What Will It Take For an Angel Investor to Invest in Your Idea?
At the beginning of any entrepreneurial journey, finding seed money is crucial. What do you need to get the support from angel investors?
By Louisa Wah Hansen
Gregg Li is an angel investor based in Hong Kong. He is the Founder and CEO of G. Li and Co. and a semi-retired management and governance consultant turned angel investor. In the past, he taught as a guest lecturer at CUHK Business School on various subjects including innovation, corporate governance and leadership. He talks to China Business Knowledge @ CUHK about how he supports entrepreneurs in China.
What do you do as an angel investor?
Gregg Li: I groom them and help them build a company.
What kind of entrepreneurs will you choose to support?
Gregg L: The entrepreneurs have to be doing whatever they’re doing for at least 10 years. They need to be innovative and their companies or products will potentially be billion-dollar businesses. They have to have something I can add value to. They must be curious, of high integrity, and not easily kept down by failure. Also, they must be within three hours’ distance from me.
Angel investors are big risk takers. How do you minimize your risk?
Gregg Li: I need to find entrepreneurs who are passionate, have done it before and understand the market. The only things they lack are the team, financial discipline and the office. Being innovative is very important. I need to be familiar with those industries as well. For me, they are the educational sector, financial services such as e-banking or even an industry that is new to me, like high-power LED.
What is innovation?
Gregg Li: All businesses are based on capturing the niche. Innovation is a way of serving a different niche that other people cannot see. It’s about delivering game-changing products and services to people. You need to have customers or users for innovation to come full circle. It needs marketing and a lot of different things to help pull all the pieces together. Innovation doesn’t equate technology. New technology is only a small part of innovation. Sometimes you don’t need technology to be innovative. Entrepreneurship is not necessarily innovation. For example, you can open a small shop down the street and it’s not necessarily innovative.
Given the lack of institutional support and bureaucratic red tapes in China, would you say it is particularly difficult to find innovative companies in China to invest in?
Gregg Li: It’s not that it is particularly difficult to be innovative in China, which has nothing to do with seeking government approvals. It’s difficult everywhere. It is difficult to find entrepreneurs with foresight, who harbor a never-giving-up attitude, and who have been at the leading edge of his or her field or practice with a solid ground in experimentation. You need these individuals to build an innovative environment, or what I would call a proper ecosystem. You also need to have a local market with local buyers who is willing to give them a chance, as well as followers and other contributors to continue to survive. Innovation happens in a rainforest; it is messy. Diversity is of essence, so you need collaborators coming together to create a new life.
How many entrepreneurs are you supporting?
Gregg Li: Right now, I’m supporting two entrepreneurs, one in Guangzhou and one in Hong Kong. One is in the high-power LED business and one in insurance brokerage. They have created new products and ways of engaging customers and new business models. Last year I considered at least 10 deals and each time it was the [lack of] drive or focus or sincerity shown by the entrepreneurs that changed my mind. I am looking into two more at the moment and will come to know them better in six months.
How many angel investors are there in Hong Kong?
Gregg Li: There are 60 officially registered angel investors in Hong Kong, but in reality there might be 600. There are a few rich uncles out there. In China, there are a lot of more venture capitalists than angel investors, but there might be more angels going forward. The angel industry is not well developed but the Hong Kong Science Park has done a great deal of groundwork to help nurture this market. We now have templates and places to engage a dialogue.
What’s the difference between angel investors and venture capitalists?
Gregg Li: The biggest difference is how they spend the time and money. Historically, venture capitalists in Asia have been money-driven. They didn’t want to take too much risk. In the past, they didn’t invest in products and they would provide the bridge capital when a company was ready to go public. As financiers, the return has to be solid and needs to meet a certain percentage. They come late and they squeeze entrepreneurs to get the most of their returns. They are no-nonsense professional investors.
But angel investors are different. We are major risk-takers who invest mostly in start-ups. To be an angel investor, you have to be an entrepreneur yourself. Sometimes you have to get your hands dirty and help out from moving goods to interviewing job candidates to finding customers. As a former management and governance consultant, I’ve been fixing companies from private companies to governments to NGOs for 30 years. Now that I’m retired, I am helping people to form companies and set up boards so that they they can focus on their business models. You can say I have learned from making mistakes a thousand ways, and now it is time I advise others to make fewer of them.
What will be your focus while helping entrepreneurs build innovative companies?
Gregg Li: I’m a company doctor and I’m fixing innovation, meaning how to create and maintain the spark of life, how to keep companies from dying. For example, Kodak was once an innovative company but it is dead. There area lot of reasons why companies die, but only a few reasons why companies thrive. The key is having customers who adore your products and services through continual innovation and protecting that spark of life.
One of my main focuses — and challenges — is to help entrepreneurs establish sound corporate governance in their companies and help them scale. These are crucial things that will help sustain an innovative, start-up company.