Understanding Angel Investing: Pro Tips from Successful Angels and Entrepreneurs

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At the recent Pipeline Fellowship conference, investors shared their insight and advice for both entrepreneurs and other investors.

By Vanessa Mason (Contributing Writer, Women 2.0)

The lack of gender diversity in tech is not merely limited to startups. Angel investors are no exception. Only 19 percent of angels are women even though women control nearly 60 percent of the wealth in the United States and the number of wealthy women is growing twice as fast as the number of wealthy men.

Natalia Oberti Noguera launched the Pipeline Fellowship in 2011 to change the face of angel investing while building access to capital for female entrepreneurs.

Recently women from Seattle, Los Angeles and the Bay Area came together for the 2014 Bay Area conference eager to challenge their assumptions about angel investing. As the day progressed, women shared stories how learned about angel investing and their motivations to start investing to align their finances with their lives and values.

Check out some of the pro tips that investors and entrepreneurs can use to understand the art and science of angel investing.

What Makes a Good Investment?

The data show angel investing is valuable for the money AND time that angel investors offer. More engagement from angels means a greater return on investment. Angel investors can offer mentoring and connections as well as increasing the likelihood of investment from other angels. Unfortunately, there’s no algorithm to predict what makes a successful investment. Like venture capital, angel investors should develop an investment thesis as they build their portfolio.

Kicking off the first panel with hugs, Monali Jain, Wayne Sutton and Gwen Edwards offered humorous advice about their approaches to angel investing.

  • “Ask more questions than you have put in dollars.” Jain urged new angels to ask questions to conduct sufficient due diligence and to protect their investment. She also shared how she “shopped” different angel investor groups to find one that fit her interests and experience.
  • “An A man with a B plan is better than a B man with an A plan.” For Edwards, good investments relied on understanding the entrepreneur as a person and their motivations. As the managing director for Golden Seeds in San Francisco, Edwards spoke from experience that good character enables entrepreneurs to pivot when needed and make decisions guided by their moral compass.

How Do You Decide to Invest?

Two afternoon panels made discussion about due diligence and deal structure both informative and entertaining along with a surprise appearance from Dave McClure from 500 Startups. While due diligence requires aggregation of quantitative data, some investors rely on a bit of healthy intuition. One investor in Ellen Weber’s angel group Robin Hood Ventures often says "If a person’s desk is too clean I'm not investing." Ana Diaz-Hernandez, Neil Anderson, Richard Zolezzi, and Bedy Yang discussed factors that affect the process of due diligence.

  • “Don't assume other people have done your work for you." Diaz-Hernandez cautioned against investing blindly without putting in the effort for due diligence. Discussing her team’s approach to investing at Kapor Capital, she shared that they look for philosophical alignment keep themselves accountable to their standards.
  • Look for the resilience of founders.” Anderson looks for founders’ discipline in using money in previous endeavors to predict future success.
  • “Start with a list.” Zolezzi’s simple advice helped clear up the complexities of due diligence and keep focus on defining and following standards.
  • “Work on pattern recognition and build your portfolio.” Pattern recognition in investing  is often criticized because it can exclude diverse teams and companies. Yang turned this upside down by touting how pattern recognition can help new angel investors better understand and evaluate potential investments. One way to leverage pattern recognition is through looking at syndicates like 500 Startups’ new syndicate500 Womenfocused on funding women-led startups.

Nnena Ukuku, Lisa Lambert, Kevin Laws and Eve Chaurand dived into the details of deal structure and discussed key considerations.

  • “Do not let your lawyer negotiate your deal on your behalf.” Prompting a fair number of lawyer jokes, Chaurand emphasized the main role of a lawyer should be making term sheets comprehensible in plain English.
  • “Don't over engineer the term sheet.” Laws wanted to keep angel investors from reinventing the wheel by using standard term sheets as much as possible.
  • “Follow the money.” Lambert served as the translator for key term sheet terminology during the panel. Outlining all of the ways that investors can partially or completely lose control of their investment, her advice aims to protect ownership within the company.
  • “Decide on culture and let legal define that.” Ukuku identified another key role for lawyers in structuring deals: establishing successful organizational culture.

What Happens After Investment?

After a few anecdotes about the similarities between dating and angel investing, conversation turned toward how to support the entrepreneurial community and ensure future deal flow. Women 2.0’s own CEO Shaherose Charania moderated the last panel featuring Shanna Tellerman, Kesha Cash and Richard Zolezzi on navigating relationships with entrepreneurs.

  • Don't let anyone tell you you can't do it.” Zolezzi ended the day on a positive note to encourage investors as they headed back to their home cities.
  • Don't invest money you can't afford to lose.” Cash highlighted a couple of companies such as Pigeon.ly that are outside the norm of typical investment opportunities. While all investments carry risk, investing in new markets carriers an additional layer of risk that could contribute to losing the investment.
  • Always think fundraising and exits.” Tellerman emphasized the need for showing up and engaging with teams regularly to ensure preparation.

What’s the Future of Angel Investing?

Pipeline Fellowship has trained over 80 women since launching in mid 2014 and is continuing to grow. Applications for the Spring 2015 Pipeline Fellowship bootcamps in Austin, Boston, Chicago, DC, Miami NYC, and Philadelphia are now open. The next due date for applications is September 22. Oberti Noguera is also hosting Pitch Summit in San Francisco, Los Angeles and Atlanta, a one-day event  for female social entrepreneurs to pitch their companies to her newly minted angel investors.

Changing the face of angel investing will require more than just building gender diversity. Only 4 percent of angel investors are minorities, underlining the need to have more people of color become angel investors to support greater diversity among startup founders.

Oberti Noguera illustrated this need by sharing a quote from Freada Kapor Klein, founder of the Level Playing Field Institute: “We have to stop treating people who started on second base as if they just hit a home run," adding that angel investors tend to fund people who they can relate to. If we are to build meaningful diversity, we will need to change the face of angel investing and entrepreneurship.

What questions do you have about investing?


Vanessa Mason (@vanessamason) is the eHealth senior manager at ZeroDivide where she advises on the design, development and adoption of digital health for the underserved. Vanessa also consults on global health and technology development and adoption. She earned her BA from Yale University and her MPH from Columbia University.