being able to fully develop an idea and getting a functioning product to customers means having to find financial backers.

The Sydney Angels is one of Australia’s best-known venture funds. In the decade since its formation, the venture capital space has developed rapidly across the country and there is a much broader range of relatively new but large funds such as AirTree Ventures and Square Peg Capital with tens of millions to invest.

But for seed funding the Sydney Angels — a collective of Angel investors that also runs a $10 million “sidecar” fund that pools members’ money and co-invests alongside individual investors from the group — will often be top of any entrepreneur’s list of potential sources of financial support.

Funding is usually in the order of around $200,000 to $500,000 per start-up per round, typically to companies that are pre-revenue.

To win over the investors, startups need a water-tight business plan, and they must have their financials in order, and stand out from other startups vying for the money.

The committee members of the Sydney Angels — who have reviewed hundreds of pitches — have shared with Business Insider the things they’re looking for from companies. As you’ll see, there’s a huge focus on the quality of the founders, but they have other considerations too and their insights will be useful to any company thinking of pitching them. Here’s what they had to say.

David Jackson, Committee Member and CEO at Blockchain Australia

My approach is to look at the investment challenge in reverse, considering first what I can bring to the table.

Before investing I ask “Do I know the space – the idea – can I add value to it as an angel?”

Next I look at the team, its dynamics, background, experience and ability to pivot, the problem they are solving, and whether it is actually a real problem.

Finally, I look at the product and the startup’s financials.

Will it deliver 10x return, is the market big enough, does it have traction and revenue for validation, what is the exit versus dividends and valuation? These are all questions that need to be asked.

Jackson is a serial entrepreneur and angel investor to early-stage businesses in Australia, Asia and the US, with over 20 years’ experience founding and mentoring successful startups across Australia and the US.

Philip Argy, Committee Member and CEO/Principal at Argystar.com

I specialise in intellectual property, science, technology, consumer, franchising, and competition law projects and disputes.

My approach to startup investing is to look for a credible story with credible forecasts, an enthusiastic team, and some protectable intellectual property.

Argy is a tech lawyer, mediator, arbitrator, strategist and all-round tech problem-solving guru.

Sandrina Postorino, Committee Member and Co-Founder of Landlord’s Choice

The founder is incredibly important – his or her personality, passion, credibility, experience in building businesses, coachability, and domain expertise.

Next is the product or service. What problem does it solve; how is it different or better than existing ones?

I ask myself would I or anyone I know use this product or service? What is the customer feedback?

Then comes the business model.

What is the addressable market size? What will it take for the business to become profitable? Is there any IP? Does the valuation match the stage of the business?

Finally, I consider social and environmental factors.

Does the business have a positive or at least neutral impact on the environment and animal welfare? This will significantly impact whether I’m personally interested.

Postorino has reviewed over 750 pitches and invested in more than 15 deals since joining the committee in 2015.

Enrico Massi, Committee Member and Director at CrossFit Athletic

When it comes to investing, I get genuine pleasure from seeing opportunities that I would not otherwise be able to support.

I’ve been fairly active with the Angels since I joined, helping out with due diligence, investing – and learning a lot.

I also enjoy being part of a team-based structure. It means that you get to share and benefit from many hands, brains, and experiences I certainly do not possess. You are always learning.

Looking at businesses, first I want to ensure that they not only solve a real problem for consumers but also have the potential for a greater good.

For example, improved fitness solves a problem for the consumer but also for society overall if we are able to redefine why we do it. This could be for reasons of longevity or improving people’s quality of life – as opposed to just looking good.

While I’m open to the idea of what the ownership structure looks like, I first want to understand that the team can “deliver” and will seek assistance and guidance.

Execution is by far the most important thing once the first capital raise has been completed.

As for numbers, businesses must understand what they need and where the money will be spent. They must also be open to grasping why investors will sometimes feel the company may need more or less money, and also where some of the spend should go.

There can be too much focus on valuations from founders.

At the end of the day, this is a relationship and a journey and you have to accept that it is highly unlikely that this will be the first and final raise.

You have to want to go on this journey. So you need to be pragmatic, less dogmatic, it is not all about the money but about the ancillary benefits the investors will provide.

Massi joined the committee 2015, and is a serial investor in fitness and leisure, including a stake in a ski lodge in Japan and fitness group, CrossFit Athletic.

Guy Brown, Committee Member and Director at Purdey Investment

Guy Brown

It’s all about the founders and whether they have what it takes.

Crucially, I first ask myself whether they take a personal interest in their customers, have an understanding of their product, and the mindset to manage the mountain of inconsistencies that a startup presents.

They will also need some financial comprehension and the appearance at least that they will use your capital wisely.

Next I look for a product that is a magnitude improvement on existing offerings or a completely new approach to solving a problem.

Brown first joined Sydney Angels in November 2015 and made his first investment in 2017.

Greg Bryan, Committee Member

Startups are all about the quality of the founders.

I want to see someone who is going to roll their sleeves up and hustle. Without this quality you won’t develop the grit required when things don’t go the way you think they will.

In addition, a founder probably won’t have all the skills necessary – but if they source team members with similar beliefs and complimentary skills, it will benefit them enormously.

How they choose to solve this particular problem is also telling.

The focus in small business has turned more towards marketing from sales if it’s an online business. Getting the marketing model right through understanding all of the levers to pull is key to growth. Having skin in the game is also pretty key as well, as it demonstrates commitment to their cause.

Bryan is a serial investor whose interests lie in technology, innovations that benefit humanity, and renewable energy.

Adrian Bunter, Committee Member and Executive Director at Venture Advisory

SuppliedAdrian Bunter

First off I ask myself what I can bring to the table of an investment.

Ideally it should be an area where I have some knowledge or some connections.

What I look for when investing is smart people, solving a real problem that addresses a big issue that they know something about.

You also need a founder or founders who have a reasonable understanding of how they will make money – or how they think they will make money.

As far as the financials go, the startup must be capable of delivering a minimum 10x return on investments.

The founders also must have an idea about the competition and how to address it, be willing to take advice (and not just pay lip service to doing so), and be resilient.

You can’t have founders who will give up at the first signs of difficulty.

Bunter has made 30 angel investments since he joined Sydney Angels in 2009.

Richard Dale, Committee Member and Director at Dale Advisers Pty Ltd

SuppliedRichard Dale

The two most important things for a startup are: to be focussed on a large market that is real and accessible, and to have a value proposition that solves a problem for a customer.

The product or service has to be several times better than what is currently available or used.

Small markets lead to small businesses, and incremental or marginal benefits won’t motivate customers to try or change.

Ideally, the value proposition is also enabled by proprietary technology that makes it profitable to deliver, and also hard to copy.

With these fundamentals in place, a strategy and business model for success should be discoverable.

But these fundamentals will not create value unless they’re owned by a committed team who can continually innovate – because they own the technology and have the expertise and can work to find the sweet spot and stay ahead of the competition.

Preferably the team is built around two to three co-founders with complementary business and technical expertise, with at least one who knows how to sell.

There are notable single founder exceptions as well.

Dale is an engineer and investor with a love of technology.

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