What Do Investors Really Want?
Angel investors are, well, the guardian angels of business. Without them, many of the world’s biggest companies, like Google and Facebook, may never have gotten off the ground. Through these first-stage investors, struggling entrepreneurs get access to capital, the angel’s network, and often valuable business advice and mentorship as well. The angels, for their part, get equity in new, exciting and potentially world-changing companies.
Yet women are at a disadvantage when it comes to tapping into the angel network. In 2012, just 22 percent of angel investors were women, and only 5 percent were minorities. And, per an Emory University study by Peter Roberts, women-led for-profit social ventures are 40 percent less likely to get capital, despite generating 15 percent more revenue, than their male-led peers, says Natalia Oberti Noguera, founder of the Pipeline Fellowship, a training program to help women become angel investors.
Since April 2011, the Pipeline Fellowship has made angels out of more than 70 women, who have invested $350,000 to date. While the program focuses specifically on social ventures, their experience is useful for any founder looking for insights on what it is angels look for in the companies they support. We spoke to six Pipeline Fellowship alumni to get the scoop on how to attract money, interest and guidance from angel investors.
Be Coachable, Yet Grounded in Your Vision
Jamie-Lynn Despres is senior art director of the Emerging Experiences program at Razorfish, and has a penchant for punk music. She has invested in the woman-founded company Happily Ever Borrowed, which rents out designer bridal accessories online. Despres says that at the start of the pitch summit where she found HEB, they started out as “the last company” she thought she’d be interested in. Instead, she was looking to invest in something with a grand social mission. But HEB’s founder Brittany Haas blew her away. “As the youngest and least experienced in the room, she not only nailed the pitch with poise, but she had the guts to call out ‘collaborative consumption’ as the social issue she was trying to accommodate,” says Despres.
Despres says she remained heavily involved with HEB after the investment. In the first year, she helped Haas build her brand, source tech partners and provided personal feedback about user experience. Now, she remains available as a mentor. “Brittany knows I am just a text away,” says Despres. “I really enjoy being able to contribute my expertise to help the company grow, and want my entrepreneur to be able to count on me for anything early on in the relationship.”
In her work as a designer, Despres views her role as being able to solve problems for a wide array of clients and industries through intensive research. In her investing, she responds to people who show a similar ability to be effective and thorough, or as she puts it, those who do their “due diligence.” She says she looks for women-founded companies that are “innovative, tech-based and have a component of social impact.”
As for the entrepreneur behind those companies, Despres looks for someone who is “coachable yet grounded in her vision, maintains a wide breadth of knowledge across multiple mediums and is responsive to market trends in a smart way.” Her advice for entrepreneurs looking for capital? “Stay strong during the pitch processes and think of anyone as a potential investor or mentor while evolving your business model.”
Be Honest and Realistic With Yourself -- and Your Investors
Jamie Moy is an executive director at JPMorgan Chase. Woman-founded companies she’s invested in include Cissé Trading Co. (a company that sells fair-trade cocoa), Culinary Agents (a job site for the food-and-bev industry) and MAZDigital (a social-based digital publishing platform). You might spot a foodie bend in there, but Moy says she’s open to all sorts of companies. The important factor is that a company she supports is woman-founded or woman-owned, and “that they are ‘all in’ and have a vision for greater impact than what their current product/business can do today.” At the end of the day, Moy relies on her gut for judgment. “The non-numbers are the hardest to measure” says Moy. “It’s important to trust yourself when you don’t have all the facts and have to make assumptions for a calculated risk/reward.”
So far, Moy has been relatively hands-off with companies after investing in them. With Cissé Trading Co. though, she says that while she’s not a board member or advisor, she has introduced other angel investors, arranged an Investor Day for the company and plans to volunteer to do a live demo of the products at a supermarket in the near future. “Where I am needed or can help, I will not say no,” says Moy.
Her one tip for entrepreneurs? “Always be honest and realistic to yourself and your (potential) investors.” And: “Be resourceful and think outside the box to tap into all the resources that could be available to you — for free!”
Know Your Financial Model Inside and Out
Kellee Joost was made to be an angel: She’s managing director at Golden Seeds, an early-stage investment firm with a focus on women leaders. “I’ve walked miles in the entrepreneur’s shoes — from the startup to the exit, and with the peaks and valleys in between,” says Joost. “So I have a good idea of what the entrepreneur might need, even before she knows she needs it.”
She was first inspired to become an angel by a female entrepreneur she met in South Africa. Since then, she’s invested in Day One, which provides clean water for disaster relief, and Bespoke Global, a company that sells high-end, artisan home products. Joost says she doesn’t focus on any particular niche, though all her investments have in common “strong, thoughtful women at the helm.” She also wants to see in her founders “a relentless pursuit of the end goal, while exhibiting flexibility and creativity to overcome the hurdles along the way.” After her investments, she enjoys helping companies with “big picture work” and “the strategic journey.” The scope and timing of her investment is up to the entrepreneur, but, “Great entrepreneurs ask for help early and often, and surround themselves with a team of committed advisors and investors,” says Joost.
If you fit that bill, Joost advises that you leverage your network, leave “no potential investment stone unturned” and that you know your financial model “forward, backward, sideways and for every imaginable — and unimaginable — scenario.”
Be Smart About Why You Really Need Capital
Kelly Hoey is co-founder and managing director of Women Innovate Mobile Accelerator, a startup accelerator for women in mobile technology. Obviously, she cares about supporting female-helmed businesses. And she puts her money where her mouth is: Hoey has invested $5,000 to $50,000 each in six businesses since completing the Pipeline Fellowship, including PhilanTech, a grants management system for nonprofits; Levo League, an online community for female professionals; and Hullabalu, tablet-based stories for kids.
Hoey’s investments are diverse, which she feels is a reflection of her equally diverse career background, which has included law, legal marketing, consulting and nonprofits. She says the businesses she invests in begin “with the entrepreneur and whether it is a person (or team) I want to work with.” She also stays fairly involved with companies. “As a rule of thumb, I like to meet (in person or via G+) every six weeks to check in or provide a sounding board or guidance,” she says. She’s also more likely to be involved when the company is fundraising or if they’ve reached out to her while hiring or releasing new products or features.
Her one main takeaway for founders looking for capital is: “Be smart about why you really need capital and who you want to share ownership in your company with.”
Tell Them Why -- And Make It Easy
Erica Frontiero is senior vice president of GE Capital and is inspired by the energy of entrepreneurs. “Their creativity, passion and commitment to change and improvement are contagious,” she says. She’s invested in a wine company called Blackbird Vineyards, and, alongside Kelly Hoey, in PhilanTech, the grants management system. Frontiero seeks to invest in “game-changing, technologically forward and adaptive businesses that place an importance on their legacy, but also straightforward concepts that just make sense.”
Her level of involvement differs with the company and depends on what’s useful. In some cases, she simply acts as a sounding board; other times she helps negotiate with suppliers or customers. “I have gifted wine to market a vineyard, hosted dinner parties to connect potential clients or investors with entrepreneurs and helped create financial models,” she says. And for some companies, she functions primarily as an investor: “I ask questions on financials and strategy, monthly or quarterly — matching my questions or demands on the company to the size of my investment on a relative basis (something some investors can overlook, adding unintended burdens on the management team),” she says.
Her perspective is informed by her work in finance. “Startups are essentially prequels of the businesses I finance on a daily basis,” she says. “With startups, you have to place more emphasis on the qualitative data like scalability, management and gut instinct because quantitative metrics like sales and profitability aren’t always there.”
Frontiero has a lot to say to entrepreneurs seeking funding. “Don’t take the fundraising process personally. You are asking people for money. [Investors] have a variety of places they can put it [and] as a result, they are likely going to have a number of questions to help them to understand your business,” says Frontiero. “If they are taking the time to speak with you, they are interested in potentially investing, so be prepared, realistic and forthright with your answers. If you don’t understand something, ask for clarification so you can answer the question they asked instead of seemingly avoiding it. Tell them why they should invest; make the consideration easy for them.”
Get Your Financial House in Order
Elizabeth Crowell is a co-owner of Sterling Place, an online gift shop. Her frontline experience in building a business, she says, means she knows “how to bootstrap, pivot and grow an organization beyond the co-founders.”
After completing the Pipeline Fellowship, she invested in SoMoLend, a social-based lending site for small businesses; a venture fund from Impact Investment Partners focused on health care investments in India; and Contact Fund, a private investor focused on community development in NYC; among others. As a New Yorker, she likes to invest in businesses that are local to NYC or support local businesses. Her investment deal breakers? “Poor credit history, cockiness and reticence to share information.”
When Crowell first began investing, she planned to be hands-on with every company. But with a portfolio that’s now grown to 20 companies, that’s no longer possible. “Instead, I offer my time and expertise when it's most impactful,” she says. “I have two companies that are raising capital right now — clearly it's crucial that I get them connected to as many potential investors as possible. Another company is going through a re-brand, and since my background is in marketing, it makes sense for me to be involved.”
Crowell’s advice for entrepreneurs: “Get your personal financial house in order before going after outside capital. Have a good grip on your cash flow and a clear plan of how you will use the capital to grow your business.”
Pipeline Fellowship has opened a call for applications for its fall 2014 angel investing boot camps in Atlanta, Austin, Los Angeles, Miami, San Francisco, and Seattle. Help us change the face of angel investing! Apply by Monday, April 2, 2014.