Supporting Innovation through Angel Investing - with Adam de Sola Pool

A number of listeners have reached out with questions about how to get involved in angel investing.  So in this episode I speak to one of the most experienced and articulate angel investors I know. 

Our guest is Adam de Sola Pool, a Venture Capitalist by trade who now has over $1M in angel investments of his own. I met Adam through a blue technology angel investment group in Boston called BlueAngels, which is part of SeaAhead, Boston’s premier marine accelerator and investment platform.

If you are thinking about getting involved in angel investing, this podcast is a great place to start.  Adam shares many pearls of wisdom. 

See below for some helpful links to get started.

Adam de Sola Pool
SeaAhead
Investable Oceans
Maine Angels
Paris Business Angels
Angel Capital Association

Transcript

Abigail

Welcome back to the podcast today where we celebrate Innovation for a Happy Planet. I am your host Abigail Carroll. 

A number of listeners have reached out with questions about how to support innovation through angel investing. So today we are going to respond to those by speaking to one of the most experienced and articulate angel investors I know. Our guest is Adam de Sola Pool, a Venture Capitalist by trade who now has over $1M in angel investments of his own. I met Adam through a blue technology angel investment group in Boston called BlueAngels, which is part of SeaAhead, Boston’s premier marine accelerator and investment platform.

If you are thinking about getting involved in angel investing, this podcast is a great place to start. I will put helpful links in the show notes and of course you can always reach out to me or Adam for advice.

Abigail 

Welcome to the Happy Planet Podcast, Adam.

Adam 

Thank you. It's a pleasure to be here.

Abigail 

Listeners have contacted me asking how to Angel invest, how to get involved. Um, what is Angel investing and how is it different than venture capital?

Adam 

I've been a venture capitalist, and I've also been an angel now for about 10 years. Um, angel investing is you're investing your own money. Venture capital investing, for the most part is you're investing somebody else's money and the compensation structure is different. So most angel investors like myself are very concerned about losing our money. We're not so worried whether it is a two x or a five x or a 10 x, we like to make money and we like to have societal and environmental impact, but we really don't like to lose our own money. Whereas venture capitalists who are not playing with their money, but with somebody else's money, a loss is not nearly as important to them. But what's very important to them because of their profit share, is that they get at least a five x if not a 10 x or a 20 x. So angels are much more likely to invest in a normal bog standard business that is going to be a good solid profitable business. And they like to get involved because most angels do this because it's interesting for the mind as well as the pocketbook. Venture capitalists they're much more interested in home runs, you might say. Yeah. That will get the

Abigail

Unicorns.

Adam 

Unicorns. Exactly.

Abigail 

If I'm a retail investor as pretty much everybody is indirectly or directly, I mean, social security is basically, you know, retail investing for us. Why would someone want to do this? Why is it good for their portfolio?

Adam 

Well, it's certainly a long term investment. And let me step back for a moment and say that under US law, you need to be an accredited investor to be an angel. And that means roughly earning $200,000 or having a million in assets. Though there are platforms out there that allow for small investments, hundreds of dollars, thousands of dollars for pure retail investors. But let's just assume you are a credited investor. The reason you want to add Angel investments to your portfolio is, they're multiple reasons, but let's go through them. First of all, most angel investments are 5, 7, 10 year investments, and you're not going to see your return for quite a while. That's both good and bad. It means your money is locked up, but it also means that the swings of the stock market, which might go up or down 20% in a year, are not going to be affecting your company. So this is a hedge against volatility.

Abigail 

Yep. Interesting.

Adam 

Secondly, most people invest in things that they know. Something about my career has been in clean tech and in Ocean Tech, and I invest in those sorts of things. I don't put my money into biotech or dating apps or things like that that I know nothing about. So when you know about something, you actually can make good decisions. You can say that's actually a really smart sort of business. Thirdly, it's a very good way to have impact on the world for the next generation. [Yeah.] The companies I choose to invest in, I certainly wanna make sure do no harm and actually leave the world in five or 10 years time a much better place for my kids.

Abigail 

Yep. So can we just get back to the accredited investor thing? You know, we've got,, Jim Kramer hawking, uh, Silicon Valley bank just a few weeks before it absolutely crashes.

Adam 

One thing you always should be aware of is that you should never put too many eggs in one basket. So I'm never putting all of my focus on one particular area, and I join angel groups rather than try to do this individually. [Yeah.] Because I really value the wisdom that comes from other people. You, Abigail are an expert in aquaculture, and when you invest in something with a lot of interest and focus, I pay attention to that. Whereas I'm an expert in energy, I've done o onshore and offshore wind and things like that. So in the groups we're in, each person brings to that group specific industrial knowledge. And you can do your diligence into a company, but one of the best ways to do diligence, I've found, is to look at the expert and see if that expert is really interested in this company or not. 

Abigail

And then there's a process within these groups a due diligence process that is very serious people within those, um, expertise have contacts to shake down the business plan of the entrepreneurs and make sure that they hold water.

Adam 

That's correct. I actually think that the diligence process done by many of these angel groups is maybe overly thorough. I don't actually follow that. Um, though many of my angel group members do follow this quite thorough diligence process where they write up a report on the market and the business and the legal and the management team, I'm, I'm very happy that they do that. That's not the diligence process. I follow very closely. What I do, I generally put a very small amount of money, and for me, a small amount of money is about $10,000 in at a first check. And then maybe six months to any 18 months later, the company comes back and needs some more money. And if the CEO has been managing well, and by that I mean, has told the investors, here are my targets over the next year, A, B, C, D, and then comes back in the year's time and says, I've met A, B and C, I slightly missed D, I very much missed E .

Adam 

Tells me exactly how they've performed, I will think, aha, this person is in control of the company and is managing well. And then I'll write a larger check, maybe 25,000, and then over the next six to 18 months, the company will grow and develop, and then they'll come back again and I'll write a bigger check and a bigger check and a bigger check each time. So I get more and more exposed to the company. And my diligence is actually watching the CEO operate versus trying to write a report before I write my first check. However, let me say that most angels do it differently. Most really wanna dive in and do that diligence report very deeply before they write the first check.

Abigail

Yep. the Paris, business angel group that I'm in, the due diligence is radically specific, radically thorough. And I've seen a lot of, uh, psychological profiling with these sort of personality tests, which aren't to determine if somebody is, you know, a good person or not. It's actually they give it to the founding partners, you know, if there's two or three people in the C-suite to see if they have complimentary personalities and, skillsets. It's very, very interesting.

Adam 

That's what I did as a venture capitalist. Venture capitalists have this pool of capital and they charge about a 2% management fee per annum to that pool of capital. And use can use that money to hire those sorts of consultants and experts and get the opinions from all of those people. Most angel groups do not ha charge a management fee. They charge a relatively small annual membership fee, but that does not give them the ability to hire these external consultants. So your Paris business angels are actually doing much more than most angel groups can do. Most angel groups only have the ability to just ask questions from the members themselves. [Yeah.] Um, and that's one of the differences between venture capital and angel groups.

Abigail 

Yeah. So once you write that first check, what's your role as an angel investor?

Adam 

Well, I love being slightly involved in the companies, and most angels really do like to be involved. They like, uh, monthly or quarterly reports from the CEO. Um, they don't have to be personalized, but they certainly do need to be out to all the investors. And the CEO should use that to ask the investors, do you have a contact at so-and-so? Have you ever experienced X or Y do you know a good way to get a bank account at someplace other than Silicon Valley Bank? These are the sorts of questions that a CEO can really use their investors, and I love getting them, and I love responding and helping the companies grow. I'm over 65, I don't want to be deeply involved in the day-to-day management, but I want to be deeply involved in the strategic vision of the company.

Abigail 

So the thing that these entrepreneurs mostly need do you think is strategy or what are the places in which an angel investor could have the biggest impact on the operations once they invest?

Adam 

Connections? [Yeah.] The network that people who have been working all their life have developed is invaluable to the young person who's starting a company. So it's the connection at the law firms, in the business world, in the financial world. Those are what you can really give to the company.

Abigail 

Yeah. So when you look for a company, what are the key things that you're really looking for? Like, you get these pitches, what, what attracts you to a company?

Adam 

Well, we get a lot of pitches. Um, we get somewhere between 10 and 20 times the number of, pitches that we actually choose to spend an hour with. But what I'm looking for, and this is what I tell to companies where I'm helping them pitch practice, is that I'm looking for companies that will become oxygen to their clients. I.e. Their customers cannot live without this new, whatever it is, new data, new methodologies, new equipment. Because it becomes so important to the client's business that they can't live without it. Now, I sometimes do invest in companies that I call aspirin. Aspirin means it's a nice pain relief, but if you don't have a headache at the time, you're not going to be buying the product. [Mm-hmm.] And the companies I certainly don't invest in are the, what I call jewelry or bling. [Yeah]. It's, you know, nice to buy, but not needed. And so as I'm listening to a pitch, I am trying to figure out whether this company is going to become oxygen to its clients. Then the other thing I'm looking for is that the experts in the room are getting excited about this. 

Abigail

After a short break we’ll talk about one of the most promising blue tech companies Adam has invested in.

BREAK

Abigail

Welcome back to Happy Planet. Is there an example of something you invested where you felt like it was really oxygen to the client that you could talk about?

Adam 

One of the companies I've invested in, I think will become oxygen. It is a floating ocean charging station. [Mm] Basically on land, when you own your electric vehicle, you have range anxiety. Well, the same thing is true with electric boats. And so far, most electric boats don't go very far from shore, but if you want to go far from shore, you are going to need some way of recharging yourself. So this is a charging station that is in the open ocean that you can bring your AUV ASV or ultimately your electric motorboat up to and get it recharged. So it is facilitating the whole expanse into the open ocean of sensors and data. And therefore it is going to be fundamental to the future expansion of information, what I call the internet of ocean.

Abigail 

I think that sounds like a very exciting company. I also think that that sounds like a company that needs a lot, a lot of cash to build up. What happens to the angel investor who comes in for the first or second little trache with smaller amounts of money and um, and then, you know, the company really just needs to get huge.

Adam 

It's a big challenge. And I started my first venture capital fund in 1997 in what they call Cleantech 1.0. And there was less than a billion dollars a year going into Cleantech at that point in time. And recently, ocean tech is at the same stage. And you're right, there is a huge capital requirement. Um, luckily for this particular company I'm talking about. And for many companies, the governments, the militaries are wonderful, uh, customers that will keep these companies alive. So this particular company I'm talking about with the charging stations in the O open ocean, their main customer at this point in time is the US military that wants to have, uh, recharging of their autonomous underwater vehicles. And so I firmly believe that the US Navy will keep this company going, but with continuous orders while they are establishing their commercial presence.

[Yeah]. But it is a big challenge and we are gonna have to build the electrical grid and the information internet grid, you might say, of the ocean, because that whole world out there is not yet sensorized, like the terrestrial side is. So for, you know, when you walk down a street in Paris or Boston, you can check the weather in this location or a mile away, and it could be a different weather forecast. Facial recognition will track you as you go from A to B in there, or license plate readers will do that as well. In the open ocean now we have been able to adapt facial recognition technology so that we can, uh, watch specific fish so that in one of your aquaculture investments, Abigail, you may have, a pen of a hundred thousand fish and the cameras can pick out each individual one and say that fish is not swimming nearly as well as it did last week, or it's not gained as much weight, it must be sick. Um, and so we can actually have data as thick and meshed as we do on land in the open ocean, but we have not yet built the charging electricity, and we have not yet built the communication networks that we rely on so much on land. And that's one of the areas where I'm very eager to invest because I see that coming to the 70% of the planet that is the ocean.

Abigail 

Yeah. It's really interesting. We did have somebody on our program, Tore Enger from TECO2030. He's the CEO of a public company in nor out of Norway. And they're coming out with the first hydrogen, fuel cell for shipping. And it's coming out do you think we're gonna have these two competing technologies out there in the ocean? Or do you really feel like battery is the, is the future?

Adam 

I'm sure we're gonna have both competing technologies out there. I think there's gonna be many years where there's a shakeout. So for example, at Sera[?] week, just last week, the hydrogen rooms were filled with people, but the people who were talking about ammonia, which is another possible shipping fuel, there were very few people in the rooms. So there's a real buzz around hydrogen these days, which may be a bubble or it may not be. [Yeah.] I'm sure there will be some ships that go down the hydrogen route. I'm sure there may even be some ships that take in wind power. and I think there will be some that do ammonia, uh, as well. But I think each one of these, uh, fuels has a specific purpose. So for example, uh, long distance container ships have a very different profile than bulk carriers.

Adam 

Long distance container ships generally go, so port of LA China and back and forth on the same route all the time. Bulk cargo ships bounce around the world, getting loaded up wherever there's a cargo for. So for them, they need a fuel that's going to be in every port, whereas hydrogen could easily be just in two ports, port of LA and Shanghai, let's say, and be fueling up those container ships all the time because it's a known route. [Yeah].Wind might be more useful in some other place. Floating battery stations sitting in the Intercoastal waterway of America would make a lot of sense for the pleasure boats that go up and down the East coast staying relatively close to shore, but not right at shore. Yeah. So each one of these has their purpose and frankly, I'm not sure that any one of them is going to become a unicorn or a narwhal, as propeller likes to call it [mm-hmm] because the shipping industry is relatively conservative and vessels turn over relatively slowly. But this still might make them possible angel investments because if you have a personal interest in this, you are willing to take a lower IRR but still positive and a longer time span than a venture capitalist who wants to get their money back quickly and exit.

Abigail 

Yeah. So speaking of exits, have you had any exits?

Adam 

Oh yes. We've had had some exits, um, mostly in my clean tech companies. But as I said, it often takes at least five if not 10 years. Yeah. And so most of my ocean tech companies are still growing. I haven't really had any exits there. On the Cleantech side, a home battery platform, I had a very good exit on, in the, battery recycling space. I wouldn't call it an exit cuz I still have the shares, but the company is now worth several billion and, um, soon to be listed on the stock exchange. So I feel that that one is soon to come, but these shorter term exits have come about because there is in essence a bubble. Yeah. Everybody wants to get into it and so they're willing to pay a much higher price at an early stage in order to get into the sector. In the ocean tech, it's still developing. We still gotta grow a lot. One of my wind development companies, which I started as the first CEO in about 2004, was recently sold to MindDeru for 2.6 billion. I haven't been involved in it in 10 years time, but I'm very happy that my staff who were there went on and built it into a huge business.

Abigail 

That's amazing. So, right now we're in a terrible exit climate, right? There's not a lot of buying the stock markets unhappy. I mean in your experience, how are your exits going? Are they stock market exits? Are they buy-out exits? 

Adam 

They're almost all acquisitions by other companies. [Okay.] These are cool technologies and once you demonstrate the usefulness of this technology with 4, 5, 10 clients, then the big guys, the Seamens's or the Ericssons or the General Electric's of the world go, 'ah, that's a better technology and we've got, I need to buy it.' And then you need to run an auction so that you get competitive interest up and get a good price for it. That's how most of these are going. Most of the companies I've invested in have taken in anywhere from two to 10 million worth of capital. [Yeah]. And they are worth hundreds of millions, if their technology proves out. They're not worth billions Yeah. soon. But, you know, I'm quite happy if I've put in my to 25,000 to a hundred thousand and I end up getting a million bucks for it, I'm very happy.

Abigail 

Yeah. Who's not happy with that. I'm still waiting for that to happen <laugh> but I'm new at this and it's, it's just really exciting hearing your stories. So what's it gonna take for Blue Tech to catch up with clean tech?

Adam 

Wow, that's an interesting question. I think that it will move relatively quickly. But one key element that is missing is the regulatory, segment. One thing that made my wind parks and solar parks so successful was that there was a whole regulatory structure favoring renewable energy systems. At the very beginning. None of my wind and solar parks were economically viable on their own when I was starting to build them in 2004. But because the government provided subsidies cuz they wanted to get down the learning curve, then that allowed me to make economically viable projects. And by now wind and solar is cheaper than coal and gas and therefore the transformation has occurred. We will need such sort of regulatory certainty, power purchase agreements or the equivalent long-term contracts of some sort to facilitate the ocean tech development.

I think there are a couple of things that are absolutely needed to keep this going. The governors and pension plan administrators should be asking for their pension plans to report on their Blue Tech investments. Currently people report on what percentage of assets are going into clean tech. Or climate tech. But nobody is asking for reporting on Blue Tech because Blue Tech crosses a bunch of different other categories and it is really needed that we have some groups, looking at what is going into Blue Tech. This is important for all the coastal state's, ecosystems and economies. And it's important for our industry that we can benchmark, uh, fund A against fund B you might say. We need more funds that will invest in early stage projects.

Abigail 

Yeah.Interesting.

Adam 

Lastly, I would say that we need perpetual investment funds. Aqua Spark in the Netherlands. Yeah. Which I'm sure you know well is a perpetual fund. Every quarter it allows investors to come in or exit. By being perpetual it does not have to exit its investments immediately. And in our industry and in our stage of our industry, we need funds that can go in for 15 or 20 years to allow a company to build and grow up. For example, that floating charging station, I don't expect it to be a massive hit in the next three to five years. I expect it to be 10 to 20 years out that it will be strong and thus it does not fit with a typical venture capital timeframe, but it fits with a perpetual fund timeframe.

Abigail 

Very interesting. I think those are great reflections. So you've been at this for a while. You're sticking with it. What is, what is it about angel investing that personally brings you, you sort of the most satisfaction or joy?

Adam 

Well, it's really, really fun to learn about these new technologies and to work with the entrepreneurs who are full of vigor and enthusiasm and they really are committed to whatever they've invented and help them achieve their goals and know that one, I'm making money and two, I'm leaving the planet a better place for my children and my children's children.

Abigail

Well that's, that's why I started the podcast, it filled me with such hope for our planet to see these young mission-driven entrepreneurs. Part of this this world of young entrepreneurs and and I'm loving telling their stories and not everybody's young.

Adam 

That's correct. There are some really savvy old folks who are setting up companies as well. 

Abigail 

So if I'm, I'm listening and I wanna become an angel investor, I'm inspired, what are the first steps I take right now?

Adam 

Well, there is the Angel Capital Association. Um,

Abigail 

We'll put that link in the show notes.

Adam 

They have a list on their website of all the different Angel Capital groups out there. I know that there is one in Maine that you are deeply involved with. Abigail. I'm actively involved with the Sea Head Blue Angels in Boston, Massachusetts. There's Cherry Stone Angels down in Rhode Island and Connecticut. Um, there's hundreds of angel groups out there. You need to find one that suits you. Certain angel groups focus on apps and other ones on ocean, other ones on biotech. Look for ones that fit your style. And if you are having problems, I'm sure that Abigail or I would be happy to give you some pointers afterwards as well.

Abigail 

Well, thank you so much for that Adam, and thank you for coming on the show today. Just such a treat to have you here and, uh, learn from all of your experience.

Adam 

Oh, thank you very much.

Abigail

I hope you have found this podcast interesting and helpful.  Adam’s perspective on angel investing and the blue economy is informed by his professional experience as a VC in the climate space.  And I believe that makes his voice all the more valuable. Check out our show notes for some helpful links pointing to angel resources. As a quick update on Adam, I am delighted to congratulate him on his new role as Special Advisor for Innovation and Entrepreneurship at Woods Hole Oceanographic Institution where he’s working with our former guest Steven Fox from Propeller VC in helping to identify marketable technologies from WHOI’s research.

Thank you for listening. Please follow Happy Planet wherever you listen and leave us a rating and review - it really helps new listeners discover the show Happy Planet was reported and hosted by me. I am also the Executive Producer. The talented Dylan Heuer is our producer and editor. Composer Georg Brandl Egoff created our theme music. Learn more about my work and get in touch by visiting happyplanetpodcast.com.