Updated Investing Thesis for 2H 2022 / 2022 — KW Angel Fund
Slowing down but not stopping investing in pre-seed & seed stage Saas / B2B startups.
When markets change the trickle-down effects impact every stage of investing…
At least once a year and especially after significant changes to the market I like to revisit my investing thesis. I also like to review what types of companies I want to invest in and more importantly what I am NOT interested in investing in. As an angel, the better I know what I will not invest in the more time and energy that I can spend with the companies that do fit my thesis.
How do macro changes in public markets impact pre-seed and seed stage
We have seen significant pullbacks in the stock market in 2022. ARKK (a good proxy for Saas startups is down 50% YTD.
When the public market multiples drop, that impacts growth round funding. The slower pace and lower valuations on growth rounds then impact early-stage investing.
Ultimately, pre-seed and seed investors are now faced with a few new facts
- Less competition for early-stage deals
As deals become less competitive the due diligence increases (from days to weeks and/or months. Why should a fund invest now if they can wait a few months to see if you can hit more traction/milestones if no one else is investing? The net result is longer to close a round at a lower valuation if you can raise at all. - Increased metrics for the next round
Remember investors care about investing in a company that will be able to raise another VC round in 12–24 months. A year ago, a Series A was easy to do with $500K-$1M ARR and a great team + product. Today, the same team with 2–3x revenue is having a hard time raising at a lower valuation. - Less dry power than you might think
Because funds raise ‘committed capital’ which means that the LP promises to wire money as needed in the future instead of all at once when the fund is raised, some funds are hesitant to raise capital in times of market uncertainty. This means that the fund you are raising might have less money than you think for new investments. Also, during times like this funds tend to ‘focus on their portfolio’ aka saving cash to help companies that they have already invested in survive instead of investing in new companies.
Net result is just like funds, angel investors are impacted by public markets. Especially, if a significant percent of their net worth is concentrated in high volatility stocks that have seen a 50% or more drop in valuation. Lower portfolio valuation means less disposable income for angels means they invest less and less often.
KW Angel Fund 2H 2021 / 2022 Investing Thesis
- I am slowing down my investing pace to 1 deal or less per quarter and I am more likely to write a smaller check if I do invest. I have not invested into a new angel deal since Feb. Both because of dealflow but also because of market uncertainty.
- I will do more of my own due diligence, not because I want to but because a lead seed investor is also going to do the same level of diligence and as an angel, my biggest value add is helping my portfolio companies to raise the next round of funding, which will get increasingly hard.
- I will expect founders to understand that prices have come down and therefore the valuation for a pre seed or seed deal should be 30–50% lower than it was a year ago.
- I will continue to help companies that I won’t invest in with their pitch and access my network via Pitch and Run, Intangible Angel, and On Deck Angel. Email me kevin at kwangel.fund for my calendar.
What kind of companies am I looking to invest in?
- Great founder(s) <> market fit with a strong technical team
- Founders who value the help that angel investors can provide in the early stages and who also value sending regular updates to their investors. Let’s build this together.
- Clear GTM and a business model that can reach ‘default alive’ after a Series A. This doesn’t slow growth but it does mean that you have a business model that allows you to grow the business in line with revenue growth. Focused on sustainable growth vs unprofitable growth.
- I evaluate a deal using the following stack rank (1) Team <> Market/Opportunity fit, (2) Product Status(3) Measurable Traction and (4) Revenue / Business Model
- I only invest as part of a pre seed / seed round with a lead investor. I often commit to invest earlier and then help those companies to find a lead investor. If you need to raise $1m then the lead should invest 30–50% of the round and set the price. If I decide to invest I can help you find a lead but I will only invest alongside a lead because you need the lead to be able to hit the next set of milestones.
What industries / markets / themes am I looking to invest in?
- SaaS enablement, onboarding, and usage improvements for platforms like Hubspot, Salesforce, etc — replace humans with automation for SaaS tools
- Shopify Ecosystem — Saas Products that are build to help modern DTC brands built on the Shopify Ecosystem
- Cloud Data Ecosystem - apps that are built to integrate with Snowflake, BigQuery, etc
- Dev tools — built by developers for developers to help them do their job better, easier, and faster
- Learning Management Systems / Consumerization of corporate education — Companies, especially remote companies need to educate and ramp up their teams faster and software can accelerate that.
Reminder: What I am NOT looking to invest in?
- Any companies based or focused on markets outside the US (sorry but can’t for both legal and tax reasons)
- Anything Series A or later stage
- Pre seed priced above 12m
- Seed priced above 25m seed
- Any consumer focused startup
- Web3 / Crypto (but I can make intros)
- Hardware
Intangible Angel Common Application — Sent to 400+ Angels
