Oops, I did it again!
I’ve invested in a startup without checking a business plan.
And yet it was not an impulsive purchase. I have a limited budget. I simply cannot afford any investment by chance.
So, why have I invested in this specific startup, Reward Technology?

The Peep Show

Over the next few lines you have a chance to peep inside the mind of an angel investor.
It’s not just me. In fact there is a growing trend of investors who make decisions based on rationale but not on numbers.
Their number is probably stable in the USA. However, we see a consistent growth in angel investors in Europe and in other countries where startups are a relatively new phenomena.
I am not speaking about people burning money in the startup frenzy. Startups are hot and everybody and his mum calls himself an angel investor (a quote from the mighty Lord Sugar). These people are not “real” angel investors.
Once the bubble explodes – and this is going to happen sooner or later (probably sooner rather than later) – these investors will disappear for a long time.
In the meantime, real angel investors will keep investing, helping quite a few great startups, and in the long run they often making more money.
It’s not a mystery. The most successful startups tend to be born during economic downturns.

Before the Peep Show Starts

If you’re an early stage startup, you were probably trained by your university to suck at pitching. It’s ok, we’ve all been there. This article may help you fundraise. Not all investors think like us, but – when they do – they tend to be great shareholders (and when they don’t, they tend to be nightmares. You can end up paying a very high price for their money).
If you’re an investor, I’d love to hear about your experience. Feel free to agree, disagree and even vehemently criticise my solutions. After all, I am no guru. My twitter account is @startupagora
If you’re one of my old professors, you may think your efforts were wasted. All those lessons about numbers and business plans here are ignored. I plead guilty to the crime of being an impossible student. I love you all anyway.

Why I have invested in Reward Technology and other similar startups

These are my personal reasons in no particular order:

Winning is a habit
Paul Sheedy – founder of Reward Technology – has already made an exit with his previous startups. This would be good in the USA, where the startup ecosystem is almost three generations old. In Europe, where startups are a relatively new phenomenon, this is more than just good (Paul and I are both based in London).
Of course having an exit in your resume is not mandatory.
Investors can – and should – support new founders. Someone believed in Larry Page and Sergey Brin from Google when they were still students, and in Steve Jobs and Steve Wozniak from Apple when they were still assembling computers in a garage (Kavitark Ram Shriramand and Mike Markkula respectively).

Being remarkable is mandatory
When founders don’t have an exit in their resume – and this is the usual case – I still want to see a remarkable human being.
Being remarkable is far more important than stone cold numbers or great ideas.
Adora Cheung – an MIT graduate – spent months working undercover for an agency as a cleaner. She learned all the inefficiencies of the market from the inside, and she’s now the founder of Homejoy – the “Uber for cleaners”.
Not surprisingly, she raised money for her startup without too many problems. Being remarkable not only impresses the investors, it also makes for a great for storytelling.
Quote of the day: “Investing in good ideas is a bad idea.”
It sounds cliché but it’s true. We invest in people.

Three time psycho
David McClure – founder of 500 Startups, a seed stage venture capital fund – was asked about the best way to pitch him. His amusing reply was something like this:
“If we meet at three different events and you don’t act like a psycho, then you have a good chance to pitch your idea”.
I feel David.
I don’t run anything as big as 500 Startups, and yet I meet my quota of psycho founders.
I feel for them too. After all I made the same mistakes for a long time.
“Hi I’m the CEO of [weird name] a startup with an innovative app that is going to change the world.”
Dear founder:
• What’s YOUR name?
• What’s your company’s REAL activity? (Changing the world is not a feature)
• Most important of all. Why don’t you join our conversation? After a drink and a chat someone will eventually ask what you do.
The best fundraisers are like Paul of Reward Technology. We often meet at Level39, the accelerator in London. I don’t think we spoke about his company until our third or fourth coffee.
He’s always friendly, never pushy about investments, and makes occasional jokes about the Irish (Paul is Irish, and I had a youthful passion for Irish history. Indeed, I can ramble on for hours about Brian Boru and Fergus mac Roich).
Dear founder:
• Focus on the human angle.
Angel investors are not professional Venture Capitals. We can probably make more money investing in real estate than in startups.
Our decisions are driven by our passion (and often by our egos).
In short, we invest in people we like because we want to spend time with people we like. It may be irrational, but it’s true. Use this information to your own benefit.

The market is strong with this one*
(*Not everyone will get it …)
Angel investments are driven by passion but they’re not irrational. If a startup operates in a small market, investors will rarely be interested.
We don’t aim to make “some” money every month. We want to see the value of our shares skyrocket.
From this point of view, the nature of a startup is financial not industrial.
(Please use this concept with caution: when abused it has created many monster startups, bubble companies without any useful product.)
Reward Technology provides solutions in the huge loyalty program market.
With 1.9 billion customers using smartphones worldwide, and with another billion or two from Asia and Africa adding to that over the next few years, retail stores have no choice but to use these technologies if they want survive and beat the competition.
Indeed the decision could be rational and yet not based on numbers.
In fact I don’t know how many customers Reward Technology will have in 3 or 5 years. Nobody does.
But the opportunity is there.

1 – 2 – 3 start

That’s it. These are the reasons behind my investment.
1. A remarkable founder/team
2. A likeable person
3. A great market
No business plan, no fancy pitch.

Is there a point #4?
Yes, point no. 4 is “customers”. I look at the traction, especially for B2C startups. But even when the customer curve looks like a fantastical hockey stick, I would not invest if I don’t see the first 3 elements in my list.

Being rational without numbers may look . . . irrational.
It’s not.
In fact, this concept of being rational without relying on numbers comes straight from an ancient tradition. And when I use the word “ancient” I really mean it.
Plato – the Greek philosopher – was used to teach more than two thousand years ago that “A good decision is based on knowledge and not on numbers”.
Next time your professor, father or boss says that business was more serious in the “old days”, you know what to reply.
– Stefano L. Tresca*

Update: in the month following my investment, Reward Technology is closing deals with big corporations on three continents. As well as the initial list of remarkable/likeable/market we also won customers. It may be luck, it may not be. I don’t know the truth, but I love to think that ignoring the numbers was the rational call. Plato’s mindset still works after 2,400 years.

*Stefano L. Tresca (@startupagora), was the Employee #8 at Wind and today is a lawyer, an entrepreneur, an advisor, an investor, a book author, and a blogger at http://startupagora.com/.