Susan Preston: An overview of angel investing
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Mngr: Seattle Angel Fund
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Angel investment specialist
Susan is a world-recognized expert in angel financing and angel organizations. She is a national and international consultant and speaker on economic development, angel and venture financing for numerous countries and NGOs including the EU, OECD, USAID, Saudi Arabia, Jordan, Australia, Industry Canada and EBAN. Learn more about Susan here
Co Manager, Element 8 Fund
General partner, CalCEF Clean
Energy Angel Fund
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Read the transcript of
My interest in angel investing has been a long term so it was a natural progression for me to move towards managing various funds here in the Pacific North West. I’ve been an angel investor since 1999. I started the first all-women’s angel investment group here in Seattle – actually, it was the first in the nation, to be an angel group focused on women as investors. And that has just taken off in my career – I’ve really focused on angel investing in the last 18 years, with a stint with the Kaufman foundation, I’m helping with Women entrepreneurs in angel investing, - I’m running a venture fund out of the Bay area in clean energy for a number of years. But really, it’s been a passion of mine, I’m still excited about it. I speak globally, and stock globally on angel investing economic development related to early stage investing. So it’s a passion and I love what I’m doing and I love continuing doing it.
Defining angel investment
Angel investing can be a lot of different things to a lot of different people – and it’s interesting… 10 years ago when I was working on some congressional bills in Washington DC related to angel investing, I spent more of my time educating people on what IS angel investing than on the benefits of what we were trying to do with the bill that we were promoting. But angel investing is typically done by individuals and these are people – the definition in the code says ‘wealthy individuals, in other words, individuals that have enough capital available that they can put some of it into high risk investment. Typically, angel investors are individuals, they are actively engaged in the process of investing and most angel investors are still solo investors – they do it on their own, but some are doing it as a group and that is a growing trend to do that. So they put high risk money into high risk ventures and hope that they’ve made a good choice – they work with the entrepreneurs and hopefully they get a return from their money.
The origins of angel investment
So angel investment is intended – the very first and foremost priority for anyone who is an angel investor, individual investor in companies is a financial return and a financial return on multiples of what their money went into. So while the term ‘angel’ has a ‘pennies from heaven’ type of orientation to it, it is not philanthropic money. The angel classification of business angel comes from or originates from is investors in Broadway shows in New York 30, 40, 50 years ago, in which individuals, primarily widows in fact, or elderly rich women would put money into financing Broadway shows – so that was where the term actually originated and then it was transferred from that application into meaning business angle: individuals that take a high risk of promoting, supporting and helping grow a company rather than a Broadway play – I’m sure many people have seen the show ‘The Producers’ and that is good representation of those women who put money in and were the ‘angels’ for that Broadway play.
What to look for in an individual, product or service
When we are looking at and analyzing a company for possible investment, I like to describe how we analyze these companies, as being a 3 legged stool. There is nothing you can say is the key point of what is an investible company – It’s not just the people or team, it’s not just the product or the market, its all three. And in fact, when you look statistically, the reasons why companies fail, it’s market. So either the company is too soon, too late or they’ve mismatched themselves with the market place. So really, all 3 of those attributes are quite important for a company to be successful. We know that 7 out of 10 young companies starting out fail so the best of efforts and the best of intentions don’t always occur and so what we’re trying to do when we make an investment is look at many factors that influence the likelihood of success for a company - and certainly team is part of that – not just the founder, but who they surround themselves with, both as team members and advisors. The technology is critical, it has to meet a market play – it has to be the most appropriate response to that market place and it has to be understood by the market. And finally – the market has to be there. They have to understand what the competition is – where they are coming into the market – are they too soon, are they too late – so those are just very high-level thoughts as to what we’re looking for, for investment.
Susan's work with women investors and entrepreneurs
I’ve spent many years working with women entrepreneurs, it is a passion of mine, I’m quite interested in helping to promote women as entrepreneurs as well as investors and I think that there is a correlation between women participating as investors and women entrepreneurs being supported. When you look at some of the statistics, graphically is shows - ‘well we have an increase of women investors, we’ve also seen an increase in funding and support for women entrepreneurs. There’s a lot of reasons for that – they’re quite varied – there are many times women they are focusing on areas that probably align more with the interests of women investors – maybe into consumer goods or health issues that are of particular interest to women but it’s also that women entrepreneurs have a tendency to ask for less but in fact, do more with that money that they receive. And I think women entrepreneurs are some of the best investors out there. We look at the statistics done by other organizations, investment funds, and they typically show that the women entrepreneurs are performing better than the male counterpart by greater revenue – more done with less. And even with we turn to mature companies with CEO’s of public companies, the performance of women CEO’s on the market – we trend those against the norm – for instance on nasdak, the women CEO’s perform better in return on capital - return on stock pricing, so I think that people are starting to recognize that women entrepreneurs are a great bet – but it just takes time to get that message across. And I’m very pleased that we now have dozens and dozens of angel organizations across the US that are focused specifically on investing in women entrepreneurs – and that is really helping.
The challenges for women as investors and entrepreneurs
There are some similarities of issues between women entrepreneurs and women investors. I’m always looking for women entrepreneurs to look at and we do have some women entrepreneurs in our portfolio of companies that we invest in – not enough, from my standpoint but we do have some. The issues are similar for women investors that there is a reluctance for them to join the fund because they don’t know how to be an investor yet. It’s not an issue for men – they say "ok, I’ll learn, I’ll kind of absorb it along the way". But women have a huge tendency to feel like they need to learn, they need to train, they need to be an expert in something before they can do it – Which is entirely not true. Women have a great capability of learning on the go – on the job –Brilliant, intelligent, thoughtful people…
So I do have a bit of a challenge, getting more women to come in and be investors in the fund and it’s something that is a continual challenge for me – ‘how do I bring those women into the fold? – How do I make this interesting and something that they feel is an important part of their life’.
Why I love my work
After doing this for 18 years, of being an investor myself and through venture funds and as an angel investor and run an angel fund, I have never ever gotten tired of the process of meeting fabulous entrepreneurs with terrific ideas – that passion in their heart and the investors that are honestly and earnestly interested in learning more about those companies and supporting them. We take a very collaborative, engaging and supportive role with all of our companies that we’re invested in. We believe that it’s a partnership: once you make the investment we’re here together to make this successful. And that’s exciting, that’s fun. You never get bored because the next company is a different technology, a different area of the market – and you’re constantly learning about things along the way. My background is biotech, micro biology, and I’ve learnt about very complicated enterprise software – e-sports(?) all sorts of things like that – now I’m learning more about block-chain – If you have a passion for learning and a passion for helping people, angel investing is a fabulous place to be.