Community wisdom #2

Alex Macdonald: Breaking the rules

Community Wisdom features intimate conversations with accomplished angel investors, distilling their most profound insights into focused stories. Every two weeks, we dive deep into one key lesson that shaped their investment journey.

Meet the investor

Alex Macdonald began his angel investing journey in 2014 while building his first company, Velocity Black. What started as helping a friend who reached out for fundraising advice turned into his first investment in Syft, which would later exit after four years at a 27x return. This exit marked a shift in the way he engaged with angel investing, from more instinctual and reactive, to process driven and rules-based. Today, Alex applies the lessons he’s learned from following the rules to know exactly when to break them.

Breaking rules you've mastered

"The best advice for the average founder is often the opposite of the best advice for the best founders," Alex reflects. Applying this same principle to angel investing, he explores whether the “rulebook” for new investors is different to the one for more experienced investors.

For novice angel investors, Alex advocates for starting with tried-and-tested rules: maintain a diversified portfolio, keep your ticket size consistent, avoid bridge rounds where returns historically disappoint, and importantly, back companies alongside experienced investors.

"When you're first starting out, you want to be investing alongside people who know what they're doing," he explains. "You want to be investing in deals where there is more consensus – what I call post-consensus deals." Post-consensus investing means backing opportunities where others have already validated the path. "You're not discovering new territory, you're following smart money into proven opportunities", Alex explains. This means co-investing alongside established VCs, joining trusted syndicates, and focusing on companies that already show signals of success. Of course, getting access isn’t easy. Building relationships with top tier funds takes time, and you’ll need to go through a continuous exercise of defining your value proposition as an investor. Why should they let you into the round?

A word of caution: While following experienced investors provides validation, Alex emphasizes the importance of building your own sense of judgment. "Write down what you're doing," he stresses. "Even if it's just basic notes about why you're saying yes or no to an investment." This documentation becomes invaluable for reflection and improvement. By forcing yourself to articulate your thinking, defend your decisions, and revisit past choices, you develop a framework that goes beyond simply following others. "It could be very basic notes, but just having something that you can refer back to and think like, why am I making this decision?".

The novice rulebook exists for good reason. Co-investing alongside established VCs provides both protection and education—you're not just following smart money, you're learning how experienced investors think. High diversification with consistent check sizes prevents the common novice mistake of over concentrating in the wrong opportunities or underinvesting in eventual winners. Avoiding bridge rounds keeps you away from complex situations that require expert pattern recognition to evaluate. These rules create a “safer” space for learning whilst you build up your portfolio size.

These rules, however, are the inverse of how Alex invests today. And perhaps, may act as a constraint for more experienced investors pursuing greater returns.

Today, rather than following others into proven territories, Alex often writes first checks before waiting for market validation in the form of performance metrics or reputable VCs getting involved. This is what Alex calls, “pre-consensus” investing. "It's like investing in Dumbo in the 90s," he comments, using a quote from Kushner, "versus investing in Fifth Avenue today." Once you’ve built up enough repetitions over the years, you start to develop "an instinctual way of assessing deals and a methodical way of assessing people." Backing startups that others don’t yet have conviction on isn’t about being contrarian for its own sake – it's about having earned the confidence to see value where others don't.

His biggest returns, including investments like ElevenLabs and Lawhive, came from backing companies before the AI boom and subsequent flood of venture capital. Pre-consensus investing is where the extraordinary returns typically lie. "This is a game of outliers," Alex emphasizes. "If you want to start really outperforming, you have to evolve your process. You have to be willing to make some bets that other people simply won’t make, even experienced investors."

Pre-consensus investing is also followed by a counterintuitive approach to portfolio construction and ticket sizes. While new angels are advised to spread their bets widely–"take your total budget for the year and divide it by 10, that’s your ticket size per investment”—Alex maintains a more concentrated portfolio of high-conviction investments, adjusts check sizes based on conviction, and isn't afraid to participate in bridge rounds when he sees clear potential for quick mark-ups and stronger IRR. Alex notes that the highest returning funds often have surprisingly concentrated portfolios, think Hummingbird and Thrive. But this approach comes with a warning: it's a strategy earned through experience and discernible wins, not borrowed through imitation.

Like any craft, angel investing reveals its sophistication through practice. The rules that guide us as novices aren't restrictions but foundations—each one teaching lessons that can only be learned through action. As Alex's journey shows, true expertise isn't about abandoning these principles, but about understanding them so deeply that you know precisely when they no longer serve you.