The Angle Experience
A number of founders and VCs have recently asked me what it was like working with Angle Capital, and specifically how the experience on the ground would differ from working with a VC. I took this as an opportunity to create a picture for prospective founders of partner companies and co-investors who might invest alongside us. Ultimately, this was also a useful exercise to sharpen our own thinking and positioning.
To start, I will say our approach to working with founders is far less structured than what is likely to be the case with VCs. This flows from the difference in incentives and the extent to which the industry has industrialised over the last years. If you raise from VC and you opt-into the program, you are agreeing to raise capital on a 12-18 month loop, whether you need the capital or not; most of the industry are raising new funds every 2 years and need mark-ups on portfolio assets to successfully do so…
The way in which the industry has self-organised is instructive to this point.
Consider that there are specialist firms focused on every stage of the company formation process: (i) to test and validate ideas (pre-seed and seed), (ii) to establish a market position (venture) and (iii) to scale up what is working (growth). Also consider that there is a well-defined way in which the firms in each of these categories work together to move businesses from stage to stage, and that there are industry benchmarks for different business models at each of these stages to help with the coordination and filtering process. Add in the reality that most professional investors are employees who are motivated by promotion and that each of these firms are growing AuM and deploying at an increasingly rapid cadence, it’s easy to see how the current reality has been shaped.
To be clear, I am not making a directional comment on whether this is good or bad. Truth is it’s probably both, but that is less important. More important is that this is the reality of the dynamics on the field if you decide to play the game…
The second plane where the experience is likely to differ flows from the incentive structure for VC; if the incentive is to move businesses along the conveyor belt in increments every 12-18 months then its instrumentally rational for VC to become expert in the skills that make it easier for entrepreneurs to raise the most capital, at the highest price and from the best investors. The skills and support that enable them to do this successfully relate to storytelling, positioning, network and recruiting, and less to traditional company building. If you believe that most VCs don't add value in the operational sense then this isn’t a bad thing.
As with VC, our objective is to become business partners to founders who build big businesses and as a result to generate returns for our limited partners. We also tend to get involved early in the formation of a company and we do end up taking similar risks in the process, but that is where the similarities end. To help understand the main differences better, good to consider our organising principles as Angle Capital:
(i) Angle doesn’t have any employees (and is unlikely to do so over time), founders deal with principals alone; (ii) our strategy is to support founders to build and own a monopoly in well defined niches, we abhor competition; (iii) our model is to help founders build big businesses but in a sustainable and bootstrapped way; we are focused on helping as many of our founder-partners get to this position as possible; and (iv) we capitalise businesses when they have opportunities to deploy the capital productively, as-and-when founders need capital - the credo is ‘make money quickly and then blow it up’, not the other way around.
Our support model flows from our organising principles. If you woke us up in the middle of the night and asked what our primary KPI was, Mart and I would probably say something in the direction of the number of our portfolio companies driving extremely high unit profit at very high p.a. unit profit growth. If you extend our support model on this axiom, you would experience us spending a lot of time and focus trying to help founders build good business genetics and the capabilities that help them grow from these genes.
The reality of our unstructured and entrepreneurial approach presupposes that we can only work with founding teams who know exactly what they want to do and how to do it; this is why we are so focused on partnering with aggressive teams who are determined to control their own destiny (and own most of their company on the way there).
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I couldn’t help thinking of Charlie Munger's famous quote as I was writing this; ‘show me the incentive and I'll show you the outcome’, which I find people don’t spend enough time thinking about when considering human behaviour and its consequences.
Our approach is not suited for many entrepreneurs, industries or business models. For the small handful of cowboys looking to claim their independence, our approach works ‘just fine’.