Most angels aspire to build a portfolio of 20-40 investments. Ben Armstrong has gone a ways further, with 250 investments in startups from the US, ANZ and more. His process? Reading AngelList first thing in the morning alongside reading the news. While building out his portfolio (which increases by around 50 investments a year), he works as the Managing Partner and Co-founder of Archangel Ventures.
Tell us a bit about your background in investing.
I started out with later-stage investing at Telstra Ventures. We typically invested in the US and Asia at Series B or later stages. Of the companies I invested in, 80% have already had an exit event, most of which were positive.
Early-stage investing is obviously very different to that. The first day I left Telstra Ventures, I joined Startmate, which was my initial introduction to early-stage investing. I was lucky to be voted most valued mentor the first time I participated, so I thought maybe I should do more of this early-stage thing!
On the angel side, the first investment I made was into Sendle. I remember bringing that deal to the partners at Telstra Ventures and saying, I really like the founder and the opportunity; can we please make this investment? And they turned me down. So I thought, I still believe in this; maybe I’ll put my own money into it.
When you first started as an angel, how did you get deal flow, and what was your process for building conviction?
There are two sides to my portfolio in terms of deal flow. On one side, there’s investing in Australian founders, and that’s very hands-on, meeting people at events and accelerators and having an online presence. You get to be closer to their journey and potentially influence the outcome through introductions and local market knowledge.
And then on the other side, most of my portfolio is in the US, and those deals have mostly come through AngelList. I look at probably 20-30 deals each week through AngelList. It’s the first thing I do in the morning; I look at the news and what’s the latest out of the US, South America, North Africa, or Asia. I see this process as a good education because, let’s face it, while Australia’s ecosystem has grown a lot, it’s still a pretty small market. I learn so much about what works and doesn’t by looking at other markets. The US market is usually ahead of us, so it feels like you’re peeking into the future. Plus, you get to say no to deals without having to say no to anyone’s face, which is nice.
What was your cheque size when you first started, and has that evolved?
I made the mistake many people make when they get into angel investing. I would have conviction about a deal and think, I’m going to go big into this one, without realising it’s a long game. It’s less about big cheques and more about having enough shots on goal to get the results you want. It’s easy to get exuberant and spend all your money before you get good outcomes that give you the confidence to keep going, so you need to be thoughtful and disciplined about it.
In terms of cheque size, I think my first investments were all around $10k, and now they’re more like $1k. After 250 investments, I have less capital to deploy and a lot of unrealised returns. I think when your portfolio grows, you’ve got to be even more disciplined about your cheque size.
How many investments do you typically make a year?
It changes as the market changes. In 2020 and early 2021, there were lots of deals, but since then, there have been relatively fewer deals that I’ve wanted to do. I think everyone has felt they went over their skis a bit, and now the exit situation isn’t as straightforward as it used to be, and with rising inflation, there are easier risk-adjusted returns to be made.
Do you have an investment thesis, and has it changed over time?
Over my seven years of angel investing and a decade in VC, there are certain sectors that I’m more interested in than others. There are also sectors I’m interested in, but know I’m not necessarily going to get a financial return because of difficulties reaching venture scale or an exit.
As an example, climate tech is always a hard one for me. It’s coming into favour again, but global expansion is often hard due to the physical component and local regulations. I’d love for them all to succeed, but for me they’re not the obvious choice for venture-scale investing and outcomes.
On the other hand, you can point to dozens of unicorns in the security sector; it’s a very tried and tested route to scale. You could say the same thing about fintech. The other area I’m passionate about is health tech. Health has some good examples, but it also has some serious scaling issues for hardware or research because it can take years to know whether the thing you’ve created will work out in the wild.
Have you had any exits from your angel portfolio?
I've had about 10% of my portfolio exit. Most of the early exits you get as an angel investor are not great because they’re usually the ones that shut down or are acquihires as founders realise how hard it is. Most of the really good companies know what they're worth and don't sell out early. Unfortunately, that means there are usually 6-8+ years before you get an exit, and I think that’s been stretched further with the current environment.
One that has had a strong return so far is a company called Unsplash, which Getty Images bought. I’ve got a few that are strong returns on paper but haven’t had an exit event yet, like Jeeves and Salt. There are a few out there that I’d like to get some liquidity on at some point. But as an angel investor, you often have very little control over an exit, particularly if it’s in a jurisdiction you’re not actively involved in and don’t know the founder personally.
What was your catalyst for going from angel investor to building Archangel Ventures?
I was going quite deep researching industries, meeting founders, looking into competition, general due diligence and noticed that a lot of what you do as an angel isn’t very scalable. As one person, if you’re trying to meet all the founders out there that you might like to invest in, you quickly hit a point where it’s not time-effective.
At the same time, I realised I had limited firepower to invest in founders, particularly as my portfolio grew and my cheque size had to get smaller. I also started bumping into some really interesting people like Rayn and Quentin, and Rayn particularly had cracked the code of getting early exits in Australia, which was impressive. We started sharing due diligence and opportunities with each other and then realised we had friends interested in the same things that we’d also share deals with. Initially, we tried syndication. But syndication can be very hard; there isn’t too much money in it, and you can’t plan because who knows how much money your syndicate will commit in a year?
From there, it made more sense for us to go the VC route. It felt like the natural progression for the level of angel investing we were all doing, along with the deal flow and DD we were already sharing.
You’ve built $100m business units and a startup that failed. How do these experiences help you support founders?
I always try to make this point respectfully, but I think for investors, your value to founders is based on your life experience. I always encourage people to have as much life experience as possible; maybe they can do it all within their firm, but expanding out is likely useful.
VC can be really exciting because it gives you the chance to change the world and try something new. But the reality of building a business is hard, so for those who have done it, we can point to scar tissue from making silly mistakes and help new founders avoid them. Even if your internal operations are all great, the impact your product has on the market is what matters. It’s not what you say you will do in PowerPoint or Excel that matters; it’s how your customers experience your product.
Ultimately, I think you learn something from all of your experiences, and it makes you a bit more empathetic and understanding of the ups and downs that will inevitably happen in founders’ journeys.
What was raising Archangel’s fund like?
There are always good and bad moments, but I think the benefit for the three of us [Rayn Ong, Quentin Wallace] was that we’d all been doing it for a while and had a track record.
I’ve seen people try to raise funds without a track record, and you can do it, but it is more challenging. The other thing I tell prospective fund managers is that if you push a bit on most “successful” funds, you’ll find out they’ve got some billionaire investor or cornerstone investor, which is great, but out of reach for most. The advice for raising funds can’t be “get billionaire friends”, even though it helps.
The alternative we followed is having an interesting point of view and an ability to do the work. It’s not just meeting founders, learning about markets and providing support. There’s a whole technical side in structuring the funds, ensuring you’re making the right number of investments, the legal and business part of doing a deal and all the documentation required.
It’s hard to find people with all of those skills together. Yes, you can outsource it to lawyers or hire firms to do this and that, but it’s easier if you’ve got some packageable experience in your founding team.
What advice would you give to new or aspiring angel investors?
Start slowly. You’re allowed to watch for a while before acting on your inclination to invest. It’s a long-term pursuit, so entering with the right mindset that you’re not going to become rich quickly but rather you’re going to support founders and grow with them is important.
Another thing is it’s important to remember that this isn’t like public market investing or any other asset class you’re familiar with. You have to be prepared to be disappointed for a long time because many businesses you invest in will fail before you hopefully get that one exit that makes up for all those losses and more.
All that aside, I love seeing founders trying to do what they think they’ve been put on this earth to do. That’s why I keep doing it. Seeing someone take on a market, competitors, regulators and overcoming every obstacle to bring positive change to the world is life-changing.