Faces of Impact Interview Series: Brian Rusling, angel investor
This is the first in a series of interviews being conducted with members of the ClearlySo Angels – the UK’s leading group of high-net-worth individuals and families dedicated to investing with an impact lens, creating social and environmental impact alongside financial return.
When did you start angel investing? How did you discover impact investing?
I guess if one thinks about it in the wider term “angel investing”, I did my first deal back around the year 2000. It was done by me and my friends who all worked in the financial markets. It was fun, but those weren’t investments made with an impact or social impact lens. That came later when I came to know one of the other angels, who was one of the founding members of ClearlySo Angels (CSA for short). We were at a dinner party with someone else who had recently joined the group, and we were talking about it and I thought, yes, that sounds like a very good use of my time, my energies and my resources. That was back in 2015 when I had just retired, and I was looking for things to do. My background spans 25+ years in financial markets as an analyst of companies, specifically telecommunications companies. So, using that skill to make investments in companies directly, rather than indirectly via pension or hedge funds, was a very attractive option. It was also staking whether or not I had the ability to judge companies and management teams, rather than just advising people to buy and sell shares.
What is most important to you – social/environmental impact, financial return, or both?
Social impact is the most important, though I don’t see it as philanthropy. I’m not, should I say, doing it from a misty-eyed perspective so I do need a return, but the social impact element of it is the crucial element for me and the lens through which I look at all investment opportunities I see.
Any specific impact you care about the most and why?
Through attending a lot of the ClearlySo Angel pitch meetings I worked out that there’s a massive world out there and there are loads of different opportunities. Trying to be informed about all of them is incredibly difficult, so I decided quite early on to specialise in specific areas. My initial specialisation was in energy and health and aging and I said, “right, those are the companies I wanted to look into”.
Are you willing to share a bit about your portfolio? What have you invested in? What have the results been like?
I’ve made a couple of investments in the energy field. Having done telecoms research, I know a bit about the market, and therefore know the regulatory background in the UK and the way the National Grid operates. One is call Upside Energy. The business was very exciting to me; I loved the idea that they were so connected in the market, and that they had been able to win a significant amount of grant funding. I also really enjoyed the first meeting with the now Chief Executive (then CFO) and still maintain a good relationship with him. They have always been very rigorous about the way they run the business, you know, proper Board, proper Advisory Board, saying they’re going to do something and then doing it. I introduced them to some of their first clients, so there was something I could do for the company, which was very important, helping the company out. It’s doing very well, it’s gone through two or three Angel finances and then a Series A. So, in terms of the incremental value, albeit this is wishful thinking, from my initial in price to where we are now, it’s ten times, but we haven’t got an exit yet.
On the health and ageing side, I invested in a company called SuperCarers that links up people who want care at home, with carers. The initial reaction from most of the Angels after they pitched was that the valuation was too high. I thought, yes, it is, but I can work with that and to me, the opportunity in the caring market is absolutely massive in this country. So, I invested. I also followed on, and they’ve now done a Series A.
Another in my portfolio is MyKindaFuture, which is a diversity recruitment consultancy business, so very different from my two usual investment strands (energy and health). What I like about MyKindaFuture is, when you hear Will Akerman (the founder and CEO) presenting the business and explaining how it benefits the companies they’re working with, it’s just so wonderful. He really is a very good speaker and the business is growing very well. What I also liked about it is that it was slightly further down the development cycle. So, if you think about the ones I’ve mentioned to you so far—those were companies right at the beginning, so seriously early capital—this is a company with millions in revenue already but needing to grow faster in an extremely important area of improving diversity. I saw this as slightly balancing my portfolio by bringing in something that isn’t quite as early stage, it’s more established and so unlikely to go bust.
When you’re looking at the founder and the team, is it important to look at how much “skin in the game” they have personally invested in the business and how committed they are?
Yes, it is, and share options. Especially in the case where a CEO is not the founder of the business. If it’s not made obvious at the beginning its important to keep asking questions until you get clarity on, for example, what their options are and how much everyone is getting paid, and for what. You do have to ask the questions, rather than just getting the accounts at the end of the year and saying, “Oh my god, he was paid how much?”
How do you pick the right companies to invest in? What are some of the challenges? What are the most important things to look for?
Well the first thing is, does the pitch resonate? Do I look at them and do I hear the message, does it sound exciting? Is it in an area of great opportunity? What do I think of the – normally two – people who stand in front of me. Those are sort of three first elements. Quite often, if a lot of other people are interested, that turns me off to be honest and quite often when the pitches are terrible, that sometimes turns me on. So, there was one example that I had made an investment where it was possibly the worst pitch that was ever made. I just thought, it can’t be that bad. I had the DD (due diligence) meeting and ended up investing and have now done a couple of rounds since. So it’s really about whether I get the concept, that it’s in a really good growth market, and what the founders are like.
When you say the founders, you mean the founder’s personality?
I guess it’s just that some people come over as being sort of dynamic, enthusiastic and excited about what they’re doing, and are able to talk around things. It’s not like I have a tick box of “who smiles, or tells a joke…”, you just get empathy from people or a feeling about people. It can be wrong though, you know, it’s not perfect.
What are some of the warning signs/red flags to look out for that indicate you probably shouldn’t invest?
One is contradictory statements, which is why it’s quite important to do the DD meetings. Two – if they very touchy about questions asked about the business. I would say arrogance too. If people are very arrogant with their audience, it is an indication they may be challenging to work with. It’s tricky to be specific, you just get a feeling when you listen to people, an intuition about whether you can see them driving the business forward.
What do you think are the “hottest” sectors for impact investing at the moment?
It’s funny, there are areas that I think I’ve missed that other people may think are opportunities. For example, electric vehicles. I think that’s 5 years old and if we were going to do things there we should have done them [already]. Now the whole of that idea has moved to the large companies themselves, so I’ve looked at it a number of times and have now decided I’ve missed it.
I think there’s massive opportunity in the insurance industry around premiums, for example, linked to health and sickness at work. Lots of health innovations seem to be based on funding from insurers where the insurers can offset the risk of claims by offering services—potentially as part of the employee benefits package—around areas such as mental health or more generally trying to get people to live healthier lives. But, what I can’t understand in my mind is how the insurance companies are going to pay for it.
When is the right time for a founder to seek investment vs self-funding or bootstrapping? Do you like to see a founder who’s done some crowdfunding or has gone to family and friends before coming to an Angel to ask for investment?
I guess the problem is that there is no copy book that works every time because it depends on the opportunity and to a certain extent it depends on how big the market is. But, if you were to say what is the classic “copy book” you would liked to have followed, you’d have a company that has an idea, has what you call, “family and friends seed finance” development of that idea, not proof of that idea necessarily but development of it so that it’s a serious idea, at which point you then have Angel money coming in, which drives it to proof of product and then maybe you have a second stage of financing, which is again probably Angel, which drives it to first “proper” revenues or serious levels of revenues. Then, you have the Series A where you have proof of product and a revenue stream, which gives you the serious slug of growth capital. That’s the way I see it. That’s the way a classic model would work.
Now, that first stage, I’ve called it “family and friends…” it doesn’t have to be family and friends, I mean, I’m reading this really good book at the moment called, “The Entrepreneurial State” by a UCL economics professor, called Mariana Mazzucato and it’s all about how the State, through grants, are quite often the financers of all these companies. You know, Tesla? Financed by the American government, Apple – American government, Google’s first algorithm was funded by the American government. A lot of bio-tech – American government. You suddenly think that’s how you can start that financing off, so, for example, Upside Energy, £2m of grant financing have taken them a heck of a long way.
Would that be a deal breaker if a founder didn’t, for example, invest their own money or a large part of their own stake into a business, would that put you off?
It’s difficult, isn’t it. It would be a negative point at the start, so it’d have to be a very good idea, but yes, it would be because one would imagine the founders in some way spent a lot of time developing it. I’ve seen a couple of companies where the founder has been in a job somewhere, developed it, and come out of the job to get financing immediately. Then, of course, the issue is – are you allowed to do that? And should I actually be paying to effectively take part in that, when you haven’t actually paid for any of it? So, yes, the first thing would be that it would be a problem. Then the question is, looking at the problem, is the opportunity so big that you can get over that problem? You would certainly want the person who is driving the business to have a serious need or equivalent or similar exposure to the upside that you have.
What should a founder look for in an angel investor?
Someone with money, who can add to the business and can help them. Now, that can come in a number of forms; from encouragement, enthusiasm, contacts, customers as well as being able to help on the cash side. I guess the question is then, how can founders have the time to monitor their Angels and try and use them? For example, if there’s a formal structure with an investor/director who is on some sort of Board, then they might bring in expertise at different times. My case where I introduced Upside [Energy] to a number of telcos, brought them their contracts. So, you know, we’re there to help. We need to help in any way we can, it’s in our interest to help to drive up value, the founder should be willing and able; anytime they would meet with angels, one of the questions they should be asking back, rather than all the questions coming from the Angels is, “how are you going to help me?” and I think that’s a very important two-way process.
How important are boards? What should a founder look for in a board member?
This is quite an interesting one. As an Angel investor in a company we are going to want to monetise it at some point in the future, and for that there has to be a structure as it grows. So if you have a company that is run by an entrepreneur with no Board, I think they will soon hit difficulties when they need to make a strategic move. If you’ve had no Board or no structure, I think that creates issues for an exit, or even issues to introduce funds at the Series A level. It doesn’t have to be a big Board, but a small number of people in place which has a structure where decisions are followed
Now, I don’t think Board positions should be remunerated. The problem you’ve got there is, if you don’t have anyone with direct expertise that is needed, how do you get those people to help? Sometimes companies use Advisory Boards to do that, which I think is a very good idea. I think that if you’re in a situation where you have to compensate people in some way, then maybe share options of some form may be used. But I would have thought, at early stage, they aren’t paid. Structurally speaking, defining processes with people who have defined responsibility is basically putting in place the stepping stones of a normal company that investment funds and corporates, who may well be the exit routes, would expect.
Well, that’s great, I think that concludes the interview, unless you have any other questions/comments?
Nope, I think that’s it.
Thank you very much Brian, that was very informative.
Interview conducted by Quynhnhu Nguyen and John Lloyd of ClearlySo; editorial support from Jessica Duveen of ClearlySo.