In preparation for our next newsletter deep-dive, I enjoyed talking to Alex Macdonald (Co-Founder @ Sequel) in this interview about how he sees the recent rise in athlete investors and what the advantages for Venture Capital GPs can be to partner with those athletes.
This is the full interview transcript (half-automatically created so there might be some grammatical inaccuracies in it).
Maximilian Fleitmann:
Hey, VC Stack Community! We are here today with Alex McDonald. Alex is a serial entrepreneur who has founded several companies and is also an active angel investor. So I think at the moment, he has around 30 portfolio companies all around the world. We are here with Alex today because he is creating a new company that's called Sequel. Sequel is basically turning professional athletes into investors. And we are taking a deep dive with Alex today on why that makes sense. Also, from a business perspective for Sequel, but also takes a look at the general markets and why more and more athletes and celebrities are becoming investors in startups. So maybe just real quick, Alex, give us a two-minute background on yourself, maybe if you want to introduce yourself, and then we jump over to Sequel and the market right now.
Alex Macdonald:
Sure, thanks for having me, Max. In terms of myself, I started my first company nine years ago, Velocity Black, which is a digital concierge product. It raised a lot of venture capital and grew internationally. Now there are 150 people in that company. And it's doing very well. I stepped back to be chairman last year to start Sequel. I have been investing myself as an angel investor for about the past decade now and saw a growing interest from people in my network outside the world of venture and startups to invest and learn more about startups, about business, and help companies, particularly from people within the world of sport and also entertainment. Together with a few friends, I discussed the opportunity to build something bigger than just a syndicate or a VC fund and to create a platform for professional athletes. That led us to start Sequel late last year. So we're still very early, just getting going, but we've had a lot of interest so far, both from athletes, and startups, and our partner VCs. So things are going very well, and I'm excited to be here and speak to you today.
Maximilian Fleitmann:
Nice, thank you so much. I read on the Sequel website that you are on a mission to help athletes build a legacy for their families. So what do you mean by that, and why does it even matter?
Alex Macdonald:
Yeah, very good question. There's actually a second part to that sentence, and maybe it's missing from one part of our website, which is: “build a legacy for their families and for the world”. Importantly, but just zooming out a little bit, you know, we believe the world is changing faster than ever before. I think that's evident. Startups have already proven they can transform the world we live in. Innovation is actually increasing exponentially. Some people think it's slowing down, but all the evidence shows that it's actually increasing. And particularly now with the advent of AI, chat GPT, and all the associated products that are being born out of that new wave of innovation, and the world's biggest problems in healthcare, climate education will be solved by startups and by innovation. But also by bringing more capital and attention to those companies, um, we think will help accelerate us towards a better future. Athletes have a unique ability to bring both capital and the world's attention to startups and some of those problems we're trying to solve. On the other side of the coin, many athletes experience financial distress, post-career, and they have very high bankruptcy rates. You can Google that, there is a lot of research on that in the US and in Europe. A lot of that comes down to bad advice they were given during their career and post-career, and also through a lack of long-term investing during their career. So we're looking to solve that problem for them with education and access to invest alongside the best-performing investors in the world. That will help them hopefully create a legacy for their families, as well as create multi-generational wealth and ensure that they're set up a well post-career. It will also help them learn and understand business, you know, whatever they want to do post-career. We've seen a lot of interest in athletes starting their own companies or working and moving to work in the startup world. And a great way to start learning about that is obviously investing in those companies. So yeah, it's building a legacy for their families, but also having a positive impact, investigating things which generally are transforming the world that we live in.
Maximilian Fleitmann:
That's cool, so maybe let's take a step back and take at the whole investing market or the investing market for athletes. So when was the first time for you that you heard about athletes investing in startups?
Alex Macdonald:
That's a good question, but a long time ago. My very first Angel investment was a temp recruitment platform called Sift in the UK. David Hay, the boxer, invested in that with me. I still remember at the time I was thinking, why would the general press be interested in writing about this company? And once David Hay invested, there was an absolute explosion of sort of articles about this company, you know, temp recruitment platforms. No disrespect to them, but it's not exactly an area of high consumer interest. But once David Hay invested, there was a huge amount of press that had written about it. It led to new partnerships for that company and new customers. They were able to attract a lot more talent to the business. Ultimately, that company was sold a few years later at a great exit for the founders and the team. So I guess that was my first sort of personal experience of investing alongside an athlete. I saw the impact that an athlete investing could have on a business. And then, obviously, it's been a real growing trend, particularly in the US, and I think the US is probably a few years ahead of Europe on this trend at the moment. Everyone from Shaquille O'Neal investing in Google's series A at a hundred million valuation, almost two decades ago. Now he is probably one of the first examples of athletes successfully investing in sort of world-changing technology companies. But yeah, it's something that's been growing in the US and is now also growing in Europe. It's been fascinating to see it sort of explode into the mainstream over the past few years.
Maximilian Fleitmann:
The question that I'm asking myself is, I think there are around 300,000 angel investors in the US or something, and if we are talking about athlete investors, are we just talking about like 10, 20 of the most well-known ones like Shaquille O'Neill that are all around the media? Or is there something, as I would call it, a long tail? Because I assume in the US, there are a lot of sports and a lot of professional athletes. So what number are we talking about?
Alex Macdonald:
So we've mapped out at least the publicly available information on athletes who are investing and those that have talked about it publicly. And just within the US, there are several hundred who have publicly been investing in startups. If you take away the public information, I believe that the long term in terms of athletes who have actually been investing, whether it's directly, whether it's through a VC fund or through a syndicate, I'm sure it numbers in the thousands just within the US across the main major leagues. And then, in Europe, it's much more nascent. We're right at the start of that trend here. So I'd say it's probably a couple of hundred athletes who have been sort of successfully doing this in Europe now for a couple of years. But it's growing very quickly. And all the data we have from the interest in our pre-launch community of athletes, which is growing strongly every month, is that those original big-name athlete investors that you see in the press have had a big impact on the motivations and appetite of other athletes to start investing in startups.
Maximilian Fleitmann:
So in the past two years, you talked to many of these athletes out there, was there anything that really surprised you in these discussions? Something unusual, uncommon around their questions? So just walk us through these kinds of discussions with them.
Alex Macdonald:
Firstly, I'd say there is definitely a difference between the US and Europe in terms of athlete education and knowledge about investing in a business. And actually, that really comes down to if you drill down into, it comes down to most athletes in the US have gone to college as part of the draft system. I think it's a great system. So most of 'em have gone to college, and the ones that do go to college, a lot of them do business degrees, right? So they have a fundamental understanding of business. As you may know, the US has a very entrepreneurial culture already. I'd say there's more interest in going down that entrepreneurial route in the US than there is already in Europe. So generally, they have a better understanding of angel investing, business, and entrepreneurship. Whereas in Europe, I guess the biggest sport here is obviously football, soccer, and most football players leave school at the age of 16, right? So they have a less formal educational business. There are a few exceptions to that rule, including Matt Smith, who's working with us as an advisor. He actually is one of the few professional footballers in Europe who went to university and got a degree, and is now doing a MBA. But the vast majority of athletes left school early. And so there is certainly a gap in terms of education and understanding of how business works and how angel investing works, which we're obviously looking to fill and address with Sequel. The other things that surprised me, was yesterday, for example, when I was speaking with an NFL player, and it's quite astonishing. This guy has not publicly got any profile in terms of his angel investing, but he's done more than a dozen angel investments himself directly, not through a fund. And he's been advising startups as well, particularly those in the sports tech world. I was frankly extraordinarily surprised about his level of understanding of the startup world and also how he has been proactively helping the portfolio company still invest a bit, right? As you probably know, all founders stand out with their investor updates every month or slightly less frequently. And they're normally asking for help with stuff. As you know, as an entrepreneur, you probably get a small percentage of your angels responding to those and actually helping you on the journey. What I think has surprised me in my conversations and understanding of the athletes, at least in our pre-launch community, is that they are very proactive in trying to help the companies in their portfolio. Which I think is a reflection of their appetite to learn, right? They want to learn how these companies work. And a good way of learning is getting close to founders trying to help with various things, whether it's promoting a product launch or giving some advice on leadership training or whatever it may be. Those are great ways for athletes to learn. Professional athletes are obviously very high-performance people, and you'll find that a very high percentage of them have a growth mindset. Like they're constantly trying to develop themselves. They're constantly trying to learn something new and become better. That's been sort of drilled into them through all of their training, professional training, as part of their teams, or as a solo athlete. So that's been really refreshing to see. It's not just people investing for a financial return. These aren't passive investors who are just putting some money in, and you won't hear from them throughout the rest of your startup journey. They're really keen to learn and help these startups grow and make an impact.
Maximilian Fleitmann:
So you were just talking about the character traits of professional athletes and how that can really help also in the investing world. Are there also some kind of character traits that make it hard for them to become good investors?
Alex Macdonald:
No, I think I wouldn't say character traits. I would say a lot of their experience from investing in other asset classes and the advice they may have received from people around them is not necessarily geared toward startup investing, right? It's typically investing in what are traditionally considered very safe asset classes, where there's a lot of liquidity you can buy and sell at any particular point in time, whether that be real estate or the traditional stock market. So there is certainly a mindset shift that you need to make when you want to start startup investing. By the way, we're obviously not firstly, we're not a financial advisor, but we don't advise athletes to stop investing in real estate or in the stock market. But we do think, just as any financial advisor will tell you, having a small part of your portfolio in higher risk, longer duration asset classes, like venture capital is an important part of a portfolio strategy. So adjusting their mindset to that is one core part of what we're trying to do with our platform and educating them. Just to get drill a bit deeper, why are athletes interested in venture capital and startups as opposed to public markets of real estate, right? Like, what's the rationale behind that? First, financially, if you invest well in venture capital, it far outperforms those other asset classes, right? On pretty much any time frame. If a Premier League player were to invest 10% of their salary over five years in various different asset classes, what would they have 10 years after that? It basically ends up, based on, if you assume about one and a half million pounds of invested capital, the stock market you have about just under 5 million after 10 years of real estate, you have 3.8 million. So these are good returns, right? On a 1.5 million pound investment, the average venture fund would be 6.8 million. So better than real estate in the stock market. And if you're investing in a top-performing venture fund or a top-performing startup, you'd have 45 million pounds at the end of a 10-year period, right?
So there is a significant opportunity for financial returns. Obviously, there are a lot of caveats to that in terms of building a diversified portfolio, ensuring that you are diversifying over time as well due to the swings and valuations and pace of growth of private markets during different parts of the cycle. But financially, there is massive opportunity there to create great returns. But beyond that, why startups? Well, if you're investing in real estate, it is not a pretty productive asset, right? It's a safe place to store your money. It's not creating jobs, it's not creating innovation, and it's not gonna change the world for sure. Certainly, you are, hopefully, those are productive assets, right? Those companies are employing people, and they're deploying capital and allocating capital to hopefully develop things and doing some research and development. But if you invest in the stock market, you're not really having, unless you're investing in big sums, direct exposure to the management team, you're not gonna impact those companies, right? Aside from the capital that you invest, startups are the unique asset class where not only are good opportunities for long-term returns, but you have the ability to interact with the management team to have a real impact on a company at the start of its journey. And that, I think, is quite unique. That's why I think we're seeing a real growing interest in athletes investing in this asset class, rather than some of those more traditional asset classes, as they have a chance to learn, they have a chance to have an impact, and they know that this is an asset which is actually gonna be productive. It's gonna create, hopefully, some value for society, which isn't necessarily the case if you are just buying another house.
Maximilian Fleitmann:
So if I think about investing in startups and venture capital as an asset class, there's like this big spectrum, that also most of the successful entrepreneurs, that start investing into this asset class C. So you can do anything from investing in syndicates, direct investments as a business angel, you can do LP investments into funds, or you can even raise your own fund at some point. So let's imagine I'm a professional athlete. I'm trying to start out now my investing career. So what would be my first steps, my go-to path? What would it look like?
Alex Macdonald:
Good question, I think it mirrors many of what traditional angel investors would do, right? If you were just starting off angel investing, how would you do it? Well, you typically want to learn from the best investors, right? So you want them to help you understand how startup investing works or the different trends or the important specific language that is critical to understand the market. And ideally, you want to invest alongside the best investors, right? Venture capital is one asset class where the past performance of venture capital managers and asset managers is a good indicator of first of future performance, right? It's not necessarily the case with some other asset managers and private equity, for example. It's not necessarily the case. So I would, as an athlete or as an Angel investor, be looking to, how can I learn from and invest alongside the best investors in the world. When you talk to a lot of the more experienced athlete angel ambassadors, there are a few that I can name, but Rio Ferdinand that's a good example of a footballer who bumped into a partner from one of the top VC firms in Europe at an event a few years ago. And he ended up going into their office every week, hearing startups pitch to that VC firm and learning from that VC firm on a weekly basis, and the ability to invest alongside them right now, that's the kind of experience that we're looking to scale through a platform. How can athletes learn from the best investors and have access to invest alongside them? That's what Sequel provides. You can obviously invest through syndicates. There isn't really an educational component to that. There isn't a community element to most syndicates out there. And you can obviously invest in a VC fund where you won't really have access directly to the founders that the fund is investing in. You're unlikely to have the opportunity to engage as much directly with them, to learn, and to add value to those businesses. So we're trying to enable athletes to both learn from and invest alongside the best investors in the world whilst directly exposing them to the underlying portfolio companies and founders, giving them the ability to learn and to hopefully turbocharge and accelerate the progress of those companies.
Maximilian Fleitmann:
As you already mentioned, a few athletes that are doing quite well in this interview, but give us some more examples. So who's doing a great job of doing all of this?
Alex Macdonald:
Well, I guess I could talk about the ones that are publicly talking about it. Some of the most successful athlete investors are about this stuff, right? And they don't like publicly talking about it. I guess one of the most prominent ones in Europe is obviously Mario Götze, who's been very public about his angel investing. He seems to have done very well. He invested alongside a lot of top funds, which is a good indicator that he has a high-quality portfolio. In the US, there is obviously a lot more of a track record of people driving actual returns, right? As you and I know, as an angel investor or even as a VC, you don't really know if you've been good at it for at least a decade. So you can get lucky with some early wins, but really it takes 10 years or so to really understand if this person is a good investor. But there are tons of other examples from basketball, from the NFL, and from the MLB, Alex Rodriguez. You've got tennis now, increasingly a few of the golf players, Serena Williams has got her own venture fund. She's very far along on that journey. Look at all the biggest names in sports and those who you see as most successful, if you actually look at how they've generated their wealth, most of the wealth has been generated off the pitch, off the court of play that's been generated through endorsements, and smart investing. In fact, I was reading yesterday that Roger Federer is, I think, the world's first tennis billionaire. And nearly all of his wealth came from smart investments and endorsements off the court. I think this is something that many other athletes are seeing, especially at the start of their careers. College athletes in the US, now have an opportunity to earn money through the various deals that are happening there. They're seeing that the most successful athletes are actually making a lot of their money off the court, off the pitch. And they should absolutely be focused on that as well. You know, they have a very short career. They have to capitalize on those opportunities while they have people's attention. And while they have a brand that they can use to get them access to invest in great companies, and also obviously do endorsement deals. And I think that's something which we're seeing a lot of growth of interest in. It's not just the goats that are doing this, it's the long tail of athletes now as well who are, and the ones who adjust. Probably the next goats in 10 years time, who are thinking about this now and starting to invest time in making it happen.
Maximilian Fleitmann:
So, help us to understand a little bit better how Sequel works. How does it work to bring together athletes on the one hand and startups on the other hand, and then you are also mixing VCs in between. Give us a breakdown of why VCs are interested in doing this and how you think about it.
Alex Macdonald:
Sure, I'll give you a breakdown. Firstly, on the athlete side, we're solving three problems for them. Number one is education. We have an app featuring short-form educational relevant content for athletes on startups and investing. It's easy to digest, it's accurate. Its only goal is to help athletes learn. The second part is deal access. We partner with top-performing venture funds that have a track record of delivering top returns to investors and every deal that is featured on the Sequel platform. We know we have a deal that drops, is being led by one of those top-quality venture funds. So athletes have the access to invest alongside the best investors in the world. And then, finally, we enable them to diversify. Diversification is critical in venture investing if you're to generate good returns for the long term, and we enable them to write much smaller minimum tickets into those companies. So those three things together, all in an app, right? A really high-quality consumer-grade app that our team has been building now for more than six months. We can give athletes the confidence to start investing and make these investments on the other side. How do we partner with VCs and founders, and why would VCs partner with us? As I mentioned at the start, we are bringing not only capital to these companies but also attention. Just having athletes on your cap table will drive a huge amount of press attention during the fundraising announcement. And beyond that, we're looking to help the portfolio companies drive interest in product launches and bespoke media opportunities on an ongoing basis with their athlete investors and post-investment. The founders get connected with the athletes, their athlete advisory board, and their investors through us, and they're able to directly interact with them through the platform and ask for help with various things. You'd be surprised at the different things that athletes can help with. It's not just getting press. In fact, probably the most notable way that athletes can help us is through their network. They have an amazing network. Obviously, everyone loves sports and loves athletes, so you'd be surprised at the sort of 100 CEOs through to pop stars and musicians. They know everyone, and they have the ability to really drive value to their startups through their network. Finally, most athletes have been part of elite world-class teams and cultures. They understand what it takes to build an elite culture, and they can give startups and founders a lot of advice on building their cultures on leadership training and even be part of team-building events with their founders and portfolio companies. So when we say value add investor, we mean it, and we invest a lot of time, both internally, we've got five extra entrepreneurs in the team who have successfully built and sold companies and have also done a lot of investing. So not only our team invests a lot of time in helping add value to those companies, but athletes obviously can add value in a number of ways, which we're sort of helping facilitate through the platform. Why would VCs partner with us? Well, we're accelerating the performance of their portfolio companies. We're helping them drive better returns. We give them access to our events and run an event series with athletes, VCs, and angel entrepreneurs, which VCs get access to. Certainly, a thought process among the most successful VCs right now is how can they create diversity in the cap tables of their portfolio companies. And eventually, the second asset class that we will launch is funds. So we will feature funds on the platform eventually so that some of our athletes can do some more, I guess, passive investing in this asset class beyond the active stuff they do directly. We will connect them with athlete LPs as well. Finally, most importantly, probably actually for the best deals out there, there is huge competition from VCs, right? And particularly right now in a cooling market, there is even more competition for the best deals. So a founder receives three or four term sheets from top VCs, and one of those VCs is partnered with us and can say, we can bring Sequel, and some high-profile athletes to your cap table. I think they have a big competitive advantage in winning that deal and getting their termsheet accepted. That's probably the most important one.
Maximilian Fleitmann:
Thanks for this breakdown. As most of our listeners and readers are investors themselves, so are a lot of VCs, and emerging fund managers in Angels, the question remains, how can they get involved if they are not a top-performing VC fund yet, or just starting to build out their own funds? So how can they get involved with athletes out there?
Alex Macdonald:
Firstly, I'm sure there are some top-performing VCs listening to this, so happy to discuss direct partnerships with you. But even if you're an emerging farm manager, we are looking at ways to create a scorecard for emerging farm managers, so we can partner with them directly as well in the future. But even before that, if they are investing, if they have existing portfolio companies who are raising new rounds, and they have top-tier VCs with long track records coming in and leading those rounds, we would obviously love to hear about those deals and look at those deals. Typically, we invest from large seed onwards, so $3 million plus seed rounds, to series A, series B, and Series C, and our ticket size will currently vary between half a million dollars through to around 5 million. In the following category: climate, tech, education, health, wellness, and sports tech, underrepresented founders, financial inclusion, and anything which fits those categories. Large seed, beyond, we'd obviously love to look at it. You can find our criteria and investment engine on our founder's page, the Sequel website. Or you can reach out directly to me through the Sequel website.
Maximilian Fleitmann:
Nice, I will also put all the links in the show notes below. And I want to finish off all of this with one final question for you, Alex. What is one thing that you wished you had known when you started out investing?
Alex Macdonald:
I wish I knew to diversify. This is the mistake most angel investors make, they go and say I'm gonna start angel investing. And they think, ok, what am I gonna invest this year? It'd be 50,000 pounds in startups, and they invest it all in one startup, or they invest it in two startups, right? You have to be very good at picking and probably very lucky in order for that strategy to pay off in the long run. But it would've been much better for me at the start to say, actually, I'm gonna split this 50,000 pounds up into ten five thousand pound checks, and over five years, I'll build a diversified portfolio of 50 startups by doing 10 checks a year. So that is one thing I wish I knew. And look, I was lucky again, I'm not gonna say that I picked well, but I say I was lucky. In some of a couple of first investments, I made very well. Diversification is critical if you want to drive good returns in the long term.
Maximilian Fleitmann:
Thank you so much for spending the day with us, and have a great rest of the week. Talk to you soon, Alex.
