No matter the company, the product or even the gender behind the wheels, raising capital to start a business is always a challenge and most certainly a must. According to High Growth Women-Owned Businesses’ Access To Capital, a 2014 report by the National Women’s Business Council, male-owned companies receive nine times more capital than women-owned businesses and with the knowledge of statistics like that, more women find themselves wanting to do more to help and become an angel investor. But where does one start? Is becoming an angel investor difficult?
It is easy to assume that in order to help fund a business take off one would have to be quite wealthy, but in an article on Forbes, Elizabeth Yin, general partner at Hustle Fund, who answered queries on the question and answer site, Quora, revealed that wealth was not actually a necessity saying, “I know some angel investors who invest only $1k per startup. At $1k, you can fund ten companies with just $10k on hand,” adding that the “best startups will take a small check”.
In addition to that sentiment, Cecile Sevrain, cofounder at TIIME, Community Manager of LBAN (Luxembourg Business Angel Network) and the coordinator of the EBAN (European Business Angel Network) Impact Investing Committee, says, “If you don’t have a lot of capital, you can also look at equity crowdfunding,” adding that there you can select from a project of your choice to become involved with. Sevrain does, however, caution that this route is not as direct of a relationship as it would be as an angel investor. “Usually the platform bundles the crowd into a vehicle which is the interface between the company and the crowd.”
Even with the knowledge of the potential to invest with just a little starting capital, there still remains the question of where and how to start. For those answers, and much more, I had the great opportunity to pick the brains of Hedda Pahlson-Moller, business angel and founder/CEO of OMSINT/TIIME, an Impact Solutions organization providing Advocacy, Advisory and Investment services.
TARA: How did you become an angel investor?
HEDDA: I was angel investing long before I knew that it was referred to as such. As an entrepreneur whose business was, fortunately, developing well, I began supporting other entrepreneurs in their adventures and doing both debt and equity deals in the start-up phase to help them along – and becoming part of their exciting journeys.
TARA: What made you want to do so?
HEDDA: An entrepreneur knows first-hand the struggle and challenges of building a business; there is nothing more important than the support and advice of an experienced entrepreneur on your extended team … and add some desperately needed cash in the bank account, and you become a life-line. So I do it in part for empathy and in part for the thrill — of being part of an exhilarating journey of innovation, growth and potential industry disruption — not to mention the impact. The most remarkable value creation happens at early-stage; it’s the riskiest time to invest but the most exciting.
I do it because I believe the entrepreneur has what it takes to reach her targets and to make the business work. I do it because I couldn’t have succeeded without it myself — and I want to give that back and nurture the entrepreneurial ecosystem that drives positive change.
Of course, I hope to earn my money back with mighty returns for the risk and time that goes into such a venture – but financial returns as a sole and single-minded goal would be ill-fitting given the hazards and reality of the space.
TARA: What steps can women take to become an angel investor so they too can invest in women?
HEDDA: Join a local Business Angel Network – they are everywhere! Check out EBAN (European Business Angels Network) for an overview. We feature many initiatives focused specifically on women for entrepreneurs and investors alike.
Find co-investors with whom you can review projects and collaborate within the due diligence and investment. Programs like Go Beyond (founded by a remarkable woman, Brigitte Baumann) provide training and co-investment deals to help you out.
We have built Rising Tide as a program specifically to train women who want to become early-stage investors. We are starting our third fund and have women from all over Europe, Middle East and Africa. And we’re launching a Rising Tide program specifically for Africa www.risingtideafrica.com
To invest in women you just need to make it an explicit requirement in your screening criteria. But keep in mind to look for projects that embrace diversity of all kinds — and not just at leadership level! It’s important to use the gender-lens across the value chain.
TARA: How can one know if becoming an angel investor is, in fact, the right path for them? Do you feel it takes a certain kind of personality/mindset?
HEDDA: If you are not risk-averse and love to learn new things, this is an exciting field to explore.
TARA: How long, on average, does it take to see a return on your investment? Is there a timeline one should keep in mind?
HEDDA: Oh that varies significantly… depending on the industry, the stage of the investment and the entrepreneur of course. I began with 3-5 years as a target but shifted that up to 7 years as I developed additional metrics on social/environmental returns that is part of my impact investing requirements. But I’ve also seen exits in less than a year, so it’s very dependent on circumstances – and what you are looking for. And a lot of “right time right place”.
TARA: Should you only invest in areas/ideas/concepts that you know and are familiar with?
HEDDA: If you want to have any influence on the project and on “fate,” then absolutely focus on projects where you can add value – and will understand the problems and can be part of finding solutions.
TARA: Should you take chances/be risky or play it safe as you start?
HEDDA: Honestly speaking, it’s all risky. That’s why you should co-invest with experienced investors who can complement your knowledge and experience.
TARA: How do you spot a good investment?
HEDDA: There’s no formula, unfortunately. But an experienced entrepreneur with a solid business model and go-to-market strategy and a few solid investors behind her — now that’s an attractive deal to look into. But then you really need to believe in the entrepreneur … there’s a very personal connection that makes these deals click.
TARA: How do you get your name out there for the investments to come to you?
HEDDA: Again, Business Angel networks and events – we have plenty at EBAN all advertised. And go to entrepreneurship events like hackathons or incubator/accelerator events. There are plenty of online portals and groups as well – no shortage there.
TARA: What piece of advice were you given that’s never let you down?
HEDDA: Don’t bet it all at once — go into deals with reasonable chunks and stay in the future rounds without getting diluted. And stick to what you know … I’ve rarely been lucky when I invested in domains in which I did not have experience or networks.
TARA: Why do you feel it’s important for women to invest in each other?
HEDDA: We need to support each other. We have a long way to go until the playing field is evened out there, and women investing in women will be a critical game-changer. Investing in women is just good business sense (see Krawcheck article). And it’s a critical path for addressing global issues around diversity and inclusion to begin breaking the unconscious — and very conscious — biases against women in business, finance and entrepreneurship. Who better to understand and support a woman entrepreneur than a woman business angel?