😇 Angel interview #6: Sari Azout
"I like to say that my mission is to bring more humanity and creativity to tech and business."
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Sari is a venture partner at Level Ventures, head of strategy at Rokk3r Labs, prolific writer of Check Your Pulse (sariazout.substack.com), and mother to top it all off. Previously, she founded Bib + Tuck, a community for pre-owned fashion. She is based in Florida (though she’s spending the rest of the year in Colorado).
Can you give a quick introduction of yourself?
I'm Sari Azout. I was born and raised in Colombia, then moved to the United States for college. I've been in the world of startups for most of my career with the exception of a two-year investment banking stint. Most recently, I've been angel investing. I feel like the one unifying thread across my work is that I love seeing ideas go from zero to one. I like to say that my mission is to bring more humanity and creativity to tech and business.
I like to say that my mission is to bring more humanity and creativity to tech and business.
I like that motto. When did you start angel investing?
My first angel check was in 2018. I had been investing before but it was institutional investing. Never with my own capital. My path to angel investing is a little atypical. I've been investing institutionally since 2016 and angel investing since 2018.
How did you end up in institutional investing?
I graduated from college in 2010, then I spent 2012-2015 working on my own startup, which I sold in 2015. Afterward, I joined a startup studio as the head of strategy. At that time, I started getting emails from founders I had met along my entrepreneurial journey.
I didn't have a ton of my own capital to invest. But I started sharing deal flow with other people that I met during my trajectory and I put together a syndicate in 2016 to put capital into a company called Monica + Andy, the sister apparel company of Bonobos, without personally investing.
I ran the syndicate until I was approached by a family office to run their venture arm. I have been investing institutionally on their behalf since 2016. There's some rigor and constraints around what we can invest in. I realized that there were companies and founders that I loved and resonated with me that didn't make sense to invest in the context of the family office.
I wanted to work with these founders. That's why in 2018, I started writing small checks into companies that I felt that I personally aligned with. It's the most exciting part of my work right now. Finding those companies that may not necessarily fit a traditional VC portfolio but that I'm able to support with my check.
When you invest institutionally and on your own behalf, do you ever run into a conflict of interest?
The mandate for Level Ventures is to invest once there is a functioning prototype and measurable traction. For example, a company called Brella in the childcare space reached out to me. They were super early, I loved the founders and I felt I understood the space and the pain points. I'd spent a lot of time thinking about that category. It was a stretch to get the fund to invest because the company was pre-launch but I personally invested.
I hope to write a small check and over time, either help Brella raise their seed round or bring the investment opportunity to the fund, where there is more rigor in the diligence. There hasn't been a conflict because we have clear boundaries and constraints and processes on the institutional side.
In fact, there's so much opportunity at the pre-seed stage, which we don't really touch as a fund and that's what's most exciting to me from an angel perspective. With a lot of the stuff that I angel invest in, there's more gut feeling: "I love this founder. I love this team".
In fact, there's so much opportunity at the pre-seed stage, which we don't really touch as a fund and that's what's most exciting to me from an angel perspective.
When did you first hear about angel investing?
I became familiar with the term when I was fundraising for my startup. I remember meeting with VCs in New York such as Lerer and Beta Works, who would say: "We love what you're doing, this is perfect for an angel, you should talk to Ron Conway", or certain other angel investors. I realized how much clout certain individuals had.
I admire Scott Belsky. He was the founder of Behance and is a prolific angel investor. He's constantly announcing angel investments. I realized that there was this path where you can be building great products, working with startups as an operator, and building a unique portfolio, creating a halo effect. It becomes an individual brand.
I realized that there was this path where you can be building great products, working with startups as an operator and building a unique portfolio, creating a halo effect.
It sounds like there's an organic transition from founder to angel investor.
You're definitely seeing that now. One of the things that I love the most about what we're seeing today in venture capital is how founders are receptive to filling their round with angels. A couple of years ago, a firm would be leading your round. Now it's about the individual.
Angel investors have a different mandate. They don't have a billion-dollar fund to return so there's more flexibility in the expected outcomes. It's a net positive for the ecosystem to take angel investors seriously. In many cases, if you think of a company like Notion, they were originally funded by angels. See where they are today [Note: They raised at a $2 billion valuation in April]. The angel rounds are also getting larger. It used to be $200k checks and now you've got angels writing $10-20 million checks.
One of the things that I love the most about what we're seeing today in venture capital is how founders are receptive to filling their round with angels.
How many investments have you made so far?
I've made 8 angel investments since 2018. Most of those investments were made the first year I was angel investing. With angel investing, you have to learn from experience. You just have to start and get some momentum.
You don't just invest in the deal, but you invest in the deal after the deal. The founders you've invested in start to think about you for introductions. The quality of my investments has improved over time. The most recent ones will be some of the better-performing ones.
With angel investing, you have to learn from experience. You just have to start and get some momentum.
Do you have an aim for the number of investments that you want to make per year?
At the beginning of 2019, I remember saying: "This year, I want to make at least three angel investments." That was my true north. I've come a long way. Now, I'm not tied to a number. I'm getting deal flow, I have more conviction in my ability to pick startups. I have where to draw from. When I was getting started, it was harder to plug into the ecosystem. These days, it's opportunistic. If I see something that I like, I'll do it.
I'm trying to pace myself so that I don't run out of dry powder. Once you're in the game, you can be more opportunistic and stay on the sidelines if you want to. Right now, I can decide not to invest in anything new for six months and nothing is really gonna happen.
It's different for venture capital. A lot of funds have specific capital amounts that they need to deploy. You can imagine that it leads to suboptimal decisions in some cases, you're like, "Oh shit, we've got 20 million to deploy and it's almost December." That stuff happens.
As an angel, part of the benefit is that you don't have any pressure to deploy capital other than when it's self-imposed. It keeps the bar high.
Once you're in the game, you can be more opportunistic and stay on the sidelines if you want to. Right now, I can decide not to invest in anything new for six months and nothing is really gonna happen.
How much time in a week do you spend on angel investing?
Does Twitter count? The line between work and life is blurring. Sometimes I'm reading stuff about tech and startups and that's informing my views. My work is also complimentary. My day job is running strategy for startups. I'm constantly surveying and keeping a pulse on what's happening in the startup ecosystem.
I spend a lot of time on the angel side when I'm doing diligence on a company. If I'm going through diligence, that will add 10-15 hours to my week of work. Other than that, I'll be doing this regardless of whether I was angel investing. I love learning. I love understanding what's out there. I love startups. I might as well try to make some money from the things that I love.
I love learning. I love understanding what's out there. I love startups. I might as well try to make some money from the things that I love.
Do you have an investment strategy?
With angel investing, if you start out too broad, it's impossible to become known for something. There's an inverse correlation between how much you know about something and how excited you get about a deal. If you know a ton about marketplaces and you see a marketplace, you'll probably spot the challenges and ask the right questions. Whereas if you see a drone company or a crypto business and you're not an expert, you're gonna have that shiny object syndrome. It sounds super cool but you're not the right person to do diligence. It's hard to be a generalist and invest across every space.
I invest in companies that marry an old stodgy industry with great customer experience. The commonality across everything I invest in is an obsession with customer happiness. It's usually consumer tech, whether it's Hippo building a much better approach to insurance or Modern Fertility building a much better approach to women's health in the fertility space. It sounds broad but the reality is that you can spot a customer-obsessed team quickly.
My sweet spot is companies that are building great brands and at the intersection of design, technology, and brand. That's also where I can be uniquely helpful because I instinctively understand how to build brands and how to think of consumer experiences. My angel investing strategy is investing in things that I'm personally excited about and that I will be proud to have backed.
There's an inverse correlation between how much you know about something and how excited you get about a deal.
Let's say you've invested in a startup. How often do you stay in touch with a founder and how involved are you?
I will only invest in a founder who sends monthly updates and who is mindful of maintaining communication channels. Typically, those updates have a clear ask, where they need help or have asks. The monthly updates are the bare minimum.
When I get a monthly update, I reply with how I can help. At the very least I'm up to speed on the company. I don't think there's a science as to how involved I am.
In the case of one company, I was involved in the overhaul of their website. I found a UX copywriter and storyteller and I paired that team. I was overseeing that work. That's an example of where I was really involved. In a lot of others, I'm not that involved.
I want the founder to feel comfortable calling me, not only as a friend, but also for mental support. An important personal KPI for me is, "Will I be the first call for the founder when shit hits the fan?" I care about the emotional side of entrepreneurship. Much of what makes a founder succeed is having a support system. Mindset is everything in the early days.
The reality is that as a founder, you constantly feel like you're running off a cliff. With investors and a lot of the startup world today, there's this pressure to constantly show that you’re killing it, and everything's great. I try to open up a channel for the opposite: "How can I be an investor that you can lean on?"
Mindset is everything in the early days.
What tools do you use for investing?
I have a simple model listing my number of investments, returns, and potential IRR. I bought it online. It's pretty useful. I use it for tracking.
I use Airtable to track deal flow. It's always good for me to go back and see how many founders I spoke to, invested in, and understand my funnel.
What is one investment you're proud of and why?
One investment that I'm proud of is Brella. Childcare is an overlooked space. One of those companies can only be designed in a thoughtful way by mothers.
I remember meeting them and every conversation that I had with them got me more and more excited. I leaned in before they decided to raise money. They managed to successfully raise a larger seed and right now, it's a challenging time, but I feel that this is a team that is going to see through this challenge and rise up.
Another company that I'm really excited about in my personal portfolio is a company called For Days. They're creating the first circular economy apparel brand.
In both of these cases, there was no precedent. You can't really look at comps because nobody has tried to do something in this way. That's what I love about angel investing. I have the freedom to believe in a vision and support it without having to prove to anyone other than myself that I believe in them.
What are some challenges you find with angel investing?
With angel investing, check sizes are going to be small. You're doing $10k-20k check sizes. With that check size, you don't have information rights, you don't have pro-rata rights. You're banking on having a good relationship with a founder.
A lot of people that get into angel investing are operators, and they think "I love this company. If only they did this, I'm going to invest in them and help them do this". The reality is that you have limited operational input. If you really connect with the founder and there's alignment, you might help them develop a new product strategy. However you can’t assume that it will happen every time.
Angel investing is hard because it's a numbers game. Statistically, the likelihood of investing in a winner is a long shot. The reality of venture today is that it’s power law-driven. The vast majority of returns are concentrated into a small number of funds, the Sequoias of the world. You have to be prepared to lose money unless you're able to see the right amount of deal flow, pick the right companies, and win the right companies. You have to get those three things right. That's a lot to do, especially if it's not your main job.
That's why you see people get into angel investing where they have a unique shtick. "I am the best person for construction". Maybe I start there because I understand the space. If you have that uniqueness, there's an argument to be made that you can play a better game than the average angel. My expertise is that I'm product-driven. I think about the whole user experience and dissect the bits and pieces. It's hard for me to think top-down like, "construction is a billion-dollar industry" without thinking about it from first principles, "what is the customer problem?"
You have to be prepared to lose money unless you're able to see the right amount of deal flow, pick the right companies and win the right companies. You have to get those three things right. That's a lot to do, especially if it's not your main job.
What is the number one piece of advice you have for aspiring angel investors?
Don't confuse a good product with a good business. Don't confuse a good company with a good investment.
It's easy to browse on Product Hunt and find a unique tool and think it's awesome and want to invest without thinking through the difference between something being cool and shiny and something people are willing to pay for it. It's important to ask yourself: "Is this not only a good product? Is it a good investment?" The reality is that they're two different things.
Don't confuse a good product with a good business. Don't confuse a good company with a good investment.
Where can people reach you?
People can reach me on Twitter at @sariazout. I write a newsletter at sariazout.substack.com. Level ventures is the fund that I invest out of and we always take pitches through our site.
We would love to hear from you. Do you have any questions for Sari around angel investing? Feel free to leave a comment below.
Previous interviews:
😇 Angel interview #5: Andy Ayim
😇 Angel interview #4: Sarah Drinkwater
😇 Angel interview #3: Ali Altaf