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The Art of Building a Network: How Rayn Ong Became the All-Seeing Eye of the Australian Startup Ecosystem

First Cheque

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Summary

Rayn Ong, an angel investor and founder of Archangel, shares his insights on early-stage investing in this episode of First Cheque. Rayn discusses his first investment in Blackbird Fund One and how he built his network in the Australian startup ecosystem.

He emphasises the importance of compounding value in both networks and investments. Rayn also talks about his investment strategy, including his focus on breakout companies and his approach to evaluating opportunities.

He shares his thoughts on portfolio synergy and competition within his portfolio. Overall, Rayn’s entrepreneurial approach to investing has led to his success in the industry.

About The Guest(s)

Rayn has been an active angel investor since 2014. He has invested in the early rounds of Instaclustr, Propeller Aero, HappyCo, Morse Micro, Carbar, Eucalyptus, Vow Food and StepN which are all valued at over $100 million now. Rayn is a partner at Archangel Ventures, an angel fund that backs founders at the earliest stage possible. Rayn made his debut on the AFR Young Rich List in 2022 as an angel investor.

Key Takeaways

  • Cultivating a strong network and building relationships is crucial for sourcing high-quality deals in the startup ecosystem.
  • Specialising in a certain vertical or industry can provide a competitive advantage in evaluating startups and making informed investment decisions.
  • The ability to identify breakout companies and double down on successful investments is key to achieving high returns in early-stage investing.
  • Investing in companies that have synergy with existing portfolio companies can help derisk investments and create value for the entire portfolio.
  • Setting clear expectations with founders and providing guidance throughout the investment journey can lead to successful outcomes and future funding rounds.

Quotes

  • “We want to align for a good founder experience. We disclose upfront if we have exposure to potential competitors and encourage sharing to benefit the entire ecosystem.” – Rayn Ong
  • “We minimise risk by starting with small checks and gathering information over time before making larger investments.” – Rayn Ong

Transcript

This transcript has been A.I. generated.

0:00:00 – (Cheryl Mack): Okay.

0:00:00 – (Cheryl Mack): Three, two, one. Hey, I’m Cheryl.

0:00:04 – (Maxine Minter): I’m Maxine.

0:00:05 – (Cheryl Mack): This is first check part of Day One, the network dedicated to founders, operators and investors.

0:00:09 – (Maxine Minter): If you want to be a better early stage investor, this is the show for you.

More

0:00:12 – (Cheryl Mack): So, TLDR, if you don’t want to suck at investing, listen up. Cool. So let’s get started. Maxine, I’m excited we’ve got Rain ong on our podcast today. I think that he has the most startup t shirts out of any angel.

0:00:34 – (Maxine Minter): Investor, like, hands down. And also, like, the best vintage of startup t shirts as well. It’s, like, amazing selection over maybe the entirety of the Australian startup ecosystem. I reckon it’s kind of like a vinyl collection. You can set vintages based on the startup t shirts he has, but yeah, same. I am so jazzed to have him with us. Rain was the first person in the Australian startup ecosystem I connected with. A friend of mine connected me with him back in 2018 when I was coming back from the US.

0:01:08 – (Maxine Minter): And in my prep for meeting him, had a look on Twitter and couldn’t work out whether he was a joke or not. It was just like, so much shit canning of the venture ecosystem. At the time in the Bay Area, no one was a reverend of the startup ecosystem. Everyone was like, It’s the best thing. And so I came into the meeting just being like, I don’t know how to start this meeting. I don’t know whether this is a joke or not. And either it’s, like, the most effective joke and he has become the best investor in Australia as a result of the best executed joke, or it’s just a really effective con of the Australian ecosystem. But really, it’s been amazing to watch just how many deals you’ve done, Rain, how many incredible startups you’ve been a part of. And so really, really excited to dive in here and learn more about how you think about investing, how you think about building value in these companies, how you find these companies, how you just nail depth and breadth. I’m really excited to have Rain with us today.

0:02:07 – (Cheryl Mack): Yeah, Rain was also one of the first people that I called when I decided to start angel investing. I was like, I’ve written a couple of checks, but I don’t really know what I’m doing. Rain, tell me everything there is to know. Go. And he was probably one of the most helpful people. And I think the other thing that I find so impressed about Rain is that all roads lead to him. He’s like this all seeing eye of Sauron. And you’re right, like, that initial kind of like, is he a joke? Is he not?

0:02:33 – (Cheryl Mack): He just has fun with it. And every time we get to chat, it is although he could not be real. Is he really rain? Or is his name actually Ryan?

0:02:44 – (Maxine Minter): The biggest mystery of the Australian startup ecosystem. So so excited to have you. Rain slash Ryan, depending on which student you want to assume today, we are humbled to have you as one of the first guests with us on First Check. And one thing that I have always wondered, given the depth and breadth of investing that you’ve done, and we’ll come to that later, but I really want to know, what was the first investment.

0:03:09 – (Cheryl Mack): Decision you ever made in any asset?

0:03:12 – (Rayn Ong): I can’t actually remember, to be honest. It could be one of the early ASX puns on a listed stock. That no idea about. Of course it was. I’m pretty sure I lost all my money. That’s why the brain kind of protect me from remembering. Maybe it’s a self protecting mechanism, but honored to be here. Thanks for inviting me. And I think you forgot to mention that I also invested in both of you. So it’s really hard for me to say no to this invitation.

0:03:42 – (Rayn Ong): I’ve never done any podcast recording before, so this may be the one and only.

0:03:48 – (Cheryl Mack): One and only? Yeah.

0:03:49 – (Maxine Minter): Collector’s item. You’re absolutely right. Like, you invest in both of us. And it’s so amazing to get to partner with you in that way. I mean, to honor what Cheryl mentioned in the little, like, all roads in the Australian ecosystem lead to you. I genuinely think that you get to see every single deal that gets done in the Australian ecosystem, from precede to maybe Series B. Super impressive.

0:04:11 – (Rayn Ong): I think you have fallen victim to our marketing campaign. It may be true, maybe in the early days, like 2015 to 2018, but I don’t think anyone can see everything now. It’s just too vibrant, which is great.

0:04:30 – (Cheryl Mack): What about your first startup investment, Rain? What was that?

0:04:33 – (Rayn Ong): I actually look at my spreadsheet. My first money out of the trust account was actually the Blackbird calls.

0:04:40 – (Maxine Minter): Really?

0:04:41 – (D): Yeah.

0:04:41 – (Rayn Ong): And in my first year, I’ve done eight investment. That was 2014. One has shut down. One. I haven’t heard from them for a while. And then we have Blackbird and Instacluster.

0:04:53 – (Maxine Minter): Wow. And Instacluster went amazingly well.

0:04:56 – (D): Yeah.

0:04:56 – (Rayn Ong): They were acquired last year for 500 mil USD.

0:04:59 – (Maxine Minter): Love that.

0:05:00 – (Rayn Ong): Which was a pretty good outcome. Yeah, that’s a great everyone involved.

0:05:03 – (Maxine Minter): Yeah. That’s super cool. That’s so interesting that the first kind of call out of your trust account was Blackbird Fund One. Like, if I think about the development of the ecosystem, that’s almost like ground zero.

0:05:17 – (Cheryl Mack): Oh, for sure.

0:05:18 – (Maxine Minter): That might be like, the first deal done.

0:05:20 – (Rayn Ong): Yeah. I think that I was at the right place, right time, meeting the right people, pretty much. So the story was I was activated to explore angel investing, and I have no idea how to do it. So I went to this Innovation Bay event called Angel Education Angel Ad. Funnily enough, I sat next to Nikki and he told me about StartMade and Blackbird. And back then he was raising the first fund. And I will be the last five people that went into the fund right before the final close. So when I paid the call, I paid three calls in one go. I have to do the catch.

0:05:57 – (Rayn Ong): Yeah.

0:05:59 – (Maxine Minter): Wow. That’s incredible.

0:06:01 – (Rayn Ong): Turns out to be the best investment of my whole life, I reckon.

0:06:04 – (Cheryl Mack): Did you know that or have a sense of it at the time?

0:06:06 – (Rayn Ong): Well, to be honest, I have no idea how it works. There’s also a funny story. So when Nikki introduced me to Rick, I actually brought my resume to the office and pitched Rick who I am and asked him to take my money. And Rick actually said, this is not how it works. We have to pitch you so you give us your money. That was how green. I would attribute this to Piola.

0:06:33 – (Maxine Minter): I would love to see what was.

0:06:35 – (Cheryl Mack): On your resume at that time.

0:06:36 – (Maxine Minter): Yeah.

0:06:37 – (Rayn Ong): Software engineer for nine years. That’s my resume.

0:06:43 – (Cheryl Mack): It fit on an a five piece of paper.

0:06:47 – (Rayn Ong): It was literally two pages.

0:06:49 – (Maxine Minter): I mean, kudos to you for fleshing out nine years of software engineering into two pages. That’s impressive. One of my observations and from our conversations in the past, is that you have done an amazing job of cultivating a network that filters you the best deals and gives you early look at the best deals. I mean, I know you humbly said before, you think we’re victims of your marketing material, and maybe you’re the marketing material I’m a victim of here, but my observation is I have seen your name or Archangel’s name on incredible deals and most funds in the ecosystem.

0:07:25 – (Maxine Minter): So we’d love to know from you, how did you think about from those early days, meeting the right people, fostering the right relationships so that your network compounds for you and sources deals for you?

0:07:37 – (Rayn Ong): Yeah, I think the zero to one journey was actually not easy.

0:07:41 – (D): Right.

0:07:41 – (Rayn Ong): I think not just for investing, but for businesses in general. The lucky thing for me is I started around 2014, and as you know, back then, it was pretty barren. There was not a lot of stuff happening, not a lot of funds actively investing. So it was actually possible to go and say hi to everyone and build a relationship. So what I did back then was I was introduced to this group called Sydney Angels, and that was a very good group for my discovery and learning process because they have workshops about due diligence, how to run a deal, how to run syndicate, how to do due diligence and whatnot.

0:08:26 – (Rayn Ong): You can just sit there and watch how other people ask question and run a deal and just learn from it. So that was really beneficial for me. And if you ever invest in a company and you look at the documentation, you see three other investor whom you have never met. It’s quite easy to reach out to them, hey, we’re in this deal together. I love to catch up over coffee. And if you do that for a couple of years, I reckon you would have met every active investor in town. But then what I really quickly noticed was most of the investor are older than me and most of them have finance or legal background.

0:09:05 – (Rayn Ong): So I have nine years of software engineering experience. So that was also, I think, the point of time where I figure out what do I bring to the table and how do I make sure people loop me into whichever amazing deal they’re doing? So I actually started doing technical due diligence, interviewing the CTO, sourcing the CTO, and also landscape mapping of potential competitors, similar software. And as you can imagine, the finance and legal people were like, oh, this is amazing, right, we should ask Rain to come and have a look at this. So that was kind of like my entry ticket to a lot of the deals conversation as a relatively new and unknown person.

0:09:47 – (Rayn Ong): But it’s going to be a little bit harder because there are way more players now. And I think there’s still a chance that if you build a specialization into a certain vertical and you kind of dominate, you can still use the same principle to get into deals that way.

0:10:03 – (Maxine Minter): Absolutely. I think one thing I think a lot about is, like, compounding as a concept, the value of compounding in many different categories, but especially in investing. And compounding in relation to networks is as valuable for early stage investors as it applies to kind of the compounding value of the assets we’re investing in. And so the way that you kind of consistently did the same behavior of kind of following up and meeting the right people and then compounding on those relationships by working out what the unique value proposition is to those groups and then delivering value and then meeting more companies, investing in more companies, reaching out to more investors. And that cycle continues for you, I think is super interesting and it’s clearly been really effective for you.

0:10:50 – (Cheryl Mack): I think you’re right, Maxine, in the sense that that might have been really easy for Rain to do in that particular instance back then, but it’s not that you can’t do that now. If you find your niche and continue to create the same actions in the same space, it will create compounding effects as you grow into the ecosystem. And if you’re just starting out, just because the ecosystem is much, much larger than it was back when Range started, doesn’t mean that you can’t still create that compounding effect 100%.

0:11:16 – (Maxine Minter): Yeah, I mean, Rain definitely had a head start by starting at the dawn of time.

0:11:21 – (Cheryl Mack): An advantage.

0:11:22 – (Maxine Minter): Yeah. But I think that that is still an insight and still a strategy that works. And I think all you have to do is think about the kind of more developed ecosystems like the US, like the UK, like Israel, and see that there are still new investors entering into those ecosystems, kind of getting cut through and carving out really effective niches in those ecosystems as the ecosystem continues to grow.

0:11:47 – (Maxine Minter): But I think, yeah, it’s super cool to hear that’s kind of your ground zero and how you kind of continue to execute.

0:11:53 – (Cheryl Mack): Yeah, 100%. On the other side, though, speaking of finding niches, one of the things that I love about what you do, Rain, is that you invest literally across the board in terms of industries. So I’d really love to hear from you. How do you evaluate and look at a company like Morse Micro, a microchip company, in the same day as an alternative meat company? Like like, how are you investing across those industries at the same time?

0:12:16 – (Maxine Minter): It’s so incredible.

0:12:18 – (Rayn Ong): I don’t think anyone can be an expert in every field. So our approach has always been who are really good in certain fields and do we trust them enough. I think in the case of Moss Micro, that was highly dependable on a guy named Neil Westy, and that was the guy that written the textbook on Wi Fi chip, pretty much. And I got the chance to work with the Moss Micro team through the Starmate program, so I got to know them relatively well. And when they pitched Neil, I think Neil not only invested in the company, but he also joined the team. So that was a pretty strong signal for me to do something there.

0:13:03 – (Rayn Ong): And with know, I would say it was mainly Alfred Lowe, right? And my friend, he’s running Harvest B now, and he has been working with George at Cicada Innovation on commercializing deep tech and devices. So when Alfred invested, there are quite a few individual in the local ecosystem that I’ll just follow blindly, and Alfred will be one of those people. But back to the point on how do you evaluate I think most of the people, they spend too much time on diligence, on what if I lose my money?

0:13:43 – (Rayn Ong): Whereas we’ll focus a lot more on what if this work. And I think that’s crucial if you are investing in the very early stage. The way we minimize risk is that we write a very small check at those stages, early stages, and then we try to learn and work with the team over time before we write a medium sized check and hopefully eventually a large size check. And I think the concept behind that is you lose small and you win big, but you gather information over time.

0:14:18 – (Maxine Minter): Super clever. It makes me think of the Angelist team and Maiden Lane. This is a strategy that they have used really effectively, that kind of informational check. So you write that first check with an opportunity to learn and then kind of double down on the folks that are winning. How do you think about that double down decision? Because there’s also some interesting data in the other direction that it can be really hard to make an effective decision on the double down decision. And you don’t get swayed by the sun cost fallacy, right, where there’s a company that’s kind of almost there, or they were pretty good at executing, but not amazing.

0:14:58 – (Maxine Minter): How do you make that decision on what you double down on and make sure you don’t fall into that trap?

0:15:05 – (Rayn Ong): I think it depends on the sample size. So we look at the cohort base, like, say, if I do ten deals a year and next year if you tell me five of them looks really good and justify a double down follow on investment. I don’t think that is true. In my personal experience. There may be five kind of bridging opportunity, but there will usually only be one that kind of blows everything out of the park. And when it happens, it’s super obvious.

0:15:35 – (D): Right?

0:15:36 – (Rayn Ong): So we have Eucliptus in the portfolio, that’s over 100 million revenue company in four years time. So when that happens and you look at the same cohort of other nine companies, it’s very obvious that that’s the breakout company in that cohort.

0:15:53 – (Cheryl Mack): But you’re not often looking at those companies all at the same time. Right. They raise their follow on rounds at different times. It’s not like all five of them come back to you at the same time and you can compare. So how do you identify that’s the one over the other five?

0:16:06 – (Rayn Ong): I think if you kind of group them by vintages, say, 2023 investment, we’ll do ten of those and then next year probably nine of those will come back for more money and not at the same time, but probably across 2024.

0:16:23 – (D): Right.

0:16:24 – (Rayn Ong): Because they have one or one and a half year runway usually, and you can kind of go, right, which one is stronger? As they start to have that conversation about the second investment route. And then we also have nine years worth of historical data to refer to and some benchmark data on how fast can a company grow. And when you see an outlier, it’s.

0:16:48 – (Cheryl Mack): Super obvious, hopefully to everyone else. Yeah, I know, I’m like you’re saying it’s super obvious, but yeah, I was.

0:16:55 – (Maxine Minter): Going to say, like Perrain, you’re just so like, you’re excellent, you’re really good at making those decisions and making investment calls and so I think super obvious for you and discoverable to the rest of the population.

0:17:10 – (Rayn Ong): But I’ll give you a concrete example, right. Say I’ve done ten deals in 2019 and one of them is the crypto game called Step In. And after they launched the game, they actually make 20 million USD profit in one quarter.

0:17:27 – (D): Right.

0:17:27 – (Rayn Ong): Well, that is very obvious. Compared all the other companies, they struggle to get to 1 million recurring.

0:17:34 – (D): Right.

0:17:34 – (Rayn Ong): So when that happens, you can tell for sure that it’s a different company. So that’s what I meant when the breakout happened.

0:17:42 – (Cheryl Mack): All right, so it’s the really big outliers.

0:17:44 – (Rayn Ong): Yeah, it’s super obvious, but you probably get like five bridging opportunities, like you said, right? They only need another couple of hundred K to get this deal across the line and then it will start to look like a strong company. So we do factor that in. Do we prorata, do we bridge this company? But I think where we actually make a lot of money is we pay attention to the breakout and we go heavy.

0:18:11 – (Rayn Ong): Like, I normally write 25K when I was injured investing, but when I see a breakout, I can do 250 into that same company. And it’s quite counterintuitive to investor in other asset class, right? For example, if you buy like a listed stock on comsec, right, you buy it for a dollar and then one year later it’s $2. Most people will sell the holding, right? But in our case, we buy triple the amount at $2. And that’s because the context of the business have changed, right? They may be doing 1 million rev and now they’re doing 2 million rev with a pipeline of doing 4 million very soon. So then is it cheap or is it expensive?

0:18:55 – (Rayn Ong): It’s all about context. And what I love about NGO investing is you actually get information from the management team and the founding team on what they’re working on, what are the progress they are making and what are the directions they’re heading to. Versus there’s this personal kind of information access and relationship that you could leverage. Versus like a listed company and you are going against a team of 60 analysts from Goldman Sachs. How can you find information asymmetry to make an informed investment decision?

0:19:33 – (Maxine Minter): I think that’s a super interesting point and especially because investing in these early stage businesses, so everything from kind of precede up actually is a very different evaluation and assessment methodology than in many other asset classes. I have found having the huge privilege of of kind listening to you assess opportunities and kind of the way that you think about opportunities. I have been blown away by the breadth of analysis you’re able to do kind of across different asset classes.

0:20:05 – (Maxine Minter): I think in the prep for this show, cheryl was telling me you’ve been long on Ginger. You own like a couple of thousand.

0:20:12 – (Cheryl Mack): You got three grand in Ginger.

0:20:14 – (Maxine Minter): Like actually the root Ginger, not the company, the vegetable. I would be super interested to hear from you how you develop heuristics across different asset classes and kind of work out what really matters and develop the way you think about investing across those different asset classes and kind of how that informs your skills of investing in venture.

0:20:38 – (Rayn Ong): Yeah, good question. I think it’s about what you mentioned earlier, the compounding effect.

0:20:43 – (D): Right.

0:20:43 – (Rayn Ong): If you look at business model day in, day out for nine years, you can start to see pattern that emerges. Occasionally you see something super special and you get excited about it, but I think Ginger is actually I’d rather not talk about this because I cannot get my hands on more Ginger now that it’s not like a secret.

0:21:07 – (Cheryl Mack): So what was it that was special?

0:21:10 – (Rayn Ong): So it’s a startup called Invest in Your Farmer. I think Investable invested in their last round. So we look at the company and I’m actually like a farmer at heart, right? I love gardening, I love trees, I love agriculture. And when I saw that, I actually started to make some investment into some opportunities on the platform. And it’s interesting, it’s actually less risky and sometimes they yield better than venture outcome. So, for example, Ginger can yield 29% what, annualized.

0:21:49 – (D): Right.

0:21:49 – (Rayn Ong): And if you get a good year with low supply, you can yield double that.

0:21:53 – (Maxine Minter): Wow.

0:21:54 – (Rayn Ong): So why not?

0:21:55 – (D): Right?

0:21:56 – (Maxine Minter): Yeah.

0:21:56 – (Rayn Ong): But the problem with volume, it’s about diversification, provided it’s not hard to manage. Right. You put a little bit of money into many different things and you have guaranteed return, you have asymmetrical return, which is enjoy investing, and you have very niche ginger 29% annualized return, and then you have a diversified portfolio.

0:22:23 – (D): Right.

0:22:24 – (Rayn Ong): So I am sensitive to money making opportunities, so when I see something, I’m always interested to put a little bit of money to test it out. If it works, then we’ll increase the exposure.

0:22:37 – (Maxine Minter): Incredible. So, wait, how deep are you in on Ginger?

0:22:40 – (Cheryl Mack): Only three grand. He wants more.

0:22:42 – (Rayn Ong): Yeah.

0:22:43 – (Maxine Minter): Is that your current exposure? It’s three grand and you can’t get more?

0:22:46 – (Rayn Ong): I think it’s around three grand. But nowadays, when the opportunities hit the platform, when I see it, it’s already sold out, so I hope not many people install the app after this episode.

0:22:57 – (Cheryl Mack): We’ll try to keep a lid on it.

0:22:59 – (Rayn Ong): Or maybe I should share my referral.

0:23:02 – (Cheryl Mack): Yes, yes. What’s your referral code?

0:23:05 – (Rayn Ong): I’ll make money from the referral code.

0:23:08 – (Maxine Minter): Right, yeah.

0:23:09 – (Cheryl Mack): Well, the other thing is, when we asked, because I told you about this episode and how we were going to talk about the Ginger and the fact that you’ve also invested in Propeller Aero and a few other interesting companies like Vow and Morris Micro, and we wanted to understand the mental models. And you said the common theme is anything that grows, which, again, I feel like is a little bit like your well, when you see breakout companies, it’s super obvious, but we’d really like to understand what are the signals that tell you whether something will grow or not.

0:23:36 – (Rayn Ong): I think there are critical points for each business model when it’s consumer facing. You want to understand, we have a very small population in Australia, so how do you acquire a customer and is there a recurring component? That’s what we normally look at with business to business solution. We look at who actually pays and then what’s the return of investment and how do you attribute success to your product?

0:24:04 – (D): Right.

0:24:05 – (Rayn Ong): If you cannot answer this question clearly, it’s going to be quite difficult to sell to the customer and then that will kind of slow down the revenue growth. So it really depends on the business model and what niche it’s in. And because of previous experience it’s kind of like you have a leaking bathroom and the plumber comes here and then they know where to look because they have went to 1000 jobs before.

0:24:32 – (Rayn Ong): I think there’s a little bit of that in play here as well.

0:24:35 – (Maxine Minter): Yeah, I think it’s a bit like the role of instincts in early, especially early stage investing where it’s so kind of information light, but I actually think this is the case kind of all the way up the kind of asset class trajectory. But I’d be super interested in how you think about how much of it is instinct and how much of it is evaluation and how you think about instinct in decision making for specifically your startup investing.

0:25:01 – (Rayn Ong): I’ll answer this question differently. I think we can start by profiling the investor profile in the ecosystem. I think you can loosely categorize people as good pickers, really good at evaluation and picking teams and then you have good fixer. Fixer normally goes in and make things happen and then you also have the fundraiser that can get revenue in or get investment capital into the business. Sometimes we’ll make an investment by just looking at do we have something special that can make things happen faster?

0:25:38 – (Rayn Ong): For example, we’ll look at a deal and we have an investor in a fund that actually owns 80% of the market that this company want to sell to. That’s a strong power that we have and if we have that power, that makes the investment quite low risk in a sense.

0:25:59 – (D): Right?

0:26:00 – (Rayn Ong): And then because of the relationship with other bigger funds. So when I was investing 25k into early stage startups and they need to raise half a million, for example, I often was the one that worked with the founder and talked to everyone to raise the remaining four seventy five K. And because of that exercise I pitch to rich people active angel active funds all the time. And then I hear about their objection or their excitement.

0:26:33 – (Rayn Ong): If they are excited, they join around, if they have objection, they raise their concern and if you do it for nine years, you kind of know what other people like to see and want to see, to get comfortable, to join around. I think that’s quite important for the fundraiser.

0:26:49 – (D): Right?

0:26:49 – (Rayn Ong): So when we see a deal we can go, yeah, this round of money can get them somewhere and if they can get there, I know I can raise the next round. That also makes the deal much lower risk in a sense. So it’s about the combination of all those things. It’s not just oh, this PDF, right? Is this a good deal or no, I think there are multilayer consideration when you come to an investment decision.

0:27:19 – (Maxine Minter): That’s wild that you went along to pitches at that early stage. What percentage of your portfolio do you think you sat in on their early pitches?

0:27:28 – (Rayn Ong): I would say early days. Most of the companies, they are active and passive, right? Passive will be, yeah. Maxine is in this deal. She has done most of the work. I trust Maxine, I’ll put 25K in and then there will be deals that I’ve originated myself. I’ve done the coaching on the storytelling, verified the numbers and then I bring it to market and ask my friends to invest.

0:27:52 – (D): Right.

0:27:53 – (Rayn Ong): And in those cases, if something goes wrong, my friends would expect me to roll up my sleeve to fix the problem. If you do that for a bit, you kind of can understand what are the common problems that early stage startups face in the first year especially.

0:28:11 – (Maxine Minter): That’s super interesting. You essentially are getting like 90 reps. Yeah.

0:28:15 – (Rayn Ong): It’s also interesting because founders, they raise around of capital and then they don’t raise for another one year or a year and a half.

0:28:23 – (D): Right.

0:28:23 – (Rayn Ong): And then it doesn’t make sense to them to map the landscape, talk to everyone, build a relationship, go through the pitch and DD and IC process every time. If we can do that constantly and become a pluck and play kind of model, so we invest, but we guide you towards that and the next round can happen. Pretty low friction in a way. It’s a win win.

0:28:52 – (D): Right.

0:28:52 – (Rayn Ong): You don’t spend six months trying to do what we do every month.

0:28:55 – (Maxine Minter): 100%.

0:28:56 – (Cheryl Mack): Yeah.

0:28:57 – (Rayn Ong): That is actually a very strong proposition, especially in a very competitive round that we actually pitch the founder.

0:29:05 – (D): That right.

0:29:06 – (Rayn Ong): You raise the money once. I raise money almost every month. And I know the active angel for this round, I know the active funds for the next round, I know the active international funds for the round after that and I’m constantly talking to them about different things.

0:29:21 – (D): Right.

0:29:21 – (Rayn Ong): You don’t have the bandwidth to do that, so why not let me specialize this and partner with you? So I think that’s kind of a way that we position ourselves and we are everybody’s best friend.

0:29:35 – (D): Right.

0:29:36 – (Rayn Ong): We are angel investors, good friend in the same round. We are bigger funds best friend because we surface the strong companies from the cohort of ten to them next year.

0:29:45 – (D): Right.

0:29:46 – (Rayn Ong): So, again, back to the point on what do you bring to the table? I think we do that one job particularly well and consistently over time.

0:29:56 – (Cheryl Mack): That’s super interesting.

0:29:57 – (Maxine Minter): Yeah. It compounds for me, like so many of the threads we’ve been talking about here, which is that know where you add value. Lean into that and do that really, really well and do it consistently over time and compound. On that over and over again, and you just continue to carve out a really defensible position as investors and add.

0:30:18 – (Cheryl Mack): A lot of value.

0:30:19 – (Maxine Minter): To the founders because you’re exactly right. Like the number of investors I’ve heard which kind of use the trope of oh, we are repeat players, you’re only doing it once every year and a half. Like we can be really high value adding your funding round and then when the rubber hits the road they make like three intros and they’re like best of luck, it’s not the same. Whereas what I’m hearing from you here is actually that you’re doing probably between like ten and 40 reps in any twelve month period of getting in and actually helping and getting that information along the journey. Super cool.

0:30:50 – (Rayn Ong): I’m not saying that we have a 100% hit rate, right? Sometimes there are deals that we just cannot make happen.

0:30:56 – (Maxine Minter): Sure.

0:30:56 – (Rayn Ong): But we do try to set expectation up front and we communicate with the founders that we invest a lot of small check into many companies but you need to hit the performance hurdle so then we can help you raise the next round. Otherwise there’s no ingredient that we can put into the story even though we have a loudspeaker that can amplify the story, it’s just not a good story.

0:31:23 – (D): Right.

0:31:23 – (Rayn Ong): So I think setting expectation upfront and let founder know exactly what they need to deliver is quite important. Especially with our model.

0:31:33 – (D): Right?

0:31:33 – (Rayn Ong): We do a lot of small check but maybe half medium check and then maybe half again for the big checks. So not everyone will get the same amount of love unless you are a breakout.

0:31:46 – (Cheryl Mack): Yeah. What I think is also really interesting is that that part is derisking it’s not just adding value to the founders and getting you the best deal flow. You actually talk about it derisking your investment. Like if you already have an investment where their customers could potentially be some of the other new companies investors and that helps derisk customers then that helps derisk it for you. That’s something that I don’t know if I’ve ever really thought about that Maxine in terms of using my current portfolio to think about how that derisks a new potential investment. Have you?

0:32:17 – (Maxine Minter): I’ve definitely thought about it. My portfolio isn’t as extensive as you two. I mean Rain, I think you’re currently like over 100. Yeah but I am thinking about it for coventures kind of within the fund and I think the kind of standout folks that do this really well that I think of are the YC cohort they actually will actively be investing in companies where the customer or the ICP of the investment that they’re making is other startups and they kind of amplify it through bookface and those kinds of things. So it can kind of derisk that 1st $500 to $2 million in revenue.

0:32:55 – (Maxine Minter): There’s a bunch of funds that do this that are like specialist funds in the US that kind of seek to derisk that top line revenue or derisk some key part of the business. And I think it’s really clever. It’s excellent for founders because it helps them kind of not have to recreate the wheel on an area. And it’s excellent for LPs because you are getting a return that is compensating you for risk, but the risk you’re actually taking is less as a result of participation in that kind of investor. So I think it’s super clever.

0:33:24 – (Maxine Minter): Out of interest, how did you develop it? How did you work out that this was something of value and that it would derisk the investment? Did you kind of develop the strategy and then implement it? Or was it a bit more of a kind of bottoms up iteration?

0:33:38 – (Rayn Ong): Yeah, I think it’s quite organic, like one step at a time, and then you discover, oh, this is actually working.

0:33:44 – (D): Right.

0:33:44 – (Rayn Ong): You try everything once or twice. If it works, then you double down on that, and then eventually you figure out a model that works well. And it’s quite hard for other people to replicate. It’s quite similar to the journey of a lot of the startups as well. I think portfolio synergy is definitely a thing. I think too many investor, they evaluate opportunities on a deal by deal basis. So sometimes we look at an opportunity, we go, okay, this may not return venture scale, but this is a critical piece to a lot of our other companies.

0:34:18 – (D): Right.

0:34:18 – (Rayn Ong): And if combined, the other companies can make 20 million revenue because of this. It doesn’t matter if we lose twenty five k on that investment, for example, so that the company can make something valuable and boost the whole portfolio. And I think a lot of people don’t make investment decision that way.

0:34:40 – (Maxine Minter): Yeah, I don’t think I’ve heard of that before in the ecosystem. Have you? Sure.

0:34:44 – (Cheryl Mack): I mean, I’m listening to Rain and I’m wondering if Ozzy Angels was that investment?

0:34:52 – (Rayn Ong): Yeah. They are ecosystem play, for sure. Right. And what gives people power?

0:34:56 – (Cheryl Mack): Like we’re an ecosystem player.

0:34:58 – (Rayn Ong): Yeah. I think it’s a critical thing because it actually creates opportunities for more people to have an opportunity to have a go. Right. Otherwise there are lots of people that want to get involved with no means to. And I think to look at the volume, you need that model to make volume happens.

0:35:21 – (D): Right.

0:35:22 – (Rayn Ong): Do we want that to happen? Yes. If it happens, is it beneficial to us? Yes. Is there a potential that we make money? Yes. And that’s an easy investment decision. And can we concentrate too much? Probably not yet. Until we start to see where the growth curve starts to become more obvious.

0:35:43 – (Cheryl Mack): That’S okay, we’re like the ginger you can’t get anymore.

0:35:46 – (Rayn Ong): Yeah.

0:35:48 – (Maxine Minter): So how do you think about competition across your portfolio with that methodology? Right? Like, you’re so prolific at this point between funds and direct investments and plus your work at Archangels, how do you navigate competition across your portfolio? Do you care about it?

0:36:05 – (Rayn Ong): Competition and conflict. So I am not actively making personal investment anymore. Except for Ginger.

0:36:12 – (Cheryl Mack): Not potatoes though, right, rain, just Ginger.

0:36:14 – (Rayn Ong): If potato yield more than 29%, I’ll definitely have a look.

0:36:18 – (D): Right.

0:36:19 – (Rayn Ong): The process now is every deal goes through the fund, and if the fund pass and I really absolutely want to do it, then I can do it through my personal account. But it creates conflict. Right. If I lose money, it’s fine, but if I make a lot of money and my investor in the fund, they don’t get the upside of that. It’s really hard to explain to them.

0:36:44 – (D): Right.

0:36:45 – (Rayn Ong): So I’m doing less and less direct investment nowadays, but in terms of competition, we want to align for a good founder experience. So when we look at or chat to founders that are working on something similar to one of our companies, we normally disclose that upfront so that there’s no bad feelings. Like, I’m trying to get proprietary information to feed it to my investee companies, and I encourage them to share as much as they want to, knowing that we have exposure in a potential competitor.

0:37:23 – (Maxine Minter): Yeah, I think that’s a great strategy. Yeah. I think especially in the ecosystem, the number of times you hear from founders that they are either nervous of sharing information because they’re scared of people stealing their idea, which I have a bunch of opinions on, or that they’ve had an experience where they felt like they shared something with someone and that information then leaked out. It’s super important to be careful of the information we receive as investors for exactly that reason.

0:37:48 – (Maxine Minter): Information is such a weird substance in that respect. It’s impossible to know at the outset that it will be valuable to someone else necessarily.

0:37:57 – (Rayn Ong): Yeah. It’s what you do with the information, and if anyone gets hurt, I think that’s usually not good. And you want to avoid those kind of conflict as much as you can.

0:38:08 – (Maxine Minter): Yeah, absolutely. As you’re thinking about where you’re exploring next or where you want to take your kind of investing journey next, what do you get particularly excited about at the moment? Both asset classes and stages and particular trends. We’d just love to hear what you’re kind of roving on next.

0:38:26 – (Rayn Ong): I think the natural pathway for an investor is to do a small call fund and then do a medium sized call fund plus a big follow on fund. I’m not sure I’m built to running a follow on fund because I’m not a late stage person. My business partner, Ben Armstrong, is, so I think it’s quite complimentary that he’s looking after a lot of the bigger, later stage follow on decision. Even for this current fund, I think I’m well built to do the really early stage gut feeling, zero to one, what if this work kind of investment decision. Yeah, I think one step at a time and see how it goes from here.

0:39:05 – (Rayn Ong): We need to make a good portfolio to bring it to market and raise more money down the track.

0:39:11 – (D): Right.

0:39:12 – (Rayn Ong): So, yeah, if that become a reality, then we’ll design the marketing campaign around that and you may start to see my brainwashing activity on LinkedIn again.

0:39:23 – (Maxine Minter): Yeah. And then I will take that marketing message and swallow it. Hook glenn and Sinko, by the sounds of it.

0:39:29 – (Cheryl Mack): So as an LP in the archangel fund, I can say that rain’s yolo portion of the portfolio probably was one of the things that hooked a number of people. They were like, hey, I want to get they’d come up to me and be like, hey, how do I get on rain’s yolo portfolio? And I’m like, that’s the archangel fund. And they’re like, yeah, but like, rain’s yolo portfolio, I’m like, yes, yes, you can get in through us. We’re running a syndicate on it, don’t worry. But that was what they were interested in. It wasn’t like they had no desire to be part of well, they understood archangel, but that was the piece that was getting them excited. And so, rain, when you talk about like, well, I can’t really write stuff personally anymore because LPs and again, I’m one of them want to be in that yolo stuff that it’s gut feel for you’re. You’re kind of the zero to, like, instinct, write small checks and double down person. And I think you’ve done such a great job of doing that so far, and NLPS are not going to be disappointed. At least I hope we’re not, because I’m one of them.

0:40:28 – (Maxine Minter): Right. When I kind of zoom out here for a moment and look at the kind of arc of your investing journey from the kind of first listed stock all the way to now, what strikes me is the kind of entrepreneurial way that you’ve actually approached your investing journey. It’s very kind of like bottoms up. Iterative you’ve taken some big swings, you’ve done things differently. When everyone said zig, you just went zag and have shown that it really works.

0:40:56 – (Maxine Minter): One of the questions that we ask all of the folks that join us here on first check is what was the biggest kahona’s moment for you? What was a moment that you feel like you did something really brave and you’re super proud of it?

0:41:10 – (Rayn Ong): As in the investment along the investment journey.

0:41:14 – (Maxine Minter): Yeah. Along the investment journey or on the way that you think about investing, if that’s what jumps to mind. Or you can go off piece if you like, and if there’s other categories.

0:41:22 – (Cheryl Mack): Anything in life, rain yeah.

0:41:24 – (Maxine Minter): We’d love to hear about it.

0:41:25 – (Rayn Ong): Yeah. I think very recently, I personally bridged, like a relatively bridge round because no one, like most people, don’t believe in the potential that the bridge may work. That was quite uncomfortably big kind of bridge as a single person, but so far it’s looking good. But it was quite stressful for me when I did that.

0:41:53 – (Maxine Minter): Dang, you personally bridged an entire investment round. Wow.

0:41:57 – (D): Yeah.

0:41:57 – (Rayn Ong): Because one thing that I love to do is to tell people, I told you so.

0:42:02 – (D): Right.

0:42:02 – (Rayn Ong): Ten years down.

0:42:04 – (Cheryl Mack): How many times have you gotten to say that, Rain?

0:42:06 – (Rayn Ong): The funny thing is, I don’t think many people actually are aware that I tried to raise a fund back in 2018. I couldn’t get a fund up.

0:42:16 – (Maxine Minter): Yeah.

0:42:17 – (Cheryl Mack): And you couldn’t get more than ten mil. Right.

0:42:19 – (Rayn Ong): I got to, like, 8 million, and not a single sand more after that. In hindsight, that was probably a good thing, because I failed to realize how much of a back office admin and operations work are required to run the site that you don’t see the not fun side.

0:42:38 – (Cheryl Mack): The side that I see a lot.

0:42:39 – (Rayn Ong): Yeah. I’m actually glad that we have a team to run that part very professionally. But then some of those investor that say no to me, they join the Arko 22 fund.

0:42:55 – (D): Right.

0:42:55 – (Rayn Ong): And one of them actually screenshotted my pitch deck from 2018.

0:43:00 – (D): Right.

0:43:01 – (Rayn Ong): There was one slide that I list out all my investment, and he actually highlighted all the big outcomes from that slide. But back then, it was not obvious, but it’s obvious now. And I say, I told you so.

0:43:15 – (Cheryl Mack): I told you so.

0:43:17 – (D): Yeah.

0:43:17 – (Maxine Minter): That must have felt so good. So good.

0:43:20 – (Cheryl Mack): I love it.

0:43:22 – (Maxine Minter): Well, Rain, thank you so much for joining us. That was just the best. True to form, I feel like every time I have a conversation with you, I learn something new. And you performed right against that today. You did not disappoint. So thank you so much.

0:43:36 – (Rayn Ong): Thanks for having me. Great to hang out with you guys.

0:43:38 – (Cheryl Mack): And here’s to all the future I told you so as you get to say. Rain Dam.

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