Matt Cooper is one of the most prolific and successful investors in the UK. Last week he was a special guest at a dinner for Helm members.
Helm is a community for like-minded founders of high-growth scaleups worth more than £1m.
For someone who decided as a young man he would make such an impact on the world of science he’d be considered “a cross between Einstein and Edison”, Matt Cooper has grown up to be surprisingly humble.
If his career in science never got out of university, he has achieved impressive things in the world of finance, first in helping to launch the world’s first fintech and then as one of the most prolific and successful angel investors in the UK.
It’s when he’s asked about the reasons behind this incredible track record as an investor that humility comes to the fore. He says it is not down to any magic on his part. Rather, the secret of his success, he says, is simply having the best deal flow.
In other words, it is the quality and quantity of potential investments that land at his door as an angel investor. These are of such a high-quality that even though he invests in something like one in three (compared to a typical VC fund that might do one in 30) he achieves better-than-average returns.
“My personal belief, after doing this for a really long time, is that the most important thing about investing as an angel or otherwise, is not how good you are at assessing the entrepreneur, not how good you are at assessing the market, not how good you are at assessing the business plan - although those are all important - and you get better with practice. The most important thing is how good is the deal flow coming to you.”
Part of the reason for having access to the best deals, says Cooper, is not because he is anything special, but simply because he’s been in the angel investing game longer than most. Having been part of the founding team at pioneering fintech Capital One Bank, and having successfully run the European operation for a while, he quit aged just 34 with no need to ever work again.
But work he has, mostly focusing on this role as an angel investor. He has just stepped down from a long spell as chair of Octopus Investments (joining it at launch) and is now focused on his own healthtech angel fund, Exceptional Ventures, and a continuing role as an angel. He also takes every opportunity he can get to offer advice and support to would-be and early-stage entrepreneurs across the world.
A question of CICO (crap in, crap out)
He emphasises that success as an angel comes down to some simple things, “I'm a nice and ethical guy and very entrepreneur friendly. I add strategic value. If you're thinking about angel investing, how to make sure that you do it well, I add value strategically, I'm very well connected to other funds and funding sources all the way up to IPO, mostly because I've been doing it for a long time, not because I'm such a great guy.
“As a result, I’m a first stop for entrepreneurs, which means I get the best deal flow. That means I say yes to one out of three, whereas even a company like Octopus says yes to one out of 30. My track record is better than theirs. Not because I'm smarter, but because great stuff comes in the front door.”
He says that while it is great to see such a booming entrepreneurial ecosystem, the plethora of funds and angels in the system now means that too many investors simply don’t get access to enough high-quality opportunities.
“If I'm a great entrepreneur who can raise from the funds or angels that add the most value, why in the world would I search for a family office nobody's ever heard of? They then get negative selected deal flow and if you get crap in, I don't care how good a selector you are, you're going to get crap out.”
So well-honed is Cooper’s technique for assessing opportunities that, in his own investing at least, he says he can often decide after just one one-hour meeting with a founder.
“My personal investing as an angel is a lot of gut feel. I’ll usually know by the end of a meeting. I will usually say ‘yes’ or ‘no’ to somebody in a meeting of one hour or less.
It’s different if I’m there as part of a fund, I can't do that. I can't do that with other people’s money. There's a more formal process for fund managers versus angels. And my partner in Exceptional Ventures is a very experienced VC. He is used to using the more conventional VC rules. He wants to know about growth rate and current revenues and so on.
“I often tell him that if you follow the same rules as everybody else and do it well, you could get into the top quartile. Which is good. For closed-end VC funds, that's about three and a half times return, and most investors will be happy. But if you want to be in the top percentile, you've got to look for the opportunities they're not finding, which means looking at deals they reject due to simple, cookie-cutter rules. Big VC firms need those rules because they need consistency. As an angel I spend my life looking for places where those rules go wrong.”
If you want to be in the top percentile of investors you've got to look for opportunities others are not finding, which means deals they reject due to cookie-cutter rules
He willingly admits to having made plenty of mistakes, including objecting to Octopus Investments funding the nascent Octopus energy, currently a rare ray of light in an otherwise strained market for challenger energy brands and a £6bn business.
That once or twice he made a bad call in no way diminishes from his phenomenal success. He puts some of this down to a simple rule for assessing people he picked up way back when he was helping to build Capital One.
“One of the things that I have got good at doing over the years is picking entrepreneurs who really want help, who really know how to listen, who are both strong willed enough to have their own opinions, but also to be willing to learn and integrate new information and pivot and process and so forth. For this, I need you to be excellent and super smart and super articulate and opinionated and forceful, but also humble.
My ex-boss at Capital One, who was my boss in a consulting firm, called it “the ratio”. The ratio is how good you think you are over how good you are. We wouldn’t hire anybody where we thought that ratio was higher than one. It didn't matter how smart you were, if you thought you were smarter than you were or thought you were more competent than you were, that was trouble down the road.
“And I care about the end. But I also care about the values and integrity, the reasons why the entrepreneur’s doing what they're doing. I like working with nice people, I know that sounds kind of dumb. But in my own investing, it’s important. I work with people by choice. I'm lucky enough that from Capital One onwards, I have never had to work with somebody I didn’t want to work with. It’s really important. And I think it has some bearing on outcomes, too.”
Cooper says they don't make decisions in quite the same way with his Exceptional Ventures fund, where decisions go through what he calls a two-person investment committee”, but even there with a more formal approach Cooper says, “We only invest in people we like and people who engage with us in a certain way.”
His message for those looking to invest as angels is to make sure they get access to as many deals as possible and also to make sure they can add value to the founder. Otherwise, he says you need “time, acumen and capital”.
He adds that, putting things as simply as possible, “the best investments are those that have interesting, big markets, stunning, entrepreneurs, and massive scalability”.
And he’ll always be pushing for more, faster growth. “Two things I can say about myself is that I’d always want to go bigger, faster. If someone comes to me as says should we do A or B, I also say go for both. I want to know why we can’t do something today, why we have to wait, and why can’t we do both A and B.”