The Harry Potter guide to startup angel investing

Harry Potter. A boy wizard. You can be a muggle (a person who possesses no magical powers) who has never seen the films or read the books but still know the character reference and the cultural impact starting when J.K Rowling wrote Harry Potter and the Philosopher’s Stone in 1995. Here’s a summary of the seven books in two paragraphs.

An orphan mistreated by his guardian aunt and uncle, the Dursleys, on his eleventh birthday Harry discovers that his parents were a witch and a wizard and that he, a wizard himself, has been invited to attend Hogwarts School of Witchcraft and Wizardry. He also learns that his parents had not perished in a car accident, as his aunt and uncle had told him, but that they were murdered by an evil wizard, Voldermort.

Harry himself is the only person to have survived an attack by Voldemort by somehow rebounding the latter’s killing curse, leaving him with a lightning-bolt-shaped scar on his forehead. At Hogwarts Harry becomes friends with Ron Weasley and Hermione Granger and has a rival in Draco Malfoy. He is taken under the wing of the school’s headmaster, Albus Dumbledore.  Unbeknownst to Harry and the wizarding world in general, Voldemort is planning a return and the books relay Harry’s battles with him. The epic saga culminates with Harry accepting his role as the ‘boy who lived’ and emerges victorious in his epic struggle.

In the first book, we are introduced to the Gringotts bank, the safest bank in the Wizarding World. Harry is surprised to see the fortune his parents left him, which was because of planning a Will and not leaving money to chance. But Harry has an appetite for risk, and whether it’s facing off against Voldemort or going after the Horcruxes, isn’t afraid to take a chance and often reaps the rewards.

When it comes to angel investing, Harry’s risk-taking attitude is just as applicable. Indeed, a recognisable startup brand in the wizarding world is Weasley’s Wizard Wheezes, founded by Ron Weasley’s brothers, identical ingenious prankster twins Fred and George Weasley. It saw hockey stick growth that tech scaleups dream of. In just a few years they took their venture from ideation and product development in their bedroom, to a company offering direct sales (at Hogwarts) and mail order service (from the Burrow), before finally opening a flagship bricks and mortar store at 93 Diagon Alley.

Their emporium is a novelty joke shop. Shop for all manner of mischief such as magical jokes, tricks, and toys including Pygmy Puffs, U-No-Poo pills, Skiving Snackboxes, Puking Pastilles, and more. Of course, none of this would have been possible without a crucially timed 1000 Galleon Angel round led by Harry.

Harry became an angel investor, supporting his friends venture to develop their market. It was worth it! The Weasleys made it big time, and with Harry’s funding they turned their idea into a successful enterprise. Harry made his seed investment after winning the Triwizard Tournament. This is after Ludo Bagman reneges on his bet with Fred and George and pays them back in leprechaun gold rather than real galleons. 

Harry has a clear appetite for taking risks that pays off in the end, but often the journey to reaping the rewards is quite tortuous as all the books and films show. But with his successful investment in Weasley’s Wizard Wheezes, what advice do we think Harry would give to fellow startup angel investors when looking at startup opportunities? Here are a few thoughts.

1. Hold your nerve and be optimistic You start thinking anything’s possible if you’ve got enough nerve – Ginny Weasley, Harry Potter and the Half-Blood Prince

Angel investors often find themselves in situations where they have to calculate ‘go or no-go’ based on incomplete information. It’s an opportunity with upside but could equally have a negative outcome. Angel investors hold their nerve, back themselves and take a balanced view. Becoming too risk-aversive endangers your aspirations and you miss opportunities.

As Harry shows, a little nerve can go a long way to making impactful things happen. Equally there can be upsides in unforeseen, challenging circumstances in the long run.

2. The founder is open and transparent The truth. It is a beautiful and terrible thing and should therefore be treated with great caution. Albus Dumbledore, Harry Potter and the Sorcerer’s Stone.

Investing in a startup is intrinsically investing in the founder as an individual. It’s important that founders understand the value of their transparency and honesty, and no matter what the situation, are truthful.  Cultivating investor relationships where the founders voice is heard openly regardless of good/bad news is critical to success.

While the truth may not be easy, treating it with caution and respect allows founders to hold themselves accountable for results and ultimately startup success.

3. Can the founder sell? What you fear most of all is fear. Very wise. Remus Lupin, The Prisoner of Azkaban 

Many founders, no matter their years of experience, face daily mental barriers on their ability and appetite for selling. They are great problem solvers and thus product innovators – but cannot sell. In my experience this can have a major impact on the growth opportunity. If you don’t believe the founder can find, win, and keep customers, then from Harry’s network at Hogwarts, look for a Remus Lupin character in the startup team.

Remus was perceptive with people, with an uncanny ability to guess the thoughts of those around him. This intuition and skill, combined with an ability to communicate through body language – a trait that Remus was extremely talented at – makes for effective sales people. Remus was quick witted, smart, and strong social skills, all of which combine to winning business deals.

4. They have passion for R&D It does not do to dwell on dreams and forget to live – Albus Dumbledore, Harry Potter and the Sorcerer’s Stone

As for the skills and capability in sales, you need to see a passion and capability for both R – experimentation – and D – implementing innovation. From Harry’s network, Hermione had these attributes in buckets. Brewing potions in her second year, teaching spells in her fourth and applying complex protective charms by the end of her seventh year,  a startup needs this type of catalytic person living in-depth research. It’s simply tilting your head a bit and thinking of problems differently using a variety of skillsets.

While everyone was studying Defence Against the Dark Arts, Hermione was researching the effects of polyjuice potion. Given Hermione’s thirst for knowledge, attention to detail and perfection, albeit with a really high-risk taking capacity, her kind is definitely the one. She was always there to save the boys with her sharp eye. Knowing that a startup has an appetite for ongoing innovation and researching the market will always give an angel investor encouragement.

5. The founder and the team are effective decision makers It is our choices, Harry, that show what we truly are, far more than our abilities. Albus Dumbledore, Harry Potter and the Chamber of Secrets

Like Dumbledore, angel investors need to sense that founders recognise the importance of choices and accountability in general and incorporate the right ones in day-to-day decision making and actions. Having effective decision-making skills empowers founders to take the right steps, vital in the frantic pace of startup growth. I define it as an ability to be mindful of the circumstances and demonstrate the ownership necessary for achieving desired results.

6. Observe a culture of teamwork We are only as strong as we are united, as weak as we are divided. – Harry Potter, Harry Potter and The Goblet of Fire

Nearly every metaphor for business success has one thing in common: teamwork. From rowing boats, to orchestras, to well-oiled machines, every well-tread analogy acknowledges the power of collaboration. Startup organisation cohesion and effective teamwork are critical to success. If a founder can get individual and collective accountability right, they’ll get everything right.

Harry had a good group around him. The Boy Who Lived had the bravery and the dream to prove himself. Hermione had the logic to overcome difficult tasks. Ron had the interpersonal skills and strategy. The first team members of a fast-growing startup will typically need to use their Gryffindor bravery and Ravenclaw wit to solve a wide array of hard problems, especially since the team will feel understaffed.

7. Connect the dots What’s comin’ will come, an’ we’ll meet it when it does – Hagrid, Harry Potter & The Goblet of Fire.

Startup financial projections are built around making a series of educated guesses about how things might go. Founders make assumptions about how much customers will pay for their product, how much it will cost to acquire a paying customer, and how many times they will keep buying.

When Harry invested in Weasley’s Wizard Wheezes, he made a judgement call on the people, their product, and the route to market. Harry’s ability to think outside the box and laterally showed he understood the risk-return continuum and knew that sometimes you have to take a chance in order to make a profit. However, connecting the dots in the business model is more important than pouring over spreadsheets.

8. Be prepared for bumps – like a ride on a Hippogriff We’re with you whatever happens – Ron Weasley, Harry Potter and the Half-Blood Prince

When Dumbledore announces Hagrid as Hogwarts’ new Care of Magical Creatures teacher, there is a little trepidation after the initial excitement, as when you look at some of the creatures Hagrid had introduced before – Norbert the dragon, Fluffy the three-headed dog, Aragog the gigantic spider – you can see why. A Hippogriff is half horse, half eagle, and known for being sensitive and temperamental, as Harry found out when he rode one.

Startup investing can be a wild journey. While the outcome is rewarding, the ride can be scary sometimes, and there are inevitable ups and downs. Sometimes things might even seem hopeless. Not easy, but with a little gumption, you can get there and be part of helping a founder and their team achieve something special.

9. Don’t get too close to the founder Dark times lie ahead of us and there will be a time when we must choose between what is easy and what is right – Albus DumbledoreHarry Potter and the Half-Blood Prince

Angel investors should think strategically and independently about the investments they make, and separately from the likeability of the founder. Can they grow this business and give me a x10 return? Often there is a close and empathetic personal relationship with the founder, but you need to maintain objectivity and use your acumen and experience to guide them.

Harry had been familiar with some products of the Weasley’s Wizard Wheezes and invested in good faith with the vision of the Weasley twins. However, the company’s strategic plans were overlooked due to friendship. Get emotionally close to your founder, creating mutual trust is key, but retain a clear head and don’t compromise.

10. The startup has the right tool set I am a wizard, not a baboon brandishing a stick – Seamus Finnigan, Harry Potter and the Half-Blood Prince

Harry’s wand. The invisibility cloak. The Marauder’s Map. Without these tools, it would have been impossible for Harry to defeat Voldemort and the Death Eaters. A startup also needs to apply the right tools to make the venture work. That means whatever specific tools needed, but also tech to automate basic business processes – CRM, email marketing, event management.

Harry’s modus operandi is almost always slapdash – but brilliant – in stark contrast to Hermione’s advice to think through every detail carefully, and plan, plan, plan. Harry is right to be a cavalier and go with his instincts, but scaling requires a startup to build a repeatable sales process for example, so use the tools available.

Lessons for muggles aspiring to be angel investors. Harry taught us to never give up. He destroyed the horcrux within himself, and then came back from the dead to kill Voldemort. His adventures do mirror the ups and downs on startup angel investing, but shows that with ingenuity, wit, and perseverance, you can push through challenges, bounce back, and succeed.

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