One of my colleagues recently pointed me towards a brilliant flowchart, exploring how you know if you’re ready to angel invest. Mike and I thought about what it might look like in the impact investing space, but it is true that there is no simple route into angel investing with a social impact lens.
We all know there is no one kind of angel investor, and there is certainly no one kind of angel focused on social impact either. That’s the amazing thing about this sector – people come from such a diverse range of backgrounds. What brings us together is a shared set of values, the fact that we want to support and invest into businesses doing social good.
Some people get into this and know a lot about a particular sector, some know a lot about angel investing, and some know a lot about starting, running and selling a business. I was one of those; I have been on a journey of 13 years from when I sold a business that I had helped to grow. When I started, I didn’t know much about angel investing. I could relate to entrepreneurs and analyse the financials of a business and look critically at a marketing or sales strategy, but it didn’t mean I knew about cap tables and preference shares and how term sheets are structured in angel or venture deals.
I did my first deals on my own. I certainly made mistakes, and then I started to think – okay, what do I wish I had known? How do I find out more about this? Then I met this group – Investors’ Circle. Here was a group full of people like me, and I thought – wow, a couple of hundred people who all care about the things I care about, who have been doing this and know about how it all works. Here are people who’ve made this journey already.
I knew that here was a place for me to learn and also to bring my own experience to the table, support some great entrepreneurs making a difference – and yes, here was a place for me to have some fun. Between us, we could add value much greater than the sum of our parts. So I really did dive in. I looked at deal after deal. Some I invested in, many I didn’t. I sat on screening committees for deals, and emceed some venture fairs. When I started, I didn’t even know what it meant to sit on a screening committee, but I learnt – and then I volunteered to lead screening teams. I helped to start a collaborative angel fund within our network. Eventually I was asked to run Investors’ Circle.
When I came to the UK, I wanted to see other angels make that journey, here in the UK. For me, Clearly Social Angels lets us share our collective knowledge about business, and investing, and social good.
So angels come in all shapes and size – but how to start out if you’re not there yet?
Well, first you have to learn about angel investing. That means the what (What types of attributesdo we look at for these companies? What’s the difference between investing in seed-stage vs. early stage businesses?) and the how (Do I have the time for this? Can I give these businesses the attention they need? Can I get involved in due diligence?). You can have such an impact on a businesses at this early point in its trajectory, so you need to know you’re ready for it.
You also need to decide what you can offer – do you have more money than time, or more time than money? The decision on how much capital you have to invest is an important one. You need to know that you have enough to risk £15k or £20k into each deal – knowing that you’ll build a portfolio, that you’ll do the due diligence and make good calls, but that it is a risk nonetheless. For some, that starting point of £15k into each deal might be where they stay – for others, they’ll be investing hundreds of thousands in this social investment space (let’s admit it, it is fun and it is rewarding).
It depends on the angel, but you need to know before you get started that you have the means to do this properly, to think about your first investment in a company, but also subsequent investments after that – further rounds into the same company, and new investments into others. And that you might need to be very patient. Usually, these enterprises need time, and intellectual capital, not just financial capital, to develop.
An investor network, like Investors’ Circle or Clearly Social Angels, lets you experiment with time as well as money. You might dive in deep into one thing but provide the capital for other members to dive in deep on two other deals. Of course, being in an exclusively impact investing space helps too. In mainstream angel investing, people’s number one criterion is often the financial picture – how much money can I make? It’s true that it is also about sharing your skills – and bringing along your contacts and your networks – or promoting entrepreneurship or helping a sector grow.
In social angel investing, however, there is another question too – what are the problems I care about in the world? Can I support an entrepreneur to solve this one problem but also to go on and solve others? I am proud of entrepreneurs with whom I have worked, some even in businesses that failed, who have gone on to have great social impact because they had support at that early stage.
Many people in the social impact space as well as the “traditional” angel space invest in the entrepreneur and the team, first and foremost. Is this a person who you really believe in, that you really like, that you want to help to succeed? Do they have what it takes to change the world?
Think about the kinds of businesses you like, the kinds of businesses you want to encourage to do good in the world. What would make you excited to say – here, look at this company and this entrepreneur; I’m investing in them.
So you’ve answered the questions, you’ve followed the flowchart. What next?
Start by finding out how other people do it. Go on a course if you like to learn that way – I went on an incredibly helpful course, The Power of Angel Investing, when I was starting out. In fact, I ran a training company for almost ten years, so I know how valuable training can be – Go Beyond, which runs a number of angel networks, runs trainings both online and in live workshops, and is one example of a valuable resource for new angel investors.UKBAA now do training for angel investors in the UK, and we offer educational sessions and pitch events for investors who want to find out more (get in touch if you’d like to come along).
For some it will be reading that helps – so read books about it (such as Dragons or Angels by Modwenna Rees-Mogg of Angel News). My friend David Rose, from NY Angels, is about to come out with a new book on Angel Investing. For some it will be by watching other angels do it – so go to a pitch event or a taster evening. I’d say that most people, like me, want to get started and learn as they go; it doesn’t matter how you go about it, but keep on asking questions and listening to this generous group of people who can share their wisdom.
Then you can really dive in – find other people who have the knowledge and skills that will complement yours. Our social angels are a remarkable group of people; we’re mostly evangelists too, because we’ve discovered how brilliant social investing is, and we’d like to share it with you.
This post was originally published on ClearlySo