The long-tail angel market in Europe is predominantly clustered within informal networks. Marc Penkala aims to disrupt these informal networks with āltitude’s Open Angel—but is a higher deal volume always advantageous?
When Marc Penkala initiated his investment fund, āltitude, in collaboration with Videesha Böckle et Ingo Drexlerr, he began with a straightforward question: What is the most challenging aspect of early-stage venture capital? His response: establishing improved and earlier access.
“The angel market in Europe is concentrated in informal networks,” Marc explains. “Consequently, I frequently come across similar deals repeatedly. For myself and my partners at āltitude, we generally invest with a select group of three to five individuals—our small, exclusive network makes it difficult for others to enter. That is precisely why we strive to democratize the long-tail angel segment of investing and tap into these informal networks for the benefit of others. It forms a mission-critical component of our sourcing strategy, as we combine collaborative investing with our lead ticket and follow-on investment approach.”
This necessity prompted āltitude to introduce Open Angel, enabling them to gain early access to deals they would otherwise remain unaware of. I conducted an interview with him to discuss how the model functions and how Limited Partners are responding to it.
How does Open Angel work?
When you’re a Series A investor searching for deals, you typically rely on platforms like PitchBook, Crunchbase, or other similar platforms to find seed investments. After six to nine months, you approach these startups to assess their progress. If you like what you see, you proceed with making an investment decision. The late Seed/Series A market is easily visible and accessible.
However, the process is different for pre-seed investors. In this case, access to informal networks becomes crucial to stay informed about potential deals and their timing. āltitude organizes the European venture capital ecosystem into layers and provides dealflow products like Open Angel (for Angels), Trojan (for VCs), or Maven (for Service Providers). Open Angel allows any angel investor to submit a deal as long as they personally invest a minimum of EUR 5,000.
We evaluate the deal itself rather than its source. If it meets our criteria and investment thesis, we may invest EUR 100,000 through a trust agreement. The angel investor, however, retains the full carry of our initial investment. By operating discreetly, we avoid signaling risks for the startup and can present a term sheet before they start raising their next funding round.
Why do you think this kind of program is better than the regular scout programs that other funds do?
I wouldn’t necessarily claim that it’s better. We are simply observing a greater influx of unbiased and pre-qualified dealflow from informal networks. When we initially launched, we were inundated with 200 deals in just two weeks—far more than our anticipated 50. However, what we did notice was that the quality of these deals was remarkably high. This was likely because the individuals sending these deals had a personal stake in them; most of the angels were operators, entrepreneurs, or domain experts within specific industries.
Our aim is to find a middle ground and reconsider how deal flow is approached. It may sound disconcerting, but as a venture capitalist, you always expect entrepreneurs to be innovative, to bring forth novel ideas, and to think outside the box. However, having been involved in the VC world myself, I can confidently state that it is one of the most rigid asset classes in existence. Nobody wants to embrace change because you are constantly contending with a single factor: ensuring that the Limited Partners (LPs) approve of the model. If they fail to comprehend it, or if it appears too novel and risky, they question why you are attempting to reinvent the wheel, and they remain on the sidelines until you provide tangible evidence of success.
And what do your LPs think of your model?
Once we assemble the puzzle pieces of our model for them, everything falls into place, and they see the inherent logic in our approach. Our primary objective is to productize dealflow and focus on bridging the SME Tech gap in Europe, thereby creating improved and earlier access for investors.
Our dealflow strategy enables us to integrate collaborative investing with lead ticket investing. In today’s landscape, it’s not sufficient to possess intelligence and an exceptional track record alone. There is a demand for innovative and intelligent models that effectively address market inefficiencies. Thankfully, there are numerous exceptional fund managers available who meet these criteria.
How do you evaluate deals? And does this change when you move from angel investing to VC investing?
My personal investment thesis revolves around investing in people rather than solely focusing on the business model, especially during the pre-seed and seed stages. This is because a company is likely to undergo three to five iterations of its business model before achieving success. Instead of evaluating the business itself, I assess the individuals behind it to determine if they possess the ability to identify market changes and develop customer-centric solutions.
However, as a venture capitalist (VC), I am obligated to approach investments differently. In my role as a VC, I evaluate the market, verticals, and compare them against our thesis and criteria to determine their actual potential and terminal value. Our thesis is centered around addressing the SME Tech gap by focusing on the top ten challenges that SMEs are anticipated to face over the next decade. Our investments are directed towards automation and sustainability B2B software startups that enhance the efficiency, productivity, and profitability of SMEs.
Regarding our criteria, we seek out alpha entrepreneurs who possess specific domain expertise, as well as founding teams with complementary skill sets. These founders must demonstrate the ability to build customer-centric businesses, iterate rapidly, and persevere in the face of adversity.
To streamline our process, we have established a highly efficient pre-qualification structure for Open Angel. This structure allows us to assess deals and angels before delving into them ourselves, preventing us from being overwhelmed by excessive manual work.
What advice would you give to a new angel who wants to start finding deals in today’s economic climate? Where should they begin?
The first advice I would offer is to ensure that you have a diversified portfolio. It is crucial to spread your investments across 10, 15, or even 20 different ventures over a span of several years. Consider including fund investments in your portfolio, as well. Additionally, establish a rulebook for yourself: determine the amount you invest in a specific stage within a vertical that you have a solid understanding of. Don’t be swayed into a deal simply because another VC is involved—keep in mind that VCs are often more incorrect than correct. Don’t rely solely on them.
Furthermore, I strongly advise against going at it alone. Collaborate with others who can help you overcome confirmation bias. Fellow angels will often highlight flaws that you may be hesitant to acknowledge initially. Additionally, build a network of VCs who naturally serve as follow-on investors. In my opinion, every angel investor should cultivate a unique superpower, as money itself has become a commodity.
Lastly, it is essential to make a genuine effort to comprehend the actual economics of angel and VC investing. When you grasp the numbers and base your decisions on them, you will be better equipped to recognize what truly constitutes a good deal. Consequently, you will maximize your returns and leave less money on the table in the long run.
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