20 VC 044 Dominating AngelList Syndicates with Doug Scott

Summary Notes


In this episode of the 20 minutes vc, host Harry Stebbings interviews Doug Scott, a seasoned entrepreneur and angel investor with a focus on internet traffic businesses and early-stage tech startups. Doug shares his journey from growing up in Newcastle to founding internet companies like itscarrentals Co. UK, and moving into angel investing through platforms like AngelList. He discusses his investment approach, emphasizing the importance of backing founders who are smart, adaptable, yet naively confident, and who possess an unstoppable drive. Doug also touches on his preference for in-house development teams, his involvement with accelerators like Techstars and Ignite IO, and the strategy of making numerous small bets on high-potential startups to increase the likelihood of significant returns. He highlights the importance of founders controlling their fundraising process and the need for VCs to understand the operational side of the businesses they invest in. Notable investments Doug is excited about include Lifebox Moby and Chew TV, which have shown impressive growth and traction in their respective markets.

Summary Notes

Introduction to Doug Scott

  • Doug Scott is a successful Internet entrepreneur and angel investor.
  • He has founded companies with millions of daily visitors and invested in ventures like Techstars, Entrepreneurs First, and Ignite IO.
  • Doug operates one of the largest AngelList syndicates in Europe.
  • Harry Stebbings expresses gratitude to Doug for a prior two-hour conversation and to Gil Dibner for the introduction.
  • Harry also endorses Hiring Screen as an effective recruitment platform.

"Doug founded numerous Internet companies which have achieved millions of unique visitors per day before moving into the investing world where he has made investments in the likes of Techstars, entrepreneurs first and ignite IO."

This quote highlights Doug Scott's transition from a successful Internet entrepreneur to an angel investor with notable investments.

"Doug has one of the largest angel list syndicates in Europe with over 350,000 pounds backing him."

The quote emphasizes the scale of Doug Scott's AngelList syndicate and his influence in the European investment landscape.

Doug Scott's Background and Career Path

  • Doug grew up in Newcastle with a "reasonably normal upbringing."
  • He traveled the world for eight years, spending significant time in Sydney.
  • Doug began his tech journey by doing SEO for his furniture import business.
  • He created carrentals.co.uk, which has done over a million rentals.
  • Doug's expertise is in Internet traffic acquisition across various platforms.
  • He owns properties with 1-2 million daily visitors, including Carrentals Co. UK and Discountvouchers Co. UK.

"I had a reasonably normal upbringing, not particularly affluent, but nice."

This quote provides insight into Doug Scott's modest beginnings and his upbringing in Newcastle.

"Spent about eight years living in a variety of places."

Doug Scott's extensive travel experience likely contributed to his diverse perspective in business and technology.

Transition to Angel Investing

  • Doug's angel investing began accidentally after attending Oxygen's demo day.
  • His background in understanding traffic levels made him stand out during the event.
  • Doug became a mentor for Springboard, which later became part of Techstars, where he also invested.

"The angel investing came about by accident because I was invited to Oxygen's original demo day in Birmingham via a friend."

This quote explains the serendipitous nature of Doug Scott's entry into angel investing.

Criteria for Investing in Founders

  • Doug invests very early and looks for founders who are smart, adaptable, and somewhat naïve in their optimism.
  • He favors hustlers who are persistent and proactive.
  • Doug believes that startup teams should have technical skills in-house for faster development.

"I look for founders I like, I want them to be smart enough to be able to do something, smart enough to be able to adapt, but they have to be stupid enough to believe that they can actually do what is something that I think is really hard but they think is really easy."

The quote reveals Doug Scott's unique investment philosophy, focusing on a founder's intelligence, adaptability, and optimistic naivety.

"I like hustlers. I like people who just kick doors in and continually kick doors in."

Doug Scott values tenacity and the ability to overcome obstacles, which is crucial for startup founders.

Views on Outsourcing Development

  • Doug increasingly prefers startups to have internal development capabilities.
  • He has reduced reliance on external developers for his ventures due to the need for speed in development.
  • The ideal startup team should have a majority of technical members if the project is tech-heavy.

"I'm getting more and more that people should be able to do it themselves."

This quote reflects Doug Scott's evolving stance on the importance of internal development skills within a startup team.

Non-Technical Founders and Single Founders in Tech

  • Non-technical founders, like Swati and Rohan of CashKaro, can successfully run tech companies despite not being able to write code.
  • Single founders like Dalton, who runs a meals business, can be successful through persistence and multiple pivots.
  • Dalton is described as a "cockroach" by Doug Scott for his resilience and refusal to close down his business despite challenges.

"So cash care is now the biggest cashback site in India, and Swati and Rohan can't write any code. Dalton is a single founder doing meals who's done lots and lots of pivots."

This quote highlights the success of non-technical founders and the resilience of single founders in the tech industry.

"I call him a cockroach and it's quite open. I've told him quite a few times over the past three years that he should just have closed the business down. And he's always vehemently disagreed with me."

Doug Scott uses the metaphor "cockroach" to describe Dalton's tenacity and survival skills in the business world, emphasizing the importance of perseverance.

The Trait of Perseverance in Founders

  • Doug Scott believes that a great founder must be unwilling to give up, even when confronted with the possibility that their idea may be flawed.
  • Founders should have the wisdom to recognize when to pivot and when to persist with their ideas.

"I think you need that trait. There's a part where you need to accept it's maybe a stupid idea."

The necessity of perseverance is acknowledged, but there's also an understanding that founders must be able to recognize when an idea may not be viable.

"And his argument was he knew better and he had certain things that hadn't been completed. And I will bow down to his wisdom because I believe he's done some transformational things in that business."

Doug Scott concedes that sometimes a founder's insight and determination can lead to significant breakthroughs, even when others doubt the viability of their business.

Pivoting and Innovation in Business

  • Companies should be flexible and willing to pivot based on data and market feedback.
  • Doug Scott mentions launching 40 businesses, with a few showing promise and leading to interesting developments.

"I think they should continually be jumping around."

This quote suggests a dynamic approach to business, where companies are encouraged to explore different ideas and pivot as necessary.

"If the data keeps telling you it's stupid and you keep pivoting and you keep saying it you keep jumping around and the data keeps telling you it's stupid. Then probably it's wise to step back."

Doug Scott emphasizes the importance of being data-driven and knowing when to reassess or abandon a failing idea.

Characteristics of Successful Founders

  • Successful founders are often driven by an obsessive nature and a desire to prove themselves.
  • Founders come from diverse backgrounds, including different ethnicities, religions, and socioeconomic statuses.
  • Educational diversity is also present among founders, with some even encouraged to drop out of university to pursue their ventures.

"I don't think you can be someone who can turn up at nine and you have to be OCD obsessive."

The quote underscores the necessity of an obsessive dedication to one's venture, which is a common trait among successful founders.

"They have a reason to prove."

This quote reflects the motivation behind many founders' ambitions, often stemming from a personal drive to overcome challenges or prove their worth.

Educational Diversity and Investment Decisions

  • Founders in the UK often have a degree-level education, but there are exceptions where investors like Doug Scott have encouraged founders to leave education to focus on their startups.
  • The decision to invest may depend on the founder's commitment and the stage of the business.

"I told the founders I would only invest if they quit university."

Doug Scott conveys his willingness to invest in founders who demonstrate full commitment to their business, even if it means leaving formal education.

Contacting Investors and Pitching

  • Doug Scott prefers structured approaches to contact, such as through a dedicated form on his website, due to the overwhelming number of pitches received through various channels.
  • A systematic approach helps filter out pitches that do not align with the investment criteria.

"The easiest now is doing it through our site like potential co UK. We put a form up because what was happening is me, all my staff were getting bombarded on LinkedIn."

This quote explains the practical reasons for funneling pitch submissions through a single platform to manage the high volume of investment inquiries.

Investment Syndicates and Criteria

  • Doug Scott is part of one of the largest investment syndicates in Europe, which focuses on early-stage investments.
  • The syndicate has specific valuation criteria for investments and seeks to invest in companies with clear direction and products.

"The goal is to invest very early. So what we've been looking at is round million pound valuations, give or take, seizable."

The quote outlines the syndicate's investment strategy, which targets early-stage companies with certain valuation expectations.

Startups and Valuation

  • Startups are characterized as hustles with potential, often having a high valuation without prior fundraising.
  • Initial traction, even if minimal, is considered a significant indicator of potential success.
  • The example given is a startup with four sales, which is seen as a positive sign due to having actual customers.

"I think the startups are someone doing something interesting, something that's a hustle. It's a million pound valuation. They probably never had a raise before, and they probably got some traction somewhere."

This quote emphasizes the speaker's view that startups are engaging in interesting activities and have the potential for high valuation despite being in the early stages without previous fundraising rounds.

Investment Philosophy

  • Doug Scott believes in making numerous bets in high-risk investing to increase the chances of hitting a significant return.
  • He advocates for investing in early-stage companies with tax benefits and interesting teams.
  • The focus is on companies that have a natural ability to attract internet traffic and users, as demonstrated by the example of Fit Gurus.

"My view is you need to make a lot of bets... the ones you hit that are interesting can make more return than everything else you touch, I. E. An Uber or Google, they're complete extremes."

Doug Scott explains his investment strategy of making multiple bets, acknowledging that while most will not yield high returns, the few that do can be extremely lucrative, similar to companies like Uber or Google.

Syndicate Investment Strategy

  • The syndicate aims to diversify investments rather than focusing on a specific sector.
  • Doug Scott leverages the expertise of others in various fields such as food systems and infrastructure to make informed investments.
  • The strategy involves joining angel rounds with experts to benefit from their knowledge and insights.

"So what we're doing at the minute is looking at people we know really well and respect and saying, okay, you're going to do an angel round on this. Can we come in with you with a syndicate because you're an expert..."

Doug Scott describes the syndicate's approach to investing, which involves partnering with respected experts during angel rounds to utilize their specialized knowledge for better investment decisions.

Return on Investment

  • Investing early with tax relief can lead to significant returns even on modest exits.
  • The example given is a return of 16.67 times the investment on a 5 million exit due to initial tax relief and early investment valuation.

"If you put 1000 pound in, you've really put 300 in, you then get a five xs on the 1000, you've now got a 5000, you're now 16.67 up on an exit that happened at 5 million."

This quote breaks down the math behind the potential returns on investment when accounting for tax relief and early-stage valuation, illustrating how a small initial investment can yield substantial profits.

Sourcing Investment Opportunities

  • Doug Scott and his team have positioned themselves to attract unique investment opportunities, often considered "lunatics."
  • The syndicate has made numerous investments, earning a reputation for supporting startups early on.
  • Doug Scott is actively involved with various entrepreneurial programs, which serve as a source for finding promising startups.

"I think we've positioned it as being the lunatics, so the lunatics naturally gravitate to us now."

Doug Scott suggests that their reputation for investing in unconventional or bold startups draws similar companies to them, creating a self-reinforcing cycle of attracting investment opportunities.

Startup Funding Experience

  • Doug Scott believes that maintaining control over the deal is crucial for startups during fundraising.
  • He advises startups to consider funds committed only when the money is physically received.
  • The discussion includes a reference to Sherman's experience with fundraising in London, highlighting the challenges of raising capital.

"You have to control the deal. You think the money's committed but it's not when they've given you the used notes and it's in your hand is the only time count on it being there."

The quote advises startups to be cautious and to only consider funds as secured when they have the actual money in hand, emphasizing the importance of controlling the fundraising process.

Venture Capital and Investment Landscape

  • The UK investment scene is experiencing an influx of capital, particularly in SEIS investments.
  • There's concern that the abundance of funding may lead to subpar companies receiving investments.
  • The UK's tax incentives for SEIS make it an attractive location for investing.
  • Valuations in the UK are more favorable compared to the US, particularly the West Coast.
  • There's a distinction between large-scale VCs and smaller VCs, with the former being a necessary space for deploying large capital for significant returns.
  • Smaller VCs, especially those from finance backgrounds, may seek board seats without operational experience, which can create tension with founders.

"I haven't seen the latest SEIS numbers alone, just in the UK, but I know the first years was over 82 million just in SEIS investments." This quote highlights the significant amount of money entering the UK investment scene through SEIS, indicating a robust funding environment.

"The UK is massively tax incentivized for SCIs to do it here and the valuations are nowhere near how the US and especially the west coast is." Doug Scott explains the financial advantages of investing in the UK, such as tax incentives and lower valuations than in the US.

"The VC world is, I split it in my head into two parts. There's the big end, the bulletins, the index or excel... And there'll be a space for that all the time." Doug Scott categorizes the VC world into large-scale venture capital firms that have a significant role in the market due to their ability to deploy large amounts of capital.

"In the smaller VCs, which there is a plethora now probably... That space, I think is going to become interesting because especially if you come from a finance background, is you want a board seat, you want control of some of the board, but you've never ran a company, so you don't know what it's like." Doug Scott expresses concern about the potential issues within smaller VC firms where individuals with finance backgrounds may seek control without having operational experience.

UK Focus in Investing

  • Doug Scott has a UK focus due to his personal connections and the favorable investment environment in the country.
  • There is a possibility of arbitrage by investing in companies that start in the UK and move to locations like the Silicon Valley.
  • The tax incentives and lower valuations make the UK an attractive place for investments compared to the US.

"UK focus is simple. I live here from my past life in the affiliate world. I have lots of friends and acquaintances in lots of spaces." Doug Scott explains his UK-centric approach to investing is influenced by his personal network and experience in the UK market.

Views on Venture Capitalists (VCs)

  • Doug Scott expresses a generally positive view of VCs, jokingly suggesting they are all "lovely people."
  • He distinguishes between large VCs, which are necessary for deploying significant capital, and smaller VCs, which may face challenges due to lack of operational experience.
  • There's a concern that finance-focused VCs may not add value to a company's board if they lack the experience of running a company.

"In general, I love them all. They're all lovely, lovely people." This is a tongue-in-cheek remark by Doug Scott, likely suggesting that while he has a positive view of VCs, there are complexities in the relationship between VCs and companies.

"There's the big end, the bulletins, the index or excel... I know a lot of them people. And it's a fairly safe bet where you're deploying 100 million looking for a three, four x return." Doug Scott acknowledges the role of large venture capital firms in the ecosystem and their strategy of deploying large funds for substantial returns.

"That space, I think is going to become interesting because especially if you come from a finance background, is you want a board seat, you want control of some of the board, but you've never ran a company, so you don't know what it's like." Doug Scott critiques smaller VCs who may seek control through board seats without having the necessary operational experience to effectively guide a company.

Exciting Investments

  • Doug Scott is enthusiastic about two investments: Lifebox and Chew TV.
  • Lifebox, despite being in a challenging sector, shows promise due to its team and growth curve.
  • Chew TV, compared to Twitch, has demonstrated impressive growth and efficient fundraising strategies.

"My two. Exciting. Who's exciting? I think, well, there's one going to go through probably today, which is Lifebox." Doug Scott shares his excitement about an investment in Lifebox, emphasizing the potential he sees in the company despite it being in a difficult market.

"The other one that's going is, I think quite a few people have seen this in the UK is chew tv, which is ironically twitch for. Yeah." Doug Scott mentions Chew TV as another investment he's excited about, noting its similarities to Twitch and its success in the UK market.

"But they raised it. They did what I said was perfect. They did all the rounds for people for about six months as they were doing it, they got to know everybody." Doug Scott praises Chew TV's approach to fundraising, highlighting the importance of building relationships and networking prior to raising funds.

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