Super Angel #268: Angel investing insights with Paul Forster: Founder of Indeed.com and investor with +90 portfolio companies.

0:00Welcome everyone to the Super Angel Podcast. we're super excited to have you with us today and we're really really excited to have our guest paul forster ex-founder of indeed.com very active angel angel extraordinaire i think one of the angel investor who both anthony and myself have done many um investments with i was actually looking back through and i think paul i maybe met you about seven years ago i think it was on the on the duro board so time is time has certainly flown by but we are delighted to have you join us today Lovely to be with you, Tom and Anthony.

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1:43I was a founder in a former life. I lived in the US for many years, started a couple of businesses there. The second one was Indeed. Started that in 2004, built that into a big business, sold it in 2012. and moved to the UK, where I'm originally from, later that year. And I've been doing early-stage investing, early-stage tech investing since then. So I've been doing that for about nine years now. And yeah, it's been great. I never did any angel investing when I was a founder, which is obviously very different from many of the founders and operators today that also do an angel investing. But yeah, it's been a really exciting journey.

2:27And would you remember like what got you into that in the first place potentially or maybe any memorable deals that got you started? Yeah, I think it was through Cambridge Angel, some of the early deals that I came across. The first one I invested in was a company called Sitora. And I was attracted to that. I really liked the team. It was doing data aggregation, which appealed to me because of the relationship to Indeed. they were trying to create a political risk analytics tool that didn't work out they ended up pivoting to insurtech but before i invested in that business i had coffee with the founder and ceo richard hartley at fitz billy's in cambridge and we were talking about the autonomy story and mike lynch had recently exited for 11 billion and richard looked me in the eye and said i want to build a business bigger than autonomy.

3:26So I love that ambition. So I do like ambitious founders. And that's turned out to be a successful business. It did a series B a couple of years ago, I'll do a series C soon. And I've been on the board of that company since the beginning. So that has been an interesting starting point. But now most of my investing is probably more London-based companies. I do quite a bit in continental Europe and the US as well. I guess looking back, right? So the kind of opposite angle, now that you've been doing it for so long, and you've made so many investments, you know, right before we jump into kind of a bit more about the strategy and the likes, would love to hear from you, what would you say angel investing kind of gives you personally and professionally?

4:10I love working with founders. I love the energy, the creativity. I love the variety as well. I mean, one of the features of being a founder is you've got to be extremely focused to be successful. And the luxury of being an investor is you get variety, you get a lot of intellectual stimulation from getting to know different industries, different sectors, working with different people. and that sort of intellectual stimulation and variety is an absolute pleasure. Absolutely. They say you're kind of the aggregate of the people that you talk with, right, in terms of kind of the speed of learning and how you work, right?

4:51So it's such a privileged job also coming at it from another angle. And so that mental stimulation is, I think, what keeps me going at least. So thank you for sharing. You know, one of the things that I found was that I was tempted in the past to start another business myself. But then I keep running into founders that are a lot smarter than me, a lot more energy and crucially more focus. I think when you start investing and you've got capital to deploy, it's much harder to be super focused. And so it kind of makes sense when you get older and have more experience and more capital to invest in founders who are super focused.

5:35I think you're too humble. I think anyone would be very excited to actually follow you in the next journey. But that means a lot. And I do think that in some respects, being able to give back from a lot of the learnings you've had is not only a form of mastery, right? and kind of honing that for yourself, but it's also a really big gift to the founders you back. Yeah, I mean, I couldn't agree more. I mean, Paul, you know, been lucky to be on a number of boards with you. And I think that founders definitely massively value that approach and that kind of experience that you can bring to those strategic discussions.

6:06Talking about strategic discussions, I think the next section we'd love to touch upon is a little bit around kind of more unpacking some of your investment thesis, how you think about your strategy, how you think about, you know, your approach to angel investing. Oh, no. It's not about the thesis.

6:28Now, I mean, maybe to kick things off, if you could let the listeners know a little bit more about, like, you know, where you are on that angel investing journey, you know, roughly how many companies you've invested in to date, if any geographic, like, focus you've had. You mentioned about, obviously, being in Cambridge and being part of that ecosystem in London more broadly, but do you invest internationally? Maybe we can start moving the conversation in that direction. Yeah, I've invested in close to 90 companies now. And it's predominantly software, quite a bit of fintech, SaaS, business-to-business software of various kinds.

7:06I've done quite a few verticals and more recently quite a bit in the health space, in climate tech. geographically the majority in the uk about 80 in the uk of those most of them london-based companies i tend to invest in i do i do some deep tech investing more recently i've done quite a few in biotech and pharma but the majority is a kind of application their software a lot of those companies tend to be based in london i like to work with founders in person i like to meet them I like to help them in person and participate in board meetings in person. So that's probably the main reason why the vast majority of my investing is in UK-based companies.

7:52But I've also enjoyed investing in France, Germany, Spain, the Netherlands, and quite a bit in the US as well. As your angel investing has developed, maybe from that first Sitori deal to where you are now, do you see any material changes in the way that you approach an investment opportunity? Obviously, with 90 companies, has the bar gone up? Has it changed in terms of you start to think about things more like a portfolio of sectors you have exposure to and sectors you don't? Or anything which has, I guess, changed in the way that you approach new deals that I'm sure come across your desk on a very regular basis from people like myself and Anthony?

8:30I like to, I think from the beginning, I've always liked to invest in, as I mentioned before, ambitious founders, but also products that are super simple and clear. And then market opportunities, I understand. So big market opportunities that I can get my mind around. And in terms of evolution, I suppose my confidence in my abilities to select winners has probably gone down over time. I think when you're a founder and you've had a successful track record, you've perhaps had a big exit or you've made money investing in somebody else's business, you have a high degree of confidence in your ability to pick winners.

9:11And I think over time, investing, it's humbling. You can't really sort of escape that power law that means that not all of your companies are going to be winners. So I think that maybe what's changed is I'm more inclined to take more of a broader portfolio approach to try to invest in a broader number of companies with maybe smaller ticket sizes. Right now, I think my portfolio is probably a little bit imbalanced. I've got some quite big stakes in a few companies. And then I've got a long tail of investments where I'm more like a typical angel. However, I've really enjoyed where I've got bigger stakes in companies.

9:53I've tended to participate in the board. So I've either been a director or observer on the board. So I've had a closer relationship with the companies, been more like a typical VC, I would say. So I'm kind of a combination of that relationship with companies and then many companies where I'm more like a typical angel. And I guess you did mention the humbling part of investing, which is I think what keeps us all to our toes and is a very important element. So diversification ends up being such an important element. You've done 90 companies, right? In some respects, so from a portfolio construction approach, as you said, it's a power law, you need to diversify.

10:31So how do you think about that trade-off between kind of diversification versus, you know, having capacity to support the founders that you back, right? You did mention some boards. You also mentioned variations on, you know, the types of check sizes you do and the level of involvement you have. Would love to unpack that a bit. I think you need both. You need to have a high quality bar. And at the same time, you need to have a lot of investments. So obviously difficult to optimize both, but I feel like you should have ideally at least 30 to 50 investments if you want to have a chance of capturing those outliers.

11:10And at the same time, you need to be careful about what you invest in. You need to make sure all the stars are aligned and you've got a good chance of achieving a big outcome. Yeah, and I think one theme is to... Be reasonably consistent in your check sizes. That is going to enable you to be more consistent in the way you participate with companies. I think having scaled a tech business as a CEO and co-founder is one of the key things. That indeed was a US-based business and is now a global business. so that's the lessons from that i think many of them are generic lessons which apply to many early stage tech companies so that would be one of the key things and then that could be broken down into into a number of elements whether it's um you know sales marketing helping companies raise money making introductions generally trying to make good judgments when it comes to business decisions those would be some of the things but every company is different so it's very um specific to the company so i tend to uh try to to help companies where they have needs and uh and those those are quite um diverse on that paul just picking up on that point because i think it's it's bang on um and i remember i think other discussions maybe we've had over the years where you're you're looking at something maybe something we're looking at and some of the feedback which you provide and obviously those are the kind of characteristics you you look for and i think that's been very consistent in the way that that we've definitely interacted over the years.

12:48Are there things that are flags for you when you see a profile, when you see someone who's going on a founder journey, having been that founder yourself, having been through the ups and downs of at least two businesses, are there things which would stand out from a background of a founder that would give you pause before looking to proceed with an investment? You know, I like founders that have domain expertise. I think that in general, I'm less thesis driven. I'm more thesis agnostic. With experience, you build up a model of the world. And some of that's conscious, and some of that subconscious.

13:28And then when you see a business, it either fits, or it doesn't fit with that model of the world that you have. And so that's the kind of pattern recognition, I think that people talk about. And so it's difficult to list every single little thing that you like and don't like about companies in advance of seeing them. I think when you do your due diligence as well, you kind of dig in where you see there's a weakness. So, for example, if it's a very young, inexperienced founding team, that's the kind of business where you're going to want to do referencing on the founders and do some focus on what those founders might be like as operators.

14:10whereas a more experienced team you might be less maybe a team that's already exited successfully from a business you might be less inclined to do your due diligence there maybe more market due diligence that you're concerned about and you might want to focus more on that so i think that i think that it's about how the business fits into your your construct of the world and i think that's where experience can really help uh both as a founder and as an investor And that's one of the things where I think when you get older and you have more experience, some things kind of decline. I think to some extent your mental capacities decline.

14:50You can't think as fast as when you're in your 20s. And you can't necessarily do the longer hours that you maybe could have done when you were young. But you have the benefit of experience. You have all those years of pattern recognition that you can bring to bear. And so, in fact, I think investing is one of those things where you can actually get better as you get older and more experienced. One thing which I'd love to touch on as well is how you think about, and I know we've maybe weaved this into some questions before, but specifically how you think about kind of collaborating with either other angels, you know, the angels who you regularly co-invest with, other VC funds.

15:27how you think about that kind of participation in the ecosystem, I suppose, to get deal flow and how you even work with those companies going forward? One of the great things about being an angel is you're not really competing for deals. It's more about having visibility into the deal flow. And so one can work very collaboratively with other angels, with VCs. A lot of the deal flow I get is from angels. It's from VCs. It's from other founders. and it's really um yeah it's very collaborative and also i think one thing i like is there's a tremendous variety of ways you can participate so there are instances where i've led deals i mentioned sitora there are other deals as well griffin future forest company where i've actually been more like a vc and actually led led a seed round and then there are instances where one can follow.

16:25A majority of my investing, I think I'd be following VCs. And then there's other cases. For example, GoCardless. I'm an investor in that business. I didn't participate in any primary investments. I bought shares from a couple of the founders. And then there's accidental investments. One of my favorite investments is in Personia, which is one of Europe's most successful tech companies based in Germany. And I was an investor in a company called Rollbox based in Barcelona. It was a payroll API company and it was bought by Bisonio. And I rolled my shares into Bisonio. So now I'm a shareholder in Bisonio, but that's kind of by accident, which is really fortuitous.

17:13So yeah, so there's a tremendous variety of ways you can get involved and invest in early stage companies as an angel. And check sizes, you can be very agnostic as well. I love the accidental investing side. Yeah, I remember the story with the roll books. I think it was 0.9 that did the investment, right? And then Persona acquired them for the payroll capability. Very, very interesting. And the other thing I will touch on and that I can identify with, right? What we do also a bit with Cocoa and our style of investing is that I think it pays off a lot. And I would love to hear your thoughts if you think so.

17:49Even though you are an angel to develop your own conviction, right? You did mention that there's been times where you've, let's say, led investments as an angel. I think that is, generally speaking, dependent on, let's say, around composition, on the preferences of a founder. But more importantly, I think it requires a muscle as an angel to develop your own conviction, right? Because I must say that I have seen many angel investors that a big part of their conviction tends to be who is the lead of a round, right? what I found for myself, you know, doing collaborative investing, that it pays off to actually develop your own conviction independently.

18:31Of course, part of that conviction factors in who is the lead VC rather than the other way around. I don't know whether you see it that way as well, or whether you have any views when it comes to conviction building vis-a-vis the round composition. Yeah, I think that's right. I think that one of the constraints is time. You can only, As an angel investor, you can only lead a certain number of deals, if any. I guess most people don't lead any deals. But I think there are instances where I have had conviction and where there's been a kind of a vacuum where there's no VC lead. So a good example of that is Griffin, which is kind of an outlier business.

19:09Tom knows this business because it's a Seedcamp company. I was actually referred to it not by the investment team at Seedcamp, but actually one of the portfolio companies. It was actually Stephen Hunter from NineSyn referred it to me and started talking to David Jarvis. And it had had at the time quite a checkered funding history that David had struggled to to raise the seed round. he actually had a signed term sheet from a VC who I will not mention the name of, but they pulled out at the 11th hour. I think there was some technical complications with their LP base. And I think David was on the verge of chucking in the towel, or David and Alan, they were close to closing it down.

19:56So it was really gratifying because I ended up leading that round and put a very big check in for me, which is a nice instance of kind of where you feel like you've really added value because a lot of angel investing you feel like your money is fungible you know you if you if you're not investing somebody else would invest you're not really changing the world but it's nice where you come across instances where uh it's possible that the company wouldn't exist if you haven't made your investment and i don't think dave would mind me mentioning that because that company now has gone on to do really, really well.

20:31It's now authorized as a bank, albeit with restrictions. Hopefully, it'll be a fully fledged bank soon and successful bank. I was a director of that company for three years. And so that's been an example of one where I did have conviction, I really struggled to get conviction, actually, I sort of, it gives you a window into how difficult it is to be a VC. It's hard to be an angel, but it's, I think, harder to be a VC, because not only have you got to compete with other VCs, but you've got to build this conviction, which is very different from following. And so I've done that a few times. Another instance was Future Forest Company in the climate space.

21:14It's now become Undo, and they're doing enhanced rock weathering, spreading basalt rock to basically sequester carbon. I saw that business through one of the carbon marketplaces and got really excited about the proposition and ended up actually investing in that company through my family foundation. But there are instances like that. I think that with an angel check, you have to have conviction. Ideally, you should have conviction as well. And there is, I guess, a danger of relying too much on the halo effect of the lead investor. one has to bear in mind that even the top tier VCs, the majority of their companies that they invest in are not going to have exciting outcomes, even the best VCs.

22:07So therefore, one must always remind oneself to try to take an objective view as an investor, try to distance yourself from kind of the brand names of the companies investing. And a lot of the best investments are, of course, ones that haven't been led by brand name VCs. Great story. I think the Griffin story would be a podcast in itself one day, hopefully when it's IPO'd and everyone's very, very happy about that one. But yeah, exactly right in terms of coming in at that crucial time. I'm so happy to see that one all come together. Now, maybe taking a step back from kind of direct company investing, one of the areas that I'd love to get your thoughts on, Paul, is investing in VC funds as an angel.

22:51like is that something you've you've done you've considered how do you think about that i have done it i don't do a huge amount i prefer to invest direct and i'm not sure if that's the best financial strategy i tend to think you know the more i carry on doing my angel investing i think it would be actually easier just to invest in um heat camp funds or cocoa funds and uh uh you know go to go onto the beach and go sailing or cycling and my financial returns might end up might end up better but um it's so much fun working uh directly with founders i tend to do that co-investing uh having said that i have invested in a few uh i've invested as i mentioned in seed camp which um is really i love the the way that um you guys uh share deal flow early um so that's been been fantastic and so it gives the opportunity to co-invest as well as being an LP.

23:51I've also enjoyed investing in Coco as well. And again, getting involved, getting referred to deals that I've co-invested in. There's been a few of those. I've invested in some of the Union Square Ventures funds. That was the VC that backed Indeed. And so I know that I've known that team for many years and enjoyed being an LP in some of their funds. And I think there's a north zone fund that was a friends and family uh no fee no carry fund which is probably not a great reason to invest in a fund but they're also a blue chip fund as well so uh so i've enjoyed doing that but yeah the majority of my investing has been has been direct would like to kind of dive into a bit about your core learnings from angel investing

24:47so if you had to share three core learnings what would those be firstly all stars should be aligned i've said that i like to invest in ambitious founders simple products and market opportunities i understand obviously it needs to be a big market opportunity but i think you kind of need to have all of those things. There's a notion that you just need to invest in really smart teams and they'll pivot their way to success. I think that's to some extent a myth. I think that teams can pivot when it's super early, but once you have a product, once you have customers, it becomes increasingly difficult to pivot.

25:28So therefore, really to have a good chance of success, you want to have the right team, the right product, the right market, which, of course, is not difficult. It is difficult. It's very difficult to figure that out early stage. Sometimes you have traction metrics, which give you early indications of success, financial or engagement metrics. Often, if you're investing pre-seed or seed, it's just too early to have those metrics. You just have to make really smart judgments about having those stars aligned. My second one would be, and we've talked about this earlier, is the power law. You just can't escape the power law.

26:08Whether you're an angel investor or a VC investor, the vast majority of your returns is going to be driven by no more than 10 % of the capital you invest. And I think the lesson from that is to, yeah, have a diversified portfolio. earlier don't concentrate too much try to equalize your check sizes I don't I'm not sure I've really done this myself as I mentioned before I have done very lumpy investments but I think if I was starting again I'd probably say look try to be reasonably consistent in the check sizes you write and try to build up a reasonably large number of investments to have a chance of catching these outliers so again as you've got to uh have a high quality bar and have all the stars aligned which was my first point at the same time and my first one the third one is um stay close to the founders and support the founders but try not to go native so when you've been a founder yourself your an inclination is to be sympathetic to the founders to do everything you can to sort of be on their side versus the maybe to some of the vcs you might want to operate in a way that um that is more consistent with with the way they are thinking uh however you have to remember that you're you're actually an investor you're not a founder yourself so when it comes to key decisions like follow-on funding or perhaps taking advantage of secondaries, you have to take a step back and remember financially you're much more aligned with the VCs, you're not a founder, and you need to take an objective view.

28:00And it's quite hard to do that. I've done a lot of follow-on investing, arguably too much follow-on investing if I took a step back and said, look, it's this financially really objective decision. and so maybe having some simple rules would help so for example maybe only follow and the top quartile of your portfolio if you can rank them somehow and you know maybe try to take advantage of secondary sale opportunities if they become available rather than always doubling down this is advice I haven't followed myself so you know do do as I say not as I do but these would be some of the learnings I think in retrospect.

28:42I wanted to touch on the first thing you said which is so true which is about how hard it is to get a pre-seed right kind of like founder and market and product or go-to market let's say but many times it's just too early right so you have to take that risk and so this tends to be a debate and opinions are as many as people sometimes but what would you say if you had to choose between founder versus markets, what would you do? What would you choose? I think you'd have to have both. And you probably have to have the discipline to walk away if you really love the founding team, but just have sort of big question marks over the market or vice versa.

29:24I mean, I think that one of the early things, one of the early mistakes as an angel is often to project. So you fall in love with the market opportunity and you kind of think, well, if I was a founder doing that, I'd absolutely kill it because it's such a fabulous market opportunity, but you have to remember it's not you, it's the team, it's somebody else doing it. So I think that my answer to that would be you need to have both right team, the market opportunity, and then it has to be the right sort of product to attack that market. And one more I'd pick up on is that third one about thinking through with an investor kind of hat on versus being incredibly close and aligned with the founder.

30:01And I'm sure that's evolved as you've been investing for longer and moving further away from that founder role and more in the angel investing role. When you think back, I guess it was, I think it's your first company, Paul, which you founded around the kind of dot-com period before moving on to Indeed and selling that one and then starting Indeed, if I'm correct. If you look at the market we've been through over the last couple of years, and then obviously we're in a very different stage of that market, having lived through or been in and around the technology space around kind of like when the dot-com was coming through.