This week’s “Ask the Mompreneur” features an interview with Elizabeth Crowell, owner of the Sterling Place chain of retail stores and ecommerce 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 bootcamp for women.
Ask the Mompreneur:
After building and running a successful business for the last 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?
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 three out of four startups fail, there is a 75% chance you’ll lose 100% 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 bootcamp. 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/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 one 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.
* Women based in Chicago, Los Angeles, and the Bay Area are eligible for Pipeline Fellowship’s Fall 2013 angel investing bootcamps. Apply now.
Jennie Wong, Ph.D. is a business coach and the creator of CartCentric.com, an online tool for getting product recommendations from family and friends.