When Katherine Hague made her first angel investment, she was one of two women in a round of 70 investors.
“It seemed like the deal had gone through an old boys network that women were excluded from,” she says. “It revealed an incredible opportunity to break through these barriers and expose women to investing.”
She started Female Funders in 2015 to fill in the gap with a blog featuring interviews with prominent female angel investors like Joanne Wilson and Esther Dyson. The platform quickly evolved into a burgeoning community for entrepreneurs and aspiring angel investors to connect, learn, and invest. The team’s current goal is for the 1,000 women who participated in their pilot Angel School program to make their first investment by the end of this year.
Katherine solely invests in women-led companies to move the needle on the amount of venture capital that is awarded to female founders. “Being a female founder myself I want to change those numbers,” she says. “I feel like I can make a difference by investing in women entrepreneurs.”
In today’s featured interview Katherine breaks down the basic dynamics of angel investing for early founders and investors as well as how to get involved. If you are an aspiring angel investor, the second and third sections on evaluating investments and steps to get started will be most relevant to your work.
What to Know Before You Meet an Investor
Natasha Case, Founder of Coolhaus, strongly posits that when you are accepting an outside investment you have to think: “This person is so lucky to be involved with my brand.” The underlying thesis is that founders should avoid partnering with an investor solely for the capital. It’s critical to be incredibly clear about the role an investor plans to play in your company.
Katherine shares foundational questions to answer before you partner with an angel investor. You can gain a baseline understanding of the quantitive ones by doing research through platforms like AngelList.
- Has this investor written a check in the last six months?
- How often do they invest?
- What is their average check size? Do they participate in follow-on rounds?
- What sectors do they invest in?
- How actively involved is this investor in his or her portfolio companies?
- How often do they except to be updated?
In addition to being clear about an investor’s character, it’s important to develop a clear understanding of their investing patterns. According to Katherine, many individuals depict themselves as investors. She cautions founders not to fall for the description in a person’s Twitter or LinkedIn bio.
It is equally beneficial to speak to a founder in the investor’s portfolio to obtain an alternative perspective on these questions. Your goal is to gain a clear understanding of what it’s like to be in a working relationship with this investor. It is particularly important to ask entrepreneurs how the investor responds when the company is facing challenges. Katherine recommends reaching out to or asking to be connected with a founder who’s company failed. They’ll likely have a different story than an individual’s who’s seen steady success.
You need a complete picture of the person who is going to be investing in you.
What Angel Investors Seek in Founders
A lot of founders possess the misconception that investing is like Shark Tank. You deliver your pitch and find out if you’re receiving an investment shortly after. The reality is that “investors like to invest in lines not dots,” Katherine says, quoting Upfront Ventures Partner Mark Suster.
“An investor isn’t looking to meet you at a single point in time to decide whether or not they want to invest in your company. They want to see you at month one, and then three months later to see the trajectory of your startup. You need to demonstrate your capacity so they can answer the question ‘Does this person live up to the promises they make?’,” she says.
Cold emails rarely turn into investments. It’s all about building relationships.
It’s important to continue to exercise the mentality after the investment is made. Katherine’s experiences as both a founder and an investor play a defining role in the partner she’s aspiring to be for the entrepreneurs she backs. Her ultimate goal is to “be present but not intrusive.”
“I want to be the first investor founders come to when there’s a problem or something happening in their company; Really being more of a friend that they can rely on as they navigate scaling their business,” she says. “I want to be someone that you aren’t afraid to talk to and who will be there to help.”
She aims to stimulate this in two core ways. First, by openly communicating with her founders to maintain a constant pulse on the state of affairs at their company. She dually recommends that entrepreneurs reach out to their investors on a monthly basis with a comprehensive update. Ideally, detailing the projects you are currently working on, where you are meeting your metrics, any introductions you need, or areas of the business where you need assistance. Remember, your investors are there and eager to help. Develop an open communication policy where you can actively share what you need.
“Not all investors need or want to be in constant communication, but they all appreciate being updated,” Katherine says. Sending out regular updates limits your amount of inbound questions and decreases stress for your investors. Once a month has proven a good model for her however she advises entrepreneurs to find a cadence that works best for their investors and them. The core objective is to nurture your relationship and maintain an ongoing conversation about the state of the business.
Ineffective, or worse, non-existent communication can be detrimental to your relationship with your investors. Particularly when things are going poorly, you should be capable of honestly reaching out to them, explaining the situation, and asking for help and feedback.
Next, having been in their shoes, Katherine works diligently to make decisions quickly and not drag founders along without giving them a concrete yes or no. “Even when it’s difficult, you want to do your best to be very clear about how you feel so they can move or you can write the check,” she says.
These are the questions she asks herself after meeting with founders to streamline her decision-making process. For entrepreneurs and investors, these questions represent the criteria for a strong angel investment.
- Is this a person I want to meet with again? Is this founder an individual I would like to work with over time? “Investing is like getting married. There’s no way to stop working together once you partner,” Katherine says.
- Am I really interested in what she is doing? As an investor, a deciding factor for Katherine is whether or not she can add significant value to the founder and team she is partnering with. “Know your role and know yourself,” she says. “You need to invest in an area where you are truly equipped to be useful helping someone scale their business.”
- Is this a new concept that I haven’t heard a lot about? It’s wise to avoid pitching your startup as the “Uber for x” or the “Airbnb for x.”
- Is this founder the right person to be leading the company? As a founder, you need to demonstrate why you are uniquely positioned through your background and connections to be pioneering this business. Be prepared to answer: ‘Why you? Why are you the person who is capable of making this big?’
- What is this person’s level of ambition? It’s a big red flag when an entrepreneur is talking about the business being acquired in the next couple of years. If you aren’t in it to make a real change in the world, entrepreneurship likely isn’t the right path for you.
- Have they started testing and validating the idea? Is there traction demonstrating that this is a meaningful solution that users care about? A note to founders: You often don’t need an outside investment to validate your idea. You can conduct numerous experiments - particularly with technology and social media - to find out if there is a need for your product. This is often a deal-breaker for Katherine who says, “If you haven’t shown me that you are scrappy enough to figure out if people want this product why should I believe that you are scrappy enough to figure out how to build a company?”
Get Started Today
If these conversations and interactions with founders sound compelling, you can take steps to get involved and learn more about angel investing today.
First, diminish the misconception that capital restraints are restricting you from becoming an angel investor. With the right knowledge, you can actively start studying and making small investments whether or not they are in official rounds.
Katherine explains that many of us are already spending discretionary income on things that aren’t going to drive a long-term impact in the world or a personal financial return. She cites angel investor Joanne Wilson, also known as the Gotham Gal, who asked two women how much they spent on their holiday vacations. The answer was more than the starting range for an angel investment and put the opportunity in perspective.
“When you frame it that way it doesn’t seem intimidating,” Katherine says. “Angel investing is like buying your way into a learning opportunity.”
To be an accredited investor in the U.S. you need to have made $200,000 in annual income for the past two years, have over $300,000 of annual income with a spouse or possess a net worth of $1 million.
If you are an aspiring investor who doesn’t meet these qualifications crowdfunding platforms like Kickstarter and Indiegogo are an effective place to start developing pattern recognition. While you won’t receive equity in your investments, you can make early judgment calls and follow the course of a company.
You can also start doing research to understand foundational definitions, legal terms, and procedures. Female Funders is a great education resource where you can find a glossary of terms, interviews with angel investors, and educational videos. You can also join their Slack community where the team’s goal is to foster an open environment where individuals feel like they can ask any question and receive an honest, non-judgmental answer.
“Many investment communities have a lot of posturing where you feel like you have to sound smart and understand everything that’s happening. The investors who are leading them didn’t get here overnight. Many of them have been investing for decades,” Katherine asserts. “Our goal is to explain everything from the ground up so you can walk into any meeting with an entrepreneur with the foundational knowledge of what’s happening.”
For individuals looking for an accelerated and personalized program, Female Funders Angel School for Entrepreneurs and Investors is a good place to start. The course covers basic investing technicalities like cap tables and convertible notes, the realities of angel investing (such as the traits you should seek in a company based on its stage), and closes with a personalized plan for you as an entrepreneur or investor. You can see a sample mini-class on accredited versus non-accredited investors here.
In the same way that Female Funders has quickly evolved past Katherine’s initial plans, the community is growing and changing daily. Their second class is closing on Tuesday and they're making their first angel investment in a company launched by an entrepreneur who participated in Angel School. To follow along with their journey, connect with Katherine and Female Funders on Twitter @KatherineHague and @FemaleFunders, join the Slack community, and subscribe to their newsletter for weekly roundups.
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