EP06 - Unveiling the Mechanisms of Angel Funding with Rui Falcao of Core Angels

EP06 - Unveiling the Mechanisms of Angel Funding with Rui Falcao of Core Angels 

Ever wondered how angel funds operate and what part they play in startup investments? We're peeling back the layers on just that with our guest, Rui Falcao from Core Angels. Brace yourself for an intriguing exploration of the group's unique selection process, the crucial role of the Archangel group, and the significance of personality fit in investment choices. Listen in as Rui shares insights into the collective intellect and decision-making process within the investment committee, a strategy that helps to keep personality clashes at bay.

As we move on, you'll be captivated by the story of one of Core Angels' Godfathers. His entrepreneurial journey is packed with lessons and experiences that have shaped his understanding of entrepreneurship. We also delve into the impact of the Web Summit on Portugal, stirring up its entrepreneurial culture in meaningful ways. The episode wraps up with a focus on first-time founders, emphasizing the need to create personal meaning and offering valuable insights for both entrepreneurs and investors. We're joined by Stewart, the leader of the Canopy Community, whose knowledge and insights are a treasure trove for those in the entrepreneurial world. Buckle in for an episode full of revelations and wisdom.

Transcript

Stewart Noakes: 0:46

All right, fantastic. I can't believe it were episode six of the investor circle already and we have the amazing Rui Falcao joining us. Thanks, Rui, for being here today. It's wonderful. It's been a while since we had breakfast together when I was last in Lisbon, and I know you're expanding Core Angels and stuff, so it's a great opportunity to just find out what it's all about. So please tell us, how does Core Angels work? How does this model that you've put together find its way to give investment to startups?

Rui Falcao: 1:13

Okay, so we are. Core Angels is a network or community of angel funds that invests in preceding seed startups and we are creating a community that now we have 11 angel funds around the world and this is the possibility, for we have a better observation of the startups, a better selection of the startups and also an opportunity for the startups to be invested by a local fund, but with some international expansion. So this is interesting for the entrepreneurs because they can apply to a fund that is already in different places, and interesting also for the angels that can have access to different startups by far from their region and they can do cross-border investments. And another thing that we have in Core Angels we are not a venture fund, so we are an angel fund, and what characterizes this is that we put some know-all, some hands-on, on each deal. So for us, the entrepreneur matters, matters in the process. So we are not just financial managers. We add on with smart money, with involvement with the entrepreneur, to build the journey together.

Stewart Noakes: 2:53

And I think, from the way we discussed this before, this is part of the special source, the secret source of Core Angels. So if I come to you for investment, how does it work? Could you explain to people the approach people take and then the championing that somebody does within the organization to make it? I think it's called the Archangel right?

Rui Falcao: 3:13

Yeah, well, what we are looking is to professionalize angel investing. From the beginning, angel investing was a very amateur thing, was a novice type kind of job.

Stewart Noakes: 3:29

A very expensive hobby, right?

Rui Falcao: 3:31

Very expensive for the beginners because there are many problems that can occur during the startup and if you are not advised you can commit, as an investor, commit several mistakes and also you have certain type of expectations that maybe we are not well-framed. So in the process of startup, how we find the startups, we have a process that we listen, we identify from every two months from 50 startups, we press, select 10, we speak with those of 10 and after we have an investment committee where we identify the three best ones and we go to the investment committee with three startups from a selection of 50. So we have a detailed process and careful with identifying where are the best opportunities. Yeah, and this isn't the process of selection. After the process of investment, when we decide investment, then we have what we call the POS Investment Group and this is one of the groups inside our Angel Group. We have four Angel Groups inside. So the POS Investment Group we call the Group of the Archangels.

Rui Falcao: 5:01

So what is an Archangel? Archangels is someone from the Angels that takes care, looks, be involved with that specific startup and we try from the group to identify an Angel that startup refers to be mentored by a certain person of the group and this is important for alignment, so you can select a person. The entrepreneurs can select a person that is more aligned with their interests and select. If you are in a certain area, on food tech, for example, there is someone in the Angels more focused on food tech than you can have that type of support. So maybe sometimes it's not only the industry support but it can be the financial support or market support, someone that in a certain case, could add value to the startup. And this is the most important thing we see Angel investing as a co-creation of value with entrepreneurs. So we are not considering only on ourselves, the investors. We are thinking how we together, the Angels and entrepreneurs, can co-create the best value for the startup.

Stewart Noakes: 6:28

That's how we work. That's a great philosophy, and I guess my first question for you really is then how much does personality come into the decision-making process, the personality of the founder and the personality of the Angels that are making the decision? How much kind of empathy or empathy is there between them? Or does personality not count for anything in the decision?

Rui Falcao: 6:50

Yes, it's a very good question. It's a hard question because when an Angel comes to Core Angels, we have a certain type of good practices or investing rules or suggestions, but of course, this also depends on the characteristics of the investor too. So the Angels are very diverse. Even when we work in a group like Core Angels, we are different from the normal syndicates because we work as a group and we invest as a group, so we invest all together to create a common portfolio.

Rui Falcao: 7:43

And because of this process, I think we look like for a kind of collective intelligence or collective selection, because in our process we have one person, one vote. So if we have a majority of comfort in the decision, that means more than 50% of votes yes and less than 33% of votes no All together we are going to vote. So the characteristics of the or the preferences of the individual investors are in a certain way put it together and the decision is being then as a collective decision and the individual personality of the entrepreneurs can impact differently in different tangels, but because of that, maybe we have a better proof of validation of the startup. So if one entrepreneur comes to a group of people that collectively decides, okay, this is a good startup to invest, then we invest in. This is good also for the entrepreneur to have a perspective better than an individual's commitment.

Stewart Noakes: 9:10

Okay, so it's like the investment committee is a collective vote to decide, and I guess what you're saying there is that you're normalizing for behaviors between all the different angels by sort of, if everybody has to vote and it has to carry, then hopefully any personality clashes or issues have gone away, because not everybody can be upset at the same time. Right, but does it really actually reduce the efficacy of it? Or because you can only do things that everybody will accept or the majority will accept?

Rui Falcao: 9:40

For one side, yes, so it's a form of validation, but internally we have also another rule on top of this rule.

Rui Falcao: 9:50

That is the collective investment.

Rui Falcao: 9:53

If me personally, I like very much of that startup, I have the possibility to put more money on the top of the money of the group.

Rui Falcao: 10:02

Imagine that I see a future on that startup and I like it very much and I like the entrepreneur and I see there is a fit with my interests on that startup and so I can the group as the possibility that you as an individual invested to invest more on top of the group investment and you can have a direct relation with a startup and eventually propose yourself to be an archangel of that startup and being involved and let go the journey and see for the future. We have already some cases where the team is not completed, was not completed in the startup and they were looking for people to complete the team and one of the angels that wanted to that was looking also for an involvement with the startup and there was a match and it could be involved with that startup tools in a more direct way. So we have those possibilities, on the top of the investment of the group, to invest individually and they have a more close relation with the startup.

Stewart Noakes: 11:16

Kind of like betting behind the cards on the blackjack table, right, with the players there at the table doing the hand, and then somebody from behind plays the money behind their cards. It's interesting, okay. So in terms of the model, then you say they're funds, right, so is this 14 syndicated funds of these SPVs? You know what's the vehicle that you used to invest?

Rui Falcao: 11:40

Oh yeah, they can vary in a certain geographies. We try to not be a very complex thing in terms of bureaucracy but at the same time, we try to identify some advantage of organization according with certain geographies. So the important thing is to guarantee that the process is simple. The process of investment is simple, is fast, so entrepreneurs don't have to wait more than two months or waiting for a process when they begin until they have the money there. We try this to be a relatively fast process and in terms of organization, we think this is important to the process to be optimized. Yeah, so we look for the. Each group, in fact, is independent of the other groups, so the organization of each group is independent in the way they look for the best and most attractive way of investing, for example, taxes. If being a venture firm is relevant for that aspect, then groups can consider to be organized in that way. But if it's simpler to have just SPV, a normal vehicle, then they can do it on the data administrative way.

Stewart Noakes: 13:36

Okay, fantastic, I obviously know some of the angels in the Lisbon Core Angels group and a few of the other ones. But what's the furthest extremes? How far has Core Angels now reached around the world?

Rui Falcao: 13:54

Well, we have that passion also that mission to professionalize angel investing and also the possibility to give people, to give leaders, angel leaders the possibility to do that. I think entrepreneurship for many people is much more than a profession in a strict sense of what the profession is. Many, many times is your life. You dedicate your life to something that you believe and you have entrepreneurship as a way of living, in a certain way, as something that you dedicate. David Rose, for example, speaks the founder of New York Angel. Speaks about the ethos of the entrepreneurship.

Rui Falcao: 14:44

It's when you are an entrepreneur, you are always an entrepreneur and do you want to continue that process that create the startups, your own startups.

Rui Falcao: 14:57

After, if you have lucky enough to make the startups grow and they have some exits, then you feel you are in a position to giving back to society, giving back to other entrepreneurs, and so you feel that maybe your knowledge, your history, your what you have done may be useful for other people and you feel with that obligation to giving back to country boots and because of that, we created a model that is good for first time angels, for people that want to create this type of impact in their region, and also we know that the ecosystems cannot be developed if they don't have the investors. We need entrepreneurs. The entrepreneurs must lead, the ecosystem must lead. They are the center. The entrepreneurs are the center of the dynamic, but the investors are an important pillar and we give that possibility to organize the angel investing in a more professional way so we can help to improve the local ecosystems in a different way of organization of the angel investing. That is good for the angel experience and that is good for the entrepreneurs.

Stewart Noakes: 16:30

Thanks very much. Now, obviously, you are the Godfather of Core Angels and I know you have done a PhD thesis on how investors make the decisions as well, but can you help everybody understand what is your background? What makes you awesome at this kind of stuff?

Rui Falcao: 16:43

Oh yeah, very simple. I was an entrepreneur, a very lucky entrepreneur in a certain way, because after university I decided to create my startup and after eight years I sold my startup to a big telecommunications group. I earned some money on that and after I began to the angel investing process. But during this way of being an entrepreneur I was connected with people that changed my mind and why. They were believers that entrepreneurship could change the world and entrepreneurship was impacting our country. And in fact, some of those people connected to the association, the young entrepreneurs, associations and others had some contribution for the public policies to develop entrepreneurship.

Rui Falcao: 17:43

And when I look backwards and I look 30 years for what was Portugal 30 years ago? And we can see the impact of entrepreneurship, when we see that we have more than 100 incubators in different small cities and we have eight unicorns coming to nine, and we see the some mobilization of the country to create a culture of entrepreneurship, we see this is really interesting and we can see this as a as a kind of mission that we are lucky to work on the fields that we like to and also that gives us as a responsibility to know more, to learn more. I have learned it in a practical way being an entrepreneur, but a certain time, just for fun, just to know more. I decided that the 47 years old become a big in the PhD and for my necessity and knowing more and for fun. It was a great experience that I recommend to everyone that likes to know more and continue learning for all your life.

Stewart Noakes: 19:03

Can we get a copy of that PhD thesis yet?

Rui Falcao: 19:06

Yeah, now we are beginning to publish. So now we have the first Bipers published and now we can proceed with it.

Stewart Noakes: 19:19

Amazing, amazing. I'll look out for that one. Look forward to the read and, as you know, I lecture in entrepreneurship at FAM with the university, so very interested to pick up a publication like that and see what we can do with it.

Rui Falcao: 19:28

One thing that is interesting is, you know, the practice is faster than the theory and the academy. So things in the market go faster and there is a delay between what the mindset of the academics and the practitioners. And what I realized is that we need more people and we need more work on closing these two worlds, getting closer to these two worlds. So it's important that we can academics can understand how we do things and also we can benefit from the structure of thoughts, of doing things to create more knowledge.

Stewart Noakes: 20:19

So I believe on that and it was very funny to try to put these two worlds together- and I think you did that between the University of Averro and the University in the US as well. Right, so it was a combination which?

Rui Falcao: 20:35

university. Was it? In the US it was with Mr Eris Appianza. That was a professor of Minnesota University, but he was one of the founders of the added value proposition, the variable, the added value. How do venture capitalists add value to the startup? So this is the thing that, besides the money, on top of the money, how can we have value with startups and this is the biggest challenge for me, for the business angels to create value for the society, for the entrepreneurs, for the angels, and how can we measure that and how can we contribute to co-create that value? This is a fundamental topic.

Stewart Noakes: 21:25

So I've got about 400 questions I want to ask you, but for time I'm only going to ask you two, okay. So the first one is what influence do you perceive that Web Summit has had on Lisbon, on Portugal, on the ecosystem for entrepreneurship?

Rui Falcao: 21:41

You know, web Summit. It's a great event and for me it's the dynamic that pushes the culture. So it's interesting, very interesting, to go there and participate. It's like going to a massive manifestation and it's like going to the church, because you go there and you feel the motivation, you feel that other people can do and you have the leaders and the heroes that begin like you and have the possibility to make huge startups, and they tell you very easily how they did it. It's art. So people cannot think that being an entrepreneur and creating a company it's something that happens by miracle.

Stewart Noakes: 22:48

It's very hard.

Rui Falcao: 22:49

A lot, but at least you see the possibilities. And it's a phenomenon, a fantastic thing, that all the people that can easily you can approach them, speak with them and tell the story, shell the story. It makes you believe more than you. It makes you believe that you can do it also yourself and I think that that impact of open your mind to other possibilities, open your mind to know different innovations, different things and sharing the process, how to do that it's amazing. So I really like those type of events. With many other events that you smaller events are also important, but I think if you have this combination of these multitudes of people, diversity with other type of events, when you can, as time to one on one, to speak with an investor, to speak with an entrepreneur, sharing the stories, Learning with each other, this is great.

Stewart Noakes: 24:08

I'm certainly looking forward to being there in November again, but I agree with you, it's such a big show. It's like 27 conferences all happening at the same time Right, you can't possibly see everything you want to, and it's just incredible. So my last question for you today we're in. Thank you so much for being here. It's absolutely privileged to have you here. I wonder if you could give some advice to the first time founders watching this. What's your best advice? With all the experience you have as an entrepreneur watching all these investments going through core angels, what do you suggest that they do?

Rui Falcao: 24:36

Okay, Well, I think you need to be A parent with your own story. So the first thing I think for an entrepreneur is that you should look for the project that makes sense for you, create meaning for you. If you have that, you have because you believe on that this is a very powerful motivation that you need. That motivation across the road there will be tough moments when it will not be easy to proceed, but if you are in a conviction, a strong conviction, that you are doing what you really born to do, what you really need to do, and this is very powerful.

Rui Falcao: 25:27

Another thing, it's study a little bit of the investors that you are going to speak with. I think this is important. Try to understand who they are, their motivations, what are the, what are the, their preferences, what's, what are their targets and and this is important and third, I think, is the way to be there, the story, to tell the path and people. The best thing, the best quality for me of the entrepreneur is the capacity of being a doer. So, even if you are in a seed phase, you already did something. Even if tell your story, tell your small victory, what have you already done? Because if we see there is a growing process and it's important that you can tell that story, that you are in a way that you are growing, that you are doing this and after that and after that, and you have a path and you have been done all of that. So If you are able to tell that story, that is the most important, and entrepreneurs are normally coherent with themselves and investors understand that and like that.

Stewart Noakes: 26:54

Wonderful insights. Very thank you so much for making time for this series today. I think we should move you past Greg into episode one, that everybody watches it first, because these kind of things, this experience that you're bringing, is incredibly valuable and if you're a first time founder watching this, I hope you rewind that section 10 or 15 times and just kind of take it all on board. It's a privilege to know you. Thank you so much for being it.

Rui Falcao: 27:19

Thank you, stuart, for you to being a leader and being having this, this fantastic work you have been doing, creating the community and also sharing all the knowledge from each other and sharing that for all the community. Fantastic work, thank you, stuart, thank you.