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This podcast series is produced in partnership with Project Entrepreneur, a program by UBS.
If you want to be an entrepreneur, the rarest ingredient is having the constitution to endure.
Company ideas are commodities, and today’s best practices and the support infrastructure have become ubiquitous. Of the obstacles that do persist, information scarcity isn’t one for entrepreneurs.
That isn’t quite so if you want to be an early-stage investor.
Where an overdue and fierce battle for increasing representation among entrepreneurs is alive and well, private market investing remains a particularly clubby boys’ club of finance. The rules and advice and deals remain cloistered.
That’s why we at Technical.ly, with the support of Project Entrepreneur, a program sponsored by UBS, piloted “Off the Sidelines,” an angel investor education podcast. Over the last three months, we put out an initial season that outlines the framework of assessing early-stage investing as an asset class.
Private market investing has surged in the decade of growth that has followed the Great Recession. Worldwide, private equity and private debt, which includes venture capital and a tiny sliver of individual angel investing, grew by 44% in the five years ending in 2019, as reported by The Economist last month.
This can be a point for alarm, as frothy valuations follow idle cash and presage peril. But inside this growth has been a glimmer of change: Nearly a quarter of the 200,000 angel investors in the United States are women — and 30% of those who made their first investment in the last two years were women, as of 2017.
If we want growth segments of our economy to benefit Americans with different backgrounds, change must come with the entrepreneurs and those making financial bets on those entrepreneurs. In truth, they relate.
It’s with this in mind that we produced 10 episodes speaking to early-stage investors about their own journey and advice to getting into venture capital. Broadly, there are three pathways to early-stage company investing: doing it yourself as an accredited investor, contributing to a new fund from a venture capital firm or working at an investment firm.
All three have similarities, but for this season of “Off the Sidelines,” we focused on those interested in doing this themselves. Across interviews, there were many common themes. For one, all interviews cautioned against seeing startup investing as a vehicle to maximize financial returns, particularly as you begin this career. Your money turns illiquid and in a highly volatile category. Instead, active investors will advise you to focus on a contrarian worldview you have and see this as act of creation to contribute to that future.
If you’re a high net worth individual, or aspire to be, here are some important takeaways to inform your early investing approach:
1. Be honest with yourself. Let yourself be wrong.
In Episode One, Village Capital cofounder Victoria Fram told us that early-stage investing is humbling. Even the best prepared investors will get things wrong. It’s best to give your predictions “time bounds,” and hold yourself to it. That includes investing itself. You have to enjoy the work of it.
2. Learn what kind of relationship you want to have with the entrepreneurs you fund.
In Episode Two, Alicia Syrett of Pantegrion Capital told us that investors can have different relationships with the companies in which they invest. It depends on your strengths, and the needs of your portfolio. Do you want to have regular check-ins to debrief and discuss in depth, or are you strategically valuable for specific needs at different intervals? Be wary of either extreme — distant “dumb money” or a micro-managing backseat driver — but there’s considerable range in between.
3. If it’s a no, then make it a no.
In Episode Three, Angela Lee of 37 Angels, which runs an angel investor bootcamp series, told us that new investors will sometimes linger on a response to an entrepreneur’s pitch. This helps no one. She champions being transparent, upfront and clear. Develop a good sense of your interests and priorities. Move forward or don’t, but whichever direction, be direct.
4. Invest in where you have a unique advantage.
In Episode Four, Kesha Cash of Impact America Fund told us about the importance of subject matter expertise, and a view for a future that is different than most others. Her focus on “shadow economies” is an example of her belief that underrepresented corners of the economy will be best served by entrepreneurs who come from those same corners. Cash represented a common theme, that issues of representation can be a savvy investment thesis, not purely a philanthropic mission.
5. Balance your gut and your spreadsheet.
In Episode Five, Henri Pierre-Jacques of Harlem Capital told us about his thorough approach to due diligence, with a heavy reliance on industry trends. A common theme among early-stage investors is those who are data-first and others who are founder-first. Anyone will you tell you that you need both: A firm handle on the business and sector realities and a good gut for whether the team you’re investing in can navigate the changes that will surely come.
6. Have more than one motivation, beyond financial return.
In Episode Six, David Hall of Revolution told us that early-stage investors should have a strong stance on how they hope to impact the world, beyond a financial gain. All investors will remind you that it is unlikely you’ll have a strong financial showing quickly. It’s important to have other priorities, like boosting the kinds of founders you want to see, or attacking an industry you believe to be weak or solving a big problem you think is being underserved. This helps make the case alongside your early middling returns.
7. Your dollars vote on the world you want to see.
In Episode Seven, Astrid Scholz of Zebras Unite and XXcelerate Fund told us that it’s important to understand how the existing infrastructure of investing operations works but you ought not settle for that reality. By making bets on what will come next, investors bend, however slightly, the direction of that future. Your dollars, then, contribute to how the world operates. Make sure you’re contributing to something you want to see.
8. Invest where you have an edge on access to customers, insight or entrepreneurs.
In Episode Eight, Josh Kopelman of First Round Capital told us angel investing begins as a learning adventure. To succeed, you’ll need a specialization, and that likely will mean you have unique access to buyers, industry trends or the best founders. As he put it, investors should always question: “If I’m being offered an opportunity, is it because they think I am the smartest person on the planet, or the dumbest?”
9. Predict a contrarian future. Bet on founders you believe in. Be patient.
In Episode Nine, Linnea Roberts and Ita Ekpoudom of GingerBread Capital told us about the approach they’re developing after their years of investment banking. One element is about picking your team and sticking with those in whom you believe. It started when Roberts contrasted the advancement of women in the finance sector, shy of the highest leadership roles, but saw less of it among founders. It became an investment thesis: To expect a world of more female leadership, they wanted to bet on more female founders. You ought to have your own.
10. Investing is itself an investment. It’ll take time.
In Episode 10, Tracy Chadwell of 1843 Capital told us that this is a true process. Just as an individual startup investment could have a five-year, or even 10-year, horizon, you must approach your developing an angel investing practice as an investment itself. It will take time. Set a goal of writing one check. De-risk it however you can. Trust yourself.
One reminder we made every episode is that angel investing is risky. Accredited investors are granted no crystal ball. Even most professional venture capital firms do not generate enough returns to justify their risk. You ought to be getting involved for other reasons than a financial return.
But how do you start? Attend startup pitch events. Buy lunch for an entrepreneur and talk through their worldview and approach. Angela Lee’s episode is a particularly good beginning, given that she teaches at Columbia University and offers an angel investor bootcamp via her 37 Angels.
With so much less learning available, we’re happy to offer you a starting point on this road to angel investing.-30-
Tracy Chadwell of 1843 Capital explains the ‘skill set of the ask’
Linnea Roberts and Ita Ekpoudom of GingerBread Capital on supporting female investors and founders
Josh Kopelman of First Round Capital reveals the best thing investors can do to help founders
Astrid Scholz of Zebras Unite and XXcelerate Fund provides a menagerie of investment advice
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