What does the founder of ActiveBooking.com (that eventually became Booking.com) and Chair of Toptable.com (that became Opentable Europe) have to say about angel investing?
In this amazingly insightful interview, Cambridge Angel member, Andy Phillipps, talks about the lessons he has learnt from 80+ early-stage investments along with why he’s excited about ThoughtMachine, Paragaf and Nyobott – 3 companies in his Cambridge Angels portfolio.
Can you give a bit of a background about yourself?
I did my undergrad and PhD in Materials Science at Cambridge and then worked in industrial research in the semi-conductor, steel and ceramics industries in the US and Europe, before (slightly incongruously) co-founding a hotel booking company; ActiveBooking.com. We grew that to become the largest online hotel booking company in Europe before sale to Priceline and a subsequent merger with Bookings.org to form what is now Booking.com. After leaving as CEO, I joined Toptable.com as chairman. We also sold that to Priceline (and it became the basis for Opentable Europe). Since then I’ve split my time between teaching (LBS, INSEAD and guest lecturer at Stanford), angel investing and working with high growth businesses. I have made approx. 80 early-stage investments with a focus on market places, deep tech and clean tech.
What made you apply to join CA and what do you think makes it different?
John Bates, an LBS professor and angel investor, once described a successful angel investor as “someone who hasn’t quite lost all their money before they’ve learned how it works”. And with investments often taking over a decade to exit (positively or negatively) it can be very hard to learn from your own experience, meaning it makes a lot of sense to find experienced fellow angels. Members of Cambridge Angels have made well over a thousand angel deals in total, meaning there’s an incredible depth of expertise. It particularly appealed because of the preponderance of exited entrepreneurs and their work to help the UK tech ecosystem more broadly.
Can you give a couple of examples of deals you’ve invested in that you’re particularly excited about at the moment?
In the context of Cambridge Angels, Thought Machine, Paragraf and Nyobolt spring to mind. Thought Machine was founded by a former member of Cambridge Angels, Paul Taylor. It provides core banking and payments technology built natively for the cloud, with a wealth of tier 1 banking clients around the world. Paul’s vision for the company is incredibly ambitious and exciting. Paragraf is one of the first companies in the world to produce graphene electronic devices at scale, with the ultimate vision to realise order of magnitude improvements in transistor processing speeds. Nyobolt has developed ultra-rapid charging technology. They recently demonstrated a sports car based on the Lotus Elise which can fully charge in just 6 minutes. Whilst there’s a long way to go, all of them have the potential to be significant UK success stories (and have also been backed by iQ Capital, a corporate member of Cambridge Angels).
What have you learnt about being an Angel investor since you’ve started?
Rather depressingly, I’ve re-discovered most of the stuff I was told in the first place. It would have saved me a lot of money to listen more carefully. I’ve repeated them below in case I can save someone else some money:
Teams: Everyone says that they invest in fantastic teams (and it certainly seems better than the alternative of investing in crap teams?). Being a bit more specific about it, I look for evidence that the individuals have achieved exceptional things previously, that they have a high clock speed and that they have the intellectual horsepower to learn and adapt.
Long tail and Babe Ruth effect: this is documented to death but it took me a long time to even begin to understand it (thanks Simon Murdoch and John Taysom). Unlike the bell curve distribution in public markets, early-stage investments have a very long tail, which means that nearly all your portfolio value is often accounted for by a very few investments. For example, from over 2500 Y-Combinator investments, over 50% of the value was in 3 companies (according to work by Jared Heyman in 2021). Good investors often don’t have fewer losses, but do have bigger winners. It means that unless you’re exceptionally selfconfident(?!), you need to build a portfolio, plus you’re looking for companies that can generate out-sized returns.
Thinking in bets: (with thanks to Annie Duke). There’s a very human instinct to look at investments (bets) that go right and wrong and conclude that it was good or bad investment. However, if I bet on the ace of spades being the next card and win, that doesn’t mean it was a sensible long-term strategy. It needs many data points to work that out, which most individual angels don’t have on their own. For me, that means I have to proactively engage with many people who have relevant experience to fleece them for advice and knowledge. Or be very, very lucky.
Follow ons: Most VCs will advise that you should “back your winners” (and it certainly sounds better than “back your losers”?). As an angel, I can have trouble doing this. Winners are often not clear, and if they are, they get great term sheets, are over-subscribed and the original investors can often be squeezed out. This means that as an angel, my share of a successful company is mainly determined by my share in the first round. If I can subsequently invest significantly, it may be a sign that it’s not a winner. I have early data that my follow-on investments are significantly less successful (my returns drop significantly after the second round) and my tentative conclusion is that I should commit more of my capital early on, but would be very keen to learn from others here.
