Daniel Johnson is well known in the Sydney startup ecosystem as an avid supporter, active angel investor and “super-connector.”
Here’s a wrap-up of Daniel by the numbers:
- Years as an angel investor: 4
- of personal investments: 71
Daniel is also the Chairman at Tensis, a company he and some close associates recently bought a controlling stake in to provide expert knowledge automation solutions.
The Key Points
- Daniel started with a small fund with friends where they invested in 6 early-stage companies after an exit from his own business. Since then he has invested in over 70 startups, many through TEN13.
- Daniel favours great teams and ideas where the founders are coachable and realistic. His network helps with due diligence. He now has an investment committee to keep him accountable.
- A “No D*ckheads” rule remains his number 1 mantra.
- He is focused on quality fintech given the scale potential, and some insurtech.
- He just led a takeover of an automation software business, Tensis, partly to prove he can operate again.
- Over time, Daniel has become more disciplined with companies he invests in: "Founders often underestimate how hard it is for angels to part with their own money".
- Daniel stays involved through board roles and talking with 20-30 founders regularly.
Find the full interview and an edited transcript below.
How did you get started as an angel investor?
I started in insurance some 30 years ago and started my own business about 20 years ago, which I was lucky enough to exit after a series of mergers and acquisitions over that time.
That's given me not only the access to lots of really interesting people over that time, but also it's given me the funds to explore the world of angel investing.
Tell us about your experience in the insurance industry
When I started, it was just the one man band. Insurance is interesting. You can be very small. I was an insurance broker, so I had background both on the underwriting and the broking side.
Insurance is a fascinating industry. There's no obsolescence issues. There's no no meaningful bad debt issues. It's really building rapport with clients, creating insurance programs and getting paid for it. So it's a really good cash flow industry.
The trick is, of course, to get past the hump of your own scale and putting people on, making it bigger and recognised early on. And so that's what I did over over those 20 years.
We exited last year with a sale to a listed entity. It's in the press how much that sold for - I did not receive the majority of that final exit amount by any stretch, but it was still a significant number.
How did your first angel investment come about?
Years before the exit of my business, I started doing some some work with some friends through my network. We realised we had a bit of an interest in looking at early stage businesses. So off the back of that, we formed a partnership. We investigated a pool of different early stage businesses, put some money together and ended up investing in six businesses, including a business called FloodMapp, which is how we originally connected with TEN13.
From that initial six, half of which have done all right, the other half less all right, which probably fits into the normal return profile for a portfolio of angel investments. From there, I’ve been actively investing, including through TEN13 for the last 3-4 years.
What was your initial strategy for approaching angel investing?
The first six investments came through our network.
I had lots of contacts and had met lots of people over the years who were trying to build really interesting businesses. Between the group, we had found a whole bunch of promising businesses. So we narrowed that down and built it up from there essentially.
In terms of returns, we were targeting 10x returns over a 3-5 year time horizon. What's become apparent is that whether it's a function of the market or the liquidity crunch that 3-5 year time horizon is probably unrealistic. So we've pushed that time frame out.
We also had a “No D*ckheads” rule, that was and remains our number 1 mantra.
What inspired you to delve into angel investing?
Angel investing was an opportunity for me to be part of businesses that have exciting people, exciting product ideas and a really interesting community.
I've loved the people that I've met through angel investing. We've made so many good friends and it's so engaging. I love the ability to to bring my network into play with each business that I'm involved in.
Tell us about your first angel investment in FloodMapp
We met Juliette Murphy, the CEO of FloodMapp, through the network and felt an immediate connection with her and her vision. From our meetings, we recognised her and her Co-Founder Ryan's passion for the business, their deep intellect, and incredible people skills.
Whilst she was looking for money to grow FloodMapp, I felt a real privilege to be able to partner with her. I know it sounds kind of strange, but founders who raise funding from you are inviting you into their lives, their passions and dream, which I find deeply fulfilling.
What have you learned from your first angel investment that you now look for in new startups?
Success in startups requires the right team, the right idea and the right attitude, because there's definitely an attitude piece. If there's too much ego in the founders camp, it can be really difficult. Juliette and Ryan from FloodMapp are just amazing in that regard. They're so open to coaching, they're so open to ideas and to the skills of others, which is critical. If founders can take a little bit from all of their investors, you just have world class opportunities.
How many investments have you made?
I've invested in 71 businesses, which is deeply scary. And if we look at it like that, some of them are looking really good. Some of them just are kind of muddling along and think they'll get there, but it's going to take longer and some not doing so well.
It has been a really interesting process investing in these companies. Some of them you start out thinking this is going to do phenomenally well and some not so much. A lot of them have had to pivot, which I guess is a learning for me as well, particularly when you're starting in so early. At the Pre-Seed or Seed stage, what appears to be a good idea when they try and approach markets can prove to be not so.
What areas are you investing in today?
I am still investing in quality fintech companies; there's so much opportunity to scale up massively in this area. I've done a little bit of Insuretech and despite my background, I'm well aware that that's a tough market. Insurance companies are notoriously bad at innovating, and beyond that, I'm happy to kind of explore all areas of tech.
I typically avoided companies that I perceived to have really long lead times, and focus on startups going after global opportunities.
How do you keep track of like your portfolio?
I use a spreadsheet. I do a re-evaluations when there's a new raise.
I keep a regular eye across them and I talk a lot to founders where I've got a connection with them.
How do you do due diligence on companies?
A “yes” is harder to get to these days, which is probably a good thing. I'm an optimistic person by nature, so I bought that optimism to a lot of deals in the early days. Luckily, most of them have been doing alright.
But, the most important thing is the founders. After having a look at a deck, I'll meet the founders and decide if it feels like they've got the right energy, the right skill set, and the right motivation as well.
You never want to deal with someone that's just looking to build and sell in three years, because it rarely happens that way.
If you've got the right people on board, then it's a case of is whether the product scalable in a way that they think it is? This is particularly true for the younger founders, who may not have the right sense of what reality is.
What does your decision making process look like?
In the early days it was definitely just like, oh, looks like a good idea, why don't I put some money into this business. I’ve since learned that that's not necessarily the best way to invest.
More recently, I’ve formed an investment committee with some of the other people in my network that I've been working with for a while. We've agreed that anything I want to invest in will be run by them first. We've got a we've got a charter and we've got a process which includes the company pitch deck, my thoughts on the company, and what I am looking to invest. Often I will also bring the investment committee into a meeting with the founder.
I've accepted that I need approval from my investment committee before investing. They've pushed back on a few things and they scaled me back on something, which was probably a good thing, to help me manage my liquidity.
What do you look for in a founder or founding team?
You want equal measures of wild enthusiasm, deep skill sets, a healthy dose of reality around what they're trying to do. Without casting a shadow on younger founders, they need to understand that building a business can be difficult and it can take a lot longer than you think, requiring much more energy and perseverance. Not everyone has the fortitude to withstand the slings and arrows of this industry
Secondly, coachability is something that I've come to understand the importance of recently as well. That's not to say that my view is always right. But you know, founders see the world in a particular way based on their experience. Potential investors will have a view that's a little bit different so its important that founders consider those views too.
I try to test for this early on. If I see opportunities that that are a little different to the way they're seeing their business, it's just a case of what do you think of this? Have you thought of that? Do you know these these people? And it comes down to how they respond. You can get a real sense of coachability very early on from these types of interactions.
What do you think founders like get wrong about angel investors?
Raising capital is easier than it is.
Founders can sometimes forget that for an angel investor that money is their money. It's not from a syndicate of investors, it's not a group of successful businesses. It's usually one person's money or a family's money so investing that money is a big thing for that investor both emotionally and financially, especially since for me, it took 20 years to make my money.
What do you think are common misconceptions about angel investing?
It would be presumptuous to assume that I've got the right formula, but I think getting too caught up in trends is risky is one.
Secondly, I say to people that are interested in angel investing, if you're the sort of person that likes to analyse an investment to four decimal places, you're probably not cut out to be an angel investor. You know, you're really taking a lot of it on faith, particularly when there's a lot of technical elements to an investment.
Thirdly, I'm not a tech guy so I don't have the technical expertise. So one of the things I've done is work with other businesses and other people that do understand the tech to validate what the founder is saying and thinking.
What do you think makes a good angel investor?
Having a strong network and a preparedness to spend your time on this asset class. Fortunately, it doesn't take a lot of effort to provide a lot of value to a founder and to their business, if you are prepared to open your network to them.
What are you working on at the moment that you're excited by?
A group of associates and I have been making passive angel investments for a few of years now and have really enjoyed it. But what we wanted to do was to find an opportunity where we're actually able to take control of a business, restructure it, staff it, capitalise it, and prove to ourselves that we can do it again. We thought having a second shot or a third shot at a business was an interesting challenge.
So we come together as a group and we bought a controlling stake in a business and rebranded it as Tensis. The company is a software company that manages the automation of complex documents.
We haven't even been a year into it, but it's really exciting and fascinating overlaying our perspective as angel investors.
I'm the chairman and company director, as well as a major shareholder. But it's been it's been a lot of fun working with the amazing team.
How do you split your time?
I've still got to manage a family and everything like that, so I can't all of my time into businesses like Tensis.
I’m on a number of boards where I'm able to provide direct input at a strategy level. I also provide time to approximately 20-30 portfolio companies where it makes sense, and where I feel like I actually have something to add.
How can people get in touch with you?
I’m really happy to talk. I love talking about tech, angel investing, and businesses. Somebody suggested that business is my hobby, which is probably not far from the truth.
If anyone does want to reach out, they can find me on LinkedIn here.