Alliance of Angels: How Yi-Jian Ngo Sifts for Startup Gold

When he worked at Microsoft, Yi-Jian Ngo got to work on high-profile projects like the Windows Azure cloud-computing platform and the hosted version of Microsoft Office. But when he left Redmond to dive back into early stage companies, Ngo had to spend some time gaining a little on-the-ground experience.

And so he found himself north of Seattle, asking the proprietor of a bouncy-house rental company to unfurl his wares so Ngo could inspect them as part of the due diligence for a loan from entrepreneur Andy Sack’s alternative-finance startup, Lighter Capital.

“The owner was actually quite concerned, after learning that I had young kids, whether part of the diligence was him unpacking every single bouncy house and having my kid jump on it,” Ngo says with a laugh. “I assured him that, no—there would be no need for any inflation. I just need to see them all.”

Yi-Jian Ngo

It was pretty solid training for his current job, as the newest managing director of Seattle’s Alliance of Angels, one of the region’s top groups for early stage investing.

Ngo started on the job last fall, replacing Greg Huey, who moved on to work at Seattle-based décor company Glassybaby. As the Alliance of Angels’ day-to-day manager, Ngo has to wrangle promising startups for a group of about 100 investors, who preside over possible deals with a relatively laid-back, collegial process. And that means he has to reach well outside his own areas of technology expertise, which are concentrated in infrastructure, software, and mobile.

One thing that probably helps Ngo navigate all those different domains is his varied career and training. He once worked as an electrical engineer in Singapore—ask him sometime about the all-nighters fixing the haywire bagging machines at the sugar factory—and added education in the law and finance to his quiver before working in corporate development for AT&T and Microsoft.

That well-rounded resume undoubtedly feeds some of Ngo’s rules of thumb for evaluating companies for possible Alliance of Angels financing. And like a seasoned art critic, Ngo says, you can often tell the right entrepreneurs from the wrong ones by seeing how they carry themselves.

“I’ve had the good fortune of doing startup-related things for more than five years, and I’ve seen a lot of entrepreneurs. And after a while, you can do pattern recognition,” Ngo says. “You have a sense of what is the portrait of someone who has a high potential of succeeding.”

Here are a couple more insights from Ngo about the kinds of things he uses to whittle down the pool of possible startups into something the Alliance of Angels might think about investing in.

—Why are you doing this?
“One of the things I usually ask right up front is … why are they choosing to build this company?” Ngo says. “And if someone tells me that they’re doing it because they felt that they were bored at their previous job and they wanted to do a startup, and just happened to choose this particular one, that’s considered a weak answer.”

The better version: An entrepreneur was convinced that there was a major opportunity, but nobody at their previous employer would pay attention or support them. So, after repeated attempts to make it happen, they struck out on their own to solve the problem.

—How’s it work?
“I also spend a lot of time on the user experience. This is a term that’s more closely associated with consumer things,” but it can apply to all kinds of different businesses, Ngo says.

“For example, there was this recent company that came to me that makes furnaces—which is very different from a website. So I wanted to understand, let’s say I wanted to buy the furnace. How do I find a distributor? Does the distributor come and measure something in your house? And how long will it take for the thing to come? How long will it take to install? How do I maintain this thing?” Ngo says. “I get a sense for how difficult it is for the end customer to actually get it—the adoption friction. And I also get a sense for, is there significant value in this?”

—Why would I do this?
Ngo says he tends to avoid tools that require a big change for users—“in order to use this thing, I would have to change my worldview in some massive way.”

“This is more common for many of the consumer things. If you say, ‘I’ve got this new way to organize your memories, experiences, yadda yadda’—I’m like, ‘OK, so how does it work?'” If the answer is that you have to log in to a special, new, dedicated website or service, that’s a warning flag, Ngo says.

“Most people already log in to a certain number of sites, like Facebook or whatever works for people. If you want to make people go, just to rearrange their photos or whatever … to another site—to me it’s just not going to happen.”

—How does this make money?
Yes, even in this bubbly time when Facebook, Twitter, and other social tools have made build first/monetize later all the rage, Ngo says it’s very important to identify how a startup will actually earn money.

“In many cases, because we’re really early, these are hard questions for many entrepreneurs to answer, because they honestly don’t know,” Ngo says. But he still tends to drill down pretty hard into the details—especially when, for instance, a software-as-a-service startup says it’s planning to charge a very low price.

“There are very, very few companies that got large or built very substantial businesses” that way, he says. “The other is when they do the freemium model thing—‘I’m going to get 200 million people to sign up, and 1 percent will pay for it.’ And if it’s this kind of thing, again, I get very worried.”

Those kinds of questions usually work no matter what sector a startup is focusing on, Ngo says. And if they don’t really apply, chances are it’s too capital-intensive for angels to invest in anyway.

“We actually had a biotech [drug] company come in last month. My first question to him was, ‘What the heck are you doing here?'” Ngo says, laughing. “They actually were really high quality and really credible folks. But this takes $50 million to $100 million to get off the ground. We are the wrong funding source.”

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2 responses to “Alliance of Angels: How Yi-Jian Ngo Sifts for Startup Gold”

  1. It does NOT take $50-100M to get a biotech company up and running. That’s how much it takes to get multiple drugs through multiple clinical trials. This is the price for a fully integrated biotech company minus the onsite manufacturing (i.e.. i’t s outsourced).

    I’ve created a biotech company that is “up and running” with less than $500K. It hasn’t been easy or without issues, but North Coast exists today because of a business model that rejects the conventional wisdom of building a biotech company.

    As for Angels – you give me $400K/therapeutic antibody candidate and you, the Angel, will get back minimally $4M in less than 4 years total. And that ROI is based on the worst case scenario for an antibody out license. The range is $100M all the way to $1.6B.