Investment Memos

I write a short memo for every angel investment that I make and I’ve practiced this for the last 10 years.

I do this because I believe that writing is refined thinking (to quote Stephen King in his book “On Writing“) and because memory can be warped over time. A memo best captures my thinking on the rationale and the risks of the investment at the time I made it. It’s also helpful to share with co-investors and helps build mutual trust and help refine the thesis.

Memos are typically 1-2 pages and I usually assess the Market, Team, Product and Traction between A-C (letter grades) in addition to the qualitative description. If a company does not have any As, then it does not make sense to invest and most great investments have more than one A but rarely all As.

At the earliest stages, Market and Team and the most important but as the companies mature and entry price becomes higher, Product and Traction become more important. In Africa, I rarely invest in companies without at least one paying customer unless I have very high confidence in the market and team.

Here is the format that I use – I don’t imagine there is anything groundbreaking here.


Company Name

Date

Website

Background: What problem is the company trying to solve? How did I meet and get to know the founders?

Market: I need to believe that that market is currently big enough, or it could be big enough in the future. In newer investment markets (like SAAS in Africa) it’s important to understand the pain point and willingness to pay deeply when sizing the market. (e.g. can they only sell to other startups?).

Team: Teams that know each other well and have complementary skills are often excellent. The founders’ ability to tell a compelling story and paint a vision that allows them to continue to raise capital is also important. If the problem ios something that is authentic to the team in some way also helps a lot – understanding their “why” is something I over-index on in my calls.

Product & Business model: Summary of the product, stage of development and an assessment of product/market fit risk vs. execution risk. Clear synthesis of their business model in this section as well.

Traction: In newer venture markets like Africa, I look for some traction before investing. Traction, especially recurring revenue, has a 10x derisking effect on the business as there is some evidence of product-market fit.

Key customers/suppliers: Early stage B2B companies typically have only a handful of customers. As they grow I look for customer concentration risk. I try and call their early customers and ask how they would feel if I took the product away.

Competition: Who else is building in the same space? Are they competing against other startups or mostly outdated incumbents?

Investment Rationale: I try and crystalize “the why” for the investment as it’s one of the most important sections of the memo. My bar for investing are things I’d be happy spending my time but may not have the time or the skills.

Risks: This is another important section and one I come back to particularly in cases where it did not work out to see if I identified the reason it did not succeed upfront. For things that ultimately fail, I try and pattern match across them for future deals.

References: I try talk to at least one other investor, customers, or old colleagues of the founding team. Almost all my deal flow is through trusted referrals so this happens fairly naturally as part of the process.

Cap Table: Companies that have been around for a while may have strong fundamentals, but messy cap tables so this is a deal hygiene step to make sure I understand prior funding and equity ownership.

Investment: How much I’m investing, the round size, the terms and the key co-investors.


Hope this is helpful to both other angels and entrepreneurs.

Reflections on Angel Investing

This month marks my 10th year of angel investing so I synthesized a few learnings as a complement to the more tactical “Angel Investing Learnings” post from last year.

This post is broken up into three parts; dissecting the why behind angel investing, understanding your asymmetric advantage and how to apply this advantage in the investing process.

Why Angel Invest?

I don’t think that you should angel invest if you care most about compounding capital — there are probably better ways to achieve this goal with lower time commitment. Angel investing has been one of the most fulfilling things I’ve done in my career, and has the following benefits many of which are not tangible or easy to measure:

  • Relationships: You will meet amazing people along the way; entrepreneurs, co-investors, and limited partners. Each of these connections has a chance of becoming a meaningful professional and personal relationship — collaborating with more people gives you the chance to both expand and deepen your network and relationships.
  • Learning: You will get an insider’s view into the positioning and evolution of a wider range of businesses that are successes and failures. You get to talk to founders making hard decisions and learn during the investing process and throughout years of partnership — this can help you become a better operator and / or investor through pattern recognition.
  • Paying it forward: You get the opportunity to support former colleagues, friends and folks earlier in their career or with less access to capital. It’s a wonderful way to leverage your own learnings, relationships and capital to help pay it forward.
  • Compounding capital: Your money will typically be tied up for a long period of time (illiquid) unless the company does well and has some sort of outcome (sale, IPO, secondary transaction). By definition this makes you a long only, value investor as you are forced to compound your capital without “messing with it” like you can with liquid investments especially as an angel.

If you’re going to make just a few investments then accept that you will likely lose it all, but if you are going to make 15+ investments then take a portfolio approach and expect at least one company to “return the fund”. Your choice here will depend on your personal situation and risk tolerance.


Asymmetric advantage

Angel investing is all about leveraging your asymmetric advantage — you need to know something that the market does not know better than the market in order to make good investments. I think of asymmetric advantage in three buckets:

  • People: You know the people involved in the business better than the market – for example you personally know the founders (ideally you’ve worked with them) and/or know some of the other co-investors well. If you’ve known and collaborated deeply with these folks then you have data that is hard for other investors to easily replicate. Abe Othman (AngelList) refers to these as “credible deals”.
  • Industry: You know the business model or the industry really well. If you’ve been an operator in the space you’ll have a good understanding of what it takes to build a successful business. I’ve made the mistake of knowing the pitfalls of an industry “too well” and not being able to see past these risks for some good investments that I’ve missed, but mostly more industry knowledge has served me well.
  • Market: You know the market/geography (e.g. I invest in Kenya because I grew up there) better than the other investors. If you understand cultural, economic and political nuance about investing in the market you will make better decisions. This is why many venture capital firms are “local”.

I’ll occasionally make small investments in companies where I have no asymmetric advantage but I try and make these as small as possible and with founders that I have a strong connection with and feel like I will learn from them throughout their journey.


Where can you leverage your advantage?

As an angel investor you should try to leverage any asymmetria advantage across the investing process, which I think of in the following buckets:

  • Seeing: If you have great deal flow and see a lot of quality companies through your personal brand, network, writings/media or your affiliations (e.g. where you work) it helps you pick from a larger sample set. Being in the “flow” of quality deals is very important to be a successful angel as you have more to pick from.
  • Picking: Picking is very hard and often separates the great angels from the good angels. This ultimately comes down to judgment, repetitions and a long time horizon built from successes/failures and great mentors. I still write memos (and post mortems) for every investment that I make, even if no one will ever read them but me as it helps me get better at picking.
  • Closing: Once you’ve picked a company to invest in, you need to “sell yourself” to get into the round which is now getting harder and harder for quality companies as more capital and angel investors flood the market. This is often a function of your connection with the founders, your personal brand or affiliations or very specific knowledge you can bring to the company.
  • Building: Once you’ve invested, how can you help the company? Are you an expert in a particular area, have specific biz dev or fundraising connections, or could you ultimately even join the company to help them scale? I’ve been most effective at helping build with very specific point in time asks such as specific intros or meeting a senior potential hire.

Angel investing is multifaceted craft that will likely take many lifetimes to master and involves a healthy dose of luck. I find it intellectually stimulating and personally fulfilling and I expect it will continue to be an important part of my life 🙂

A Purposeful Career

I’m starting to find more purpose in my career, and invest more time, energy and capital into activities that further this purpose (my 2021 goals here). There was a period in my life where I thought I only wanted to work on problems in emerging markets (particularly Africa) and although I still care deeply about this area, I realize that’s more narrow than where I actually enjoy spending my time and resources.

I’d like to build a career in service of entrepreneurs and creators.

  • Making software allows me to build tools that support entrepreneurs and creators at at the earliest stages and at scale.
  • Angel investing allows me to compound capital, relationships, and learning and ultimately make better software.
  • Investing and operating allows me to build both broad and deep relationships with people over a very long time horizon.
  • Investing and operating let’s me learn and writing helps me share my learnings with others which in turn refines these learnings.

Making Software

I’ve been working in software development for over 15 years. I’ve helped build products for consumers, enterprises, and small businesses. I’ve found the most fulfillment in building utility software to help entrepreneurs run their companies and help people collaborate.

I’m particularly drawn to building software that is ‘Free to Start’ as this allows users to get value even at the smallest scale. World class software can be used by people starting new projects without paywalls that prevents folks who are not well capitalized from participating.

I’m also interested in Open Source projects (e.g. WordPress) as they have all the benefits of ‘Free to Start’ but also allow users to contribute to the development and customize it for their own (possibly esoteric) requirements which is often necessary in emerging markets or emerging use cases.

Finally, I’m really excited about software that helps us collaborate better as humans especially as the way we collaborate evolves into cloud based and distributed work. I’m looking forward to spending my own time innovating in this area. I wrote more about this area in another post “A More Open World“.

My hope is these products can be helpful to entrepreneurs and creators.

Angel Investing

I’ve been angel investing for over a decade – I enjoy it and have learned a lot. Angel investing allows me to develop and cultivate new relationships with people I would not ordinarily meet, stay close to cutting edge innovation and compound capital over a very long time in a way that is very aligned with entrepreneurs.

I enjoy meeting entrepreneurs who are passionate about the problems they are solving and have a really strong ‘Why’ story. As a very small investor my role is a friend to the founder and cheerleader for the business and don’t have the same baggage that institutional investors need to consider (round dynamics, ownership targets etc).

I’ve found it helpful as an operator at scale to stay close to innovation in adjacent industries and adjacent business models. It helps me generate new ideas, recognize patterns across companies and ultimately makes me a better operator.

My hope is that these small investments can be helpful to entrepreneurs.

Building Relationships

Investing and operating has allowed me to build both broad and deep relationships with entrepreneurs and co-investors and colleagues.

I’ve found that more repetitions (over a concrete thing) with the same people or group builds lasting trust and rapport especially when I don’t have a formal relationship such working at the same company. If you are actively collaborating on a project together or evaluating an investment together over many cycles you can build deep, trusting relationships.

I’ve been spending time collaborating with a very small group of co-investors – many who I’ve known for 20+ years. In this strange time of physical distance I’ve tried to be more structured and disciplined in my approach to collaboration (more writing, more sharing) and it’s helped me build stronger relationships as an operator and investor.

I’ve found that broad relationships are very helpful for making connections / introductions which are important. The smaller set of deeper relationships are very helpful for refining synthesis and judgment (as these folks are much more direct and honest).

My hope is that these relationships can be helpful to entrepreneurs either directly or indirectly.

Learning and Sharing

I’ve been trying to compound my learning as much as possible – through operating, investing, and consuming content (mainly audio books and podcasts). The intersection of all of these activities helps me develop a perspective on the world that is unique to my set of experiences, which has the potential to have a lot of depth.

I’ve been trying to write and share more of this with others (in this public blog – now over 80 posts!) and some of the idas are ‘stubs’ and others are areas where I feel more confident in the subject matter.

Writing helps me synthesize and crystalize my point of view and also allows my thinking to be shareable at scale. I’d like to experiment with a newsletter next, even to a small private group as I think this could help me synthesize across a series of topics in a way that could be useful to a particular audience.

My hope is that this shared learning can be useful to entrepreneurs.


All this thinking may evolve, but it’s been consistently true over many years so I wanted to document it openly. I hope I can come back to this post in ten or twenty years and feel like I’ve had a career in service of entrepreneurs and creators.

Angel Investing Learnings

In this post I’ll share some advice and learnings from my experience angel investing for about 10 years to help others get started or improve their own process. In general, I’d advise investing in companies where you have some asymmetric advantage – either because you know the founder(s) well or because you know the space well.

I’ve been investing in startups for about 10 years through Musha Ventures, after learning the ropes at Index Ventures. I’ve made ~70 investments (around 40 in Africa), and realized around twice my total invested capital (Distribution to Paid in Capital – DPI). Most of the companies in my portfolio (~55) continue to operate without a realized liquidity event.

I love meeting and learning from founders, and being exposed to different business models. When I support a company, I am able to learn from observing its journey and build relationships with the founders beyond my small investment. I think that early stage investing has made me a better product person and operator, and I hope to continue to keep investing in entrepreneurs throughout my life.

Investing Frameworks

Ben Holmes, Index Ventures

I worked with Ben Holmes at Index Ventures, who led their investments in King, iZettle, and Just Eat. He helped me with a simple framework, which is still the foundation of my investment evaluation process. At least one dimension of Team, Technology or Traction should be an A+, and a big enough Market (now or in the future) should be a precursor to making the investment.

  • Market: Is the market big enough ($1Bn+) and can you see this company being a leading player (with 10%+ market share) in the next 3-5 years? If you think that the market now or in the future is too small, then don’t make the investment.
  • Technology : Is the product or technology differentiated and sticky within their market? How difficult is it to replicate?
  • Team: Is the founding team both individually exceptional and complement each other? How deep and long is their professional relationship?
  • Traction: Is the business growing and do they have positive unit economics? Do they have paying users? What does customer retention look like?

Brian Singerman, Founders Fund

I don’t know Brian Singerman personally but I really enjoyed this episode of “Invest Like the Best” with him. He’s invested in companies like Oscar, Affirm, Wish, and AirBnB. Here are a few of my takeaways from the conversation:

  • As a startup market, moats and execution are the only things that matter.
  • As a VC, seeing, picking and closing are the only things that matter.
  • You learn to invest in startups by actually investing, not by observing.

Investing Advice

This is a collection of advice when you are starting to invest, in no particular order:

  • Learn with small investments: Optimize for learning per dollar invested if you are just getting started, have limited capital and hope to build a portfolio. If you invest $1k with the same diligence process as if you were investing $100k, then you will learn by making less expensive mistakes early on.
  • Take it slow: Start early in your career but start slow, and invest more frequently as you improve your judgement – I made too many investments in my first year. It takes a long time to calibrate your gut because it can take 10-15 years to figure out if you are a good investor (but you’ll get some validating and invalidating data points along the way).
  • Asymmetric Advantage: Invest in areas where you have some asymmetric advantage. If you know a founder super well, or know a space really well and can invest in a related company (without conflict) these are sources of asymmetric advantage.
  • Time vs. Money: Invest money in companies that you would be willing to spend your time on personally, but may not be the right personal trade off for you. When you are earlier in your career you can think of time and money as interchangeable. If you don’t have the capital to invest, then try and join these companies and get some equity for your time.
  • Deep Relationships: Invest in great teams who’ve known each other a long time and even better worked together for a while – it reduces the risk of founder issues (65% of company breakups are for this reason).
  • Founders you like and respect: I invested in a few companies that I did not have the best rapport with personally, or had an unexplainable ‘gut’ reaction to avoid even it if looked good on paper. Most of these companies did not work out, but I have a small sample and so this still needs more data.
  • Company first, then terms: Terms are less important than believing in the company and the founders. Don’t make an investment because of a low valuation or tax incentives – these are all bonuses, and never a reason to make an investment. I made a number of mistakes here early on and regretted them.
  • Valuation: If you are going to negotiate on anything, negotiate on price although this is mostly supply/demand driven and you may not have leverage if you are a small investor. There is a common belief that valuation does not matter in venture capital, but if you are investing your own money then overpaying consistently will hurt your returns.
  • Get written answers: When I have follow up questions, I usually send them over email and look for an email response. This is an indication of how clearly they think, and communicate. It is also more efficient for me and I have a permanent record.
  • Cap table: Look for ‘clean’ cap tables (equity split) in early rounds. If the founding team has an unexpected equity split, or there are early inactive employees/ investors significant equity it can affect the company’s ability to raise money in later rounds and if founders are too diluted, then they may lose motivation.
  • Discipline: Founders who are structured and regular with investor communication are often also good operators. If they show discipline with investors, they are likely applying the same discipline to running their companies. I often ask for the last investor report to get a sense of their communication quality.
  • Metrics: Founders should be super on top of their key metrics, growth rates, revenue distribution, burn rate etc. This shows that they both track them carefully, and review them frequently.
  • Pace of iteration: At all stages look for pace of iteration and product development. Teams that ship more often and test more hypotheses are likely to have better products and build long term sustainable advantage.
  • Sleep on it: Even when I really like a company, I always sleep on the decision and never commit after a meeting. If I still feel good about it the next day, then I’ll message the founder to invest. Try not to get pressured, or react to FOMO and make a decision too quickly or without conviction.

Practical Tips

This is a collection of more practical/tactical things to do when you are investing:

  • Track your portfolio: If you only make a handful of investments, then think of it as money spent and a nice bonus if one of them is successful. If you have a portfolio, then keep a strict record of your investments and track their progress and returns (I use a simple Google Sheet). I track key dates like fundraising events and summarize the status of each investment about once a year.
  • Write Memos: Your memory is less reliable than paper record, and so I recommend writing short 1 page memos with the ‘why’ behind your investment. I’d start with the structure I outlined from Ben Holmes up above and expand it over time.
  • Customer References: For software as a service businesses in particular, do some customer reference calls. I always ask the following three questions: What was it like before the product? What is it like after the product? What would happen if you took the product away? If they get very upset at the last question happening, that is a very good signal.
  • Post Mortems: If companies fail, write a few bullet points down about why the company failed (I just add them to my original memo), and see if you identified the risk when you made investment. Learn from this, and don’t repeat mistakes.
  • Intro Email: I’ve just started writing an ‘intro’ email to founders which founders seem to appreciate. It allows you to clearly express how you can help, how you operate as an investor, and share some of your expectations as well.

I’ll continue to add to this list as I learn more, and please send me any thoughts or feedback!

Investing in Africa

Once when I was 6 years old, sitting in the car with my father in city traffic, a homeless boy about my age knocked on the window. My father opened the window and handed him some candy. Then he turned to me and said, “You are sitting here and that little boy is out there. I hope you appreciate it was luck of the draw and you will do something good in your life.”

I was born and raised in Mombasa, Kenya and my family has been here for 5 generations (since the 1850s). I grew up in relative privilege compare to most Kenyans. I remember that moment quite clearly even now, over 30 years later.

I’m frequently asked ‘why’ I invest in startups focused on Africa. There are many reasons for my interest in investing in Africa, and I don’t pretend that I invest out of altruism, but I think this is what led to my interest in supporting early stage entrepreneurs on the continent.

I always liked maths and science and studied engineering at university. This experience taught me to approach problems from first principles and think through effective systems. I don’t really have skills that I can directly help people (e.g. a doctor), so I needed to approach the problem space differently. In my early 20s, I realized that entrepreneurship and technology could drive economic development, in a relatively capital efficiency manner. I started building my career in technology, starting at Google in London. After spending time at Index Ventures and learning about venture capital, I realized that, with even small amounts of capital, you could have outsized returns both in terms of value creation and impact.

Technology entrepreneurs create products that improve the effectiveness for people and businesses, and create new jobs with new skills. Given all these benefits I decided to start investing in technology companies in Africa after ‘learning to invest’ in silicon valley as an angel through my own fund, Musha Ventures, starting in 2011. As an inexperienced investor, I tried to maximize learning per dollar invested, as I did not have a lot of capital. I stayed disciplined by writing investment memos (that no one read), conducting reference checks and completing annual reviews for every company. 

In 2014, there was not much capital available for early stage entrepreneurs in Africa and even today in 2020, there is still a deficit of capital available for those who don’t have the right networks. With small investments I am hopeful that I’m able to have an outsized impact on this ecosystem. Even when I don’t invest, I try and give entrepreneurs feedback, be clear on my reasons for passing, or share articles or advice that I think might be valuable to them. 

There have are some early positive signals; my Africa portfolio has rougly doubled in value (on paper), and the companies have created thousands of jobs, enabled new startups to exist, and improved efficiency in archaic supply chains / markets. Despite these early signals, it’s still very early in the life of the venture capital ecosystem in Africa and it’s still unclear if these companies will endure and to have a lasting positive impact on the economic development and people’s lives in the markets. Only time will tell.

My plan, which has remained consistent over the last 5 years, is to continue to think very long term and invest consistently and conservatively in early stage (mostly B2B) technology businesses in Africa and support entrepreneurs doing the hard work along the way. 

Tips on startup decks and pitching

I’ve been investing in startups across the globe for the last 10 years and seen a lot of pitch decks that vary significantly in quality.

Particularly when you come from a ‘non-traditional background’ or are an entrepreneur in an emerging market it’s a source of differentiation to have a high quality deck for investors.

Here are a few of my favourite resources for entrepreneurs which are a mix of practical advice and inspiration:

During your actual pitch I always like to learn about the ‘why’ of the founding story (authenticity and energy help a lot), and it also helps to be on top of all the important metrics and growth rates.

This tends to separate the good from the great founders during the fundraising process.