Ask the Mompreneur: How to break into angel investing
This week’s “Ask the Mompreneur” features an interview with Elizabeth Crowell, owner of the Sterling Place retail chain and e-commerce website. After several profitable years in business, Crowell decided to invest in other woman-led companies and is a graduate of the Pipeline Fellowship angel investing boot camp for women.
QUESTION: After building and running a successful business for the past decade, you’ve decided to make the leap from investing in your own company to investing in other entrepreneurs. How did you make this transition and what advice do you have for others interested in doing the same thing?
ANSWER: Every investor will have their own path, but I think there are a few key steps everyone should take to increase their odds of success.
Step 1: Get real about your role. Before becoming an investor, any entrepreneur should ask herself: Am I prepared to be on the sidelines of a business rather than playing the leading role? Can I be a coach rather than the star player?
If you can afford to invest in other businesses, your business most likely was profitable and you’re comfortable calling the shots and being the boss. And if your business had investors, you probably understand that although their cash, contacts and connections were vital, at the end of the day, your team — with you as the founder or CEO — executed the vision and built the business.
In my case, this was the appeal of angel investing. I needed a breather from being “on the field,” and was looking for other ways to be involved and share my knowledge.
Step 2: Get educated. Investing in startups, especially those run by first-time entrepreneurs, is extremely risky. Since 3 out of 4 startups fail, there is a 75 percent chance you’ll lose 100 percent of your money in any given investment.
That’s why it is so important that you educate yourself. You can get your feet wet with books such as “Angel Financing for Entrepreneurs” by Susan Preston, which will introduce you to the basic concepts. You can also search for angel investing conferences and events in your local area.
And as with anything, direct experience is the gold standard for learning, so consider taking part in an immersive program like the Pipeline Fellowship boot camp. Pipeline’s angels-in-training learn the fundamentals of due diligence, term sheets and valuation through classroom work, mentorship and hands-on learning. During the Fellowship, there’s a pitch summit and, ultimately, your cohort of about ten women pools funds and decides to invest in one women-led social venture. In addition to the hands-on investing experience, you’ll have the opportunity to bond with members of your cohort and build a network with mentors and industry insiders.
Step 3: Get going. Once you’ve made the decision to become an investor and educated yourself, it’s time to decide on your personal parameters.
—Geographic constraints: local, national, international?
—Stage of company: Are you interested in seeding a pre-revenue startup, or, are you only interested in companies looking for capital to expand a successful idea?
—Industries and sectors: Will you take Warren Buffett’s advice to avoid investing in anything you don’t understand, or, are you willing to invest outside your areas of expertise?
—Size of investment: How much will you invest per company? Fabled angel investor Joanne Wilson follows one simple rule: Whenever she invests, she buys 1 percent of the company. As the company continues to bring in additional rounds of capital, she re-invests so that she maintains the 1 percent ownership.
—Go it alone or join a group: Angel groups and venture funds can help you diversify and spread the risk, as can funds associated with business accelerators such as Women Innovate Mobile. But if you’re not ready to commit to an annual investment minimum, there are online groups such as AngelList and CircleUp that provide deal flow without any dollar commitment.
Finally, dig deep and get clear about what matters to you. This is your chance to put your money where your mouth is.
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