The blog-series “Startup People of Seattle” introduces some of the key personas in the ecosystem to learn more about what they are doing, to share their thoughts and ideas, and to promote networking.
In our second interview, meet Keith Laepple:
“I was surprised by the amount of effort it takes to do due diligence and to make an informed investment decision. On the flip side of that I was also surprised by how interesting and rewarding it is to meet entrepreneurs of all kinds.”
Keith Laepple is an angel investor with Microsoft background. He participated in several rounds of SAC and now ‘graduated’ into the SeaChange Fund.
Q: Keith, thank you for taking the time! I was wondering, you have spent your whole career with Microsoft and have never been involved in startups, how did you get into angel investing?
A: That is an excellent question. I was invited to the Seattle Angel Conference by a former coworker. I decided to follow his invitation because I was fascinated by the founding stories of companies like Facebook for example. I think its impressive that companies like that started in the mind of an entrepreneur. Personally, I am motivated because I feel like I have expertise that can contribute to the creation of new businesses and products.
Q: Do you work closely with the companies that you invest in then?
A: Actually, not really. I think most of my contribution happens during due diligence. After that I can help with my network etc., but I am trying not to get too involved with the startups I invest in. Entrepreneurs get lots of ideas and input from many places. An angel investor’s idea is just one of them, and an angel investor does not always know what is best for the company – even if the angel had a successful career or has founded startups before. I believe that every startup takes a unique path, and it must figure that path out by itself. Aside from all that, startups move so fast, it would be impossible to always know what is going on in all the startups that I invest in.
Q: You brought up due diligence. Obviously that term is super important in angel investing, so how would you define it and how does a due diligence process look like?
A: Yes, so due diligence is the process in which an investor decides whether he wants to invest in a startup or not. The second part of your questions is more difficult to answer, because everybody does due diligence differently. Some people go through the process more extensively then others, and people also prioritize different things, like team or industry for example. Personally, when I started investing in startups, I would pay a lot of attention to the technical aspects of a business. After a while I started looking at the team more. Today, what I ask for first, are financials. Startups are very risky investments, so if a startup doesn’t promise 10x returns, I can sort that startup out right away because it is not investable.
Q: You say finances are such an important factor in your decision making. I am wondering, how reliable are financial numbers predicted by entrepreneurs?
A: Investors know that the numbers we get from founders aren’t exact. We really look at the thought process and the assumptions to conclude whether an estimation seems to make sense. Entrepreneurs should use both the top-down and the bottom-up approach to come up with their financials, and they should also discuss those numbers with their co-founders, advisors etc. This whole process helps narrowing down realistic predictions. Of course, predictions remain only predictions, and in the startup environment a lot can happen. Because of that I like to see an entrepreneur think through different scenarios and have those different scenarios be reflected in the financial analysis; in the form of worst case, good case and best case for example.
Q: Going back to how angel investing started for you, the Seattle Angel Conference, how was that experience like for you and what surprised you/ what did you learn?
A: First of all, it was a lot of fun. I also learned a ton. SAC really is a great place to go to for first-time investors and first-time entrepreneurs. It is a great teaching format. I was surprised by the amount of effort it takes to do due diligence and to make an informed investment decision. I think because of that active angel investing is best for retired or self-employed people who have a lot of flexibility. On the flip side of that I was also surprised by how interesting and rewarding it is to meet entrepreneurs of all kinds. I love having that variety, which is also one reason I wouldn’t constraint myself to just investing in one kind of company.
Q: By saying that, are you then willing to invest in companies that are in industries you are not familiar with?
A: Absolutely, I don’t think domain knowledge contributes to making me a better investor. It would make me a better advisor or board member, but like I said earlier, I think that angels shouldn’t be in such roles anyway. I think I can do due diligence effectively by reaching out to experts in the field and getting their thoughts on the idea. I also want diversification in my portfolio, so naturally I should invest in a variety of companies. Not limiting myself to a specific kind of company allows me to invest in the best companies, not just the best companies in one area. Such constraints would leave me with limited options, and I don’t think that helps my ROI. But I know that there are different opinions on this subject. Many investment groups focus on solving one specific problem for example, and I have no actual data to prove that my approach is better than theirs.
Q: Talking about investment-preferences – what does your investment thesis look like and where all have you invested?
A: I think my thesis would be: Be open minded, do it in a group and follow the money. I have invested in SAC, the SeaChange Fund, Alliance of Angels and I have done three individual investments.
Q: Last question, what recommendation would you give someone new to the ecosystem?
A: I actually met people at a graduation party recently that asked me the same question. I would say to go to meetup.com, to find events to go to and then to network. I think the same advice is relevant for startups as well by the way. Entrepreneurs need to make sure to not work on their startup in a bubble. I would also recommend going to the SAC events, the open coffee on Tuesday mornings and some of the events at WeWork, Galvanize or Impact Hub. Also meeting John helps. John is great when it comes to connecting people. Another event I have gone to in the past and that I really enjoyed was New Tech Seattle.
Here are some things I learned from this interview:
- Due diligence is the process in which an investor decides whether he wants to invest in a startup or not. Unlike often taught in school due diligence doesn’t follow a specific process, but everybody does it differently.
- While financial predictions can’t be exact, they at least give an angel an idea weather a company has the potential to deliver high returns and is thus investible in the first place.
- Talking to industry experts during due diligence can be very helpful if an investor isn’tfamiliar with the industry himself.
- Angel Investing is a lot of work, but also very rewarding in the sense that angels become part of the exciting startup ecosystem.
In the interview Keith mentioned some resources and organizations that he finds helpful, find out more about them here:
Meetup: https://www.meetup.com/de-DE/
Seattle Angel Conference: https://www.meetup.com/de-DE/
Galvanize: https://www.galvanize.com/campuses/seattle
Impact Hub: https://impacthubseattle.com/
John Sechrest: https://www.linkedin.com/in/johnsechrest/
New Tech Seattle: https://www.meetup.com/NewTechSeattle/
SeaChange Fund: https://seachange.fund/
Alliance of Angels: https://www.allianceofangels.com/
About Seattle Angel:
A strong ecosystem creates an environment that allows startups to thrive. Seattle Angel’s goal is to strengthen Seattle’s startup ecosystem by increasing the access to funding for entrepreneurs to push their ideas further.
Seattle Angel Conference:
SAC round XVI is about to start. Are you an entrepreneur looking to get about $200k in angel funding? Are you curious to learn more about pitching, to polish all the documents needed for investments and to receive great feedback? Or are you an accredited business angel who wants to learn more about angel investing and due diligence? In any of these cases you should consider reaching out to us. You can find more information here: https://www.seattleangelconference.com/
For any questions please reach out to: sechrest@gmail.com
About the author: Sven Goepfrich
Sven Goepfrich is currently finishing his MBA in Syracuse. His studies focus on technology, innovation and entrepreneurship. At his school, he is working for the department of finance. Sven was actively interning with the Seattle Angel Conference in summer 2019. He is currently looking for full-time career opportunities in this field.
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