In case you don’t know, my co-founder is a woman, Tracy Grover. Normally, I don’t think much about her gender and as she likes to tell me, I’m pretty good “for a guy” in how I treat women. But as I’m quickly learning, it seems to pay to care about her gender because there’s a small but growing and very active community of women entrepreneurs and organizations to help them.
Forum for Women Entrepreneurs and Executives (FWE&E) and Astia are two of our favorites we’ve started to work with. The people we’ve met are awesome – extremely helpful and very seasoned. In fact, it’s becoming hard for me to imagine how we ever could have “gone it alone.”
So I’ll share some insights from a recent session FWE&E hosted Tuesday night: Keys to Success as an Angel Investor. The session featured three experienced angel investors:
After I got over my nervousness at being only one of two men at the session 
, we learned many useful things:
Portfolio Returns - They’re looking for classic 5-10X returns because out of 10 deals, they’ll only get their money back on 5-6, 2-3 will fail, and 1-2 will provide a a strong return. On average they’re seeking a blended 25-30% Internal Rate of Return over any five year period. And they were all insistent this is not a short term game given it seems to take about five years for the noted “hockey stick” graph to kick in. You better want to be active in pursuit of returns because it’s not a field for passive investors.
Typical deal size – In the $500K range up to $2M. Expect different structures by group where you might get one check or a bunch of individual checks.
Your deal needs a sponsor within an angel forum. The deal won’t happen without someone caring, helping, and getting angels on-board.
What they’re looking for in due diligence: The 4 M’s…
- Mojo – Is it a great idea? Some tend to fall in love with ideas, perhaps too much…
- Market – Big enough? How big? Greta made a great point about a company needing to connect the size of the market to how the company will capture a piece of it. Too often it’s the old “If we only get 3% of the market…”
- Money – Structure of the deal
- Mgt Team – Domain experience, have they done this before? Who’s on advisory board? What’s the runway of the leadership team? How coachable is the CEO?…and interestingly (and correctly, I think) Greta said she wouldn’t invest if she asks a CEO will he/she step aside in 1-2 years if he can’t run it and he answers “no.”
What’s changed given the economy? Valuations are lower than they were three months ago. Convertible notes are giving way to equity. More discrimination around a deal. Less deal flow (fantastic!) A cleansing of Angels with a short term horizon (such as some retirees.) They’re MORE not LESS bullish, it’s better than 2000. And finally, some money did indeed evaporate from current deal commitments.
Common mistakes angels make – Well just knowing they make mistakes is terrific news…they fall in love with ideas, have too much or too little patience, don’t pay enough attention to the mgt team (do they fight? collaborate?) and interestingly, make investments but fail to monitor the balance sheet. Someone gave an example of giving $400K and finding in a few months it evaporated.
Hope this was helpful to you entrepreneurs out there.