It’s easy to romanticize a company’s origin story and talk about how they wrote their business idea on a napkin. But what follows that initial idea stage is a lot of hard work, long hours, and pitching the business plan to investors. While there are a variety of funding sources available to aspiring small business owners, angel investors remain among the most highly sought-after funding partners.
That’s because angel investors are generally willing to do more than just provide necessary funds. They can also prove to be great mentors and advisors who provide access to key networks. Another big difference between angel investors and an investment firm? Angel investors reach into their own pocketbooks and fund early-stage companies with their own money.
To learn more, we spoke to three angel investors with diverse experiences. Sara Christensen has seen both sides of the business world, as an entrepreneur and an investor with big firms. She foresaw the juice craze and co-founded Liquiteria, the first micro-pressed juicery in New York City. Moj Mahdarais the CEO of Beautycon Media and an entrepreneur in the emerging entertainment, consumer, and digital technology spaces. She makes angel investments in consumer-facing companies. Tina Bou-Saba has worked in strategy and equity research. To date, she’s made more than 20 angel or pre-seed investments in consumer companies focused on beauty/health, specialty apparel, and consumer technology.
Ahead, they tell us more about angel investing.Answers have been edited for length and clarity.
How did you become an angel investor?
Moj Mahdara: I was considering going to get an MBA and a friend of mine said, “You don’t really need an MBA. The only reason you go to get an MBA is for the network.” All these young companies like Birchbox and Beachmint and Nasty Gal were taking off around that time and I started to hear about angel investing. I was like, “Wow, that’s an interesting concept.”
I basically took the money that I would’ve put into an MBA program, around $150K, and I put it in an account. I told myself, “This money doesn’t exist [for your personal use] anymore. You’re going to write checks to companies and get involved in those companies and learn about how companies are built from a consumer point of view.”
Tina Bou-Saba:I have more of a Wall Street-type background, having worked in investment banking and at a hedge fund covering retail stocks. After graduating from Harvard Business School, I did business strategy work for retail companies like Victoria’s Secret and later was an analyst at big discount companies like Wal-Mart and Costco.
About three years ago, I was interested in doing something more entrepreneurial. So, I worked on a couple of business plans for businesses I was thinking of starting and was regularly meeting with people in my network. Through that process, I had a few opportunities to make very small angel investments. It was fortuitous.
Sara Christensen:I did early-stage and later-stage investing at different firms. The first time I made an angel investment was in 2000. I found there were opportunities I was seeing that guys at the firm weren’t interested in. A lot of those times, these were female-founded businesses that I would get excited about. And I just couldn’t convince a room of men to invest. I thought about how when I was an entrepreneur, I didn’t have access to capital. I didn’t know any angel investors. I didn’t know any professional investors. And I thought about how life could have been different if I had.
Every time I walk into a room now, I think, “I have this experience and this network that I’ve gained over the years. Now I want to give back to those entrepreneurs.” It makes a world of difference when you have an investor who actually helps you. I guess you can say angel investing started for me a little bit out of frustration and because I now had the ability to do it. I had made the money. I had the experience and networks. So, I said, “Screw it! If we’re not going to invest in this company through my investment firm, I can do it on my own.”
What does it take to be an angel investor?
MM:In the beginning, it requires a lot of tenacity, a lot of chasing, a lot of asking questions. Think about a cool company or brand. When they’re hot, they’re so hot everyone wants to be part of them. So to get the attention of these CEOs, you’ve got to be really charismatic.
Was there anything about being an angel investor that surprised you?
MM:There is a massive gaping hole in the marketplace of women. There are barely any women who are actively investing in companies. That’s a real opportunity.
What do you love most about being an angel investor?
SC: What is there not to love? First of all, the hardest part about being an investor is that you fall in love every day. When the founder comes in and tells me their story and they’re talking about their baby, it’s infectious.
What kind of companies do you like investing in?
MM:I really like consumer-facing brands. I like people who are building companies around communities. I like brands that are building products around niche audiences and I like brands that are using content and social commerce.
TBS:Most of the companies that I have invested in are female-founded or at least have women on the founding team because I’m super passionate about supporting women entrepreneurs.
What advice do you have for someone who wants to become an angel investor?
MM:I think like all things, wherever you’re at in your life, you always need to find amazing mentors who are decades beyond you in experience. If you want to be an angel investor, the best thing to do is to become friends with people who’ve done that very well and learn from them. Become a student of how they practice and learn the diligence and the discipline they have.
Is it difficult or easy to turn down pitches?
SC:It’s hard to say no sometimes, but you really also have to think about whether the idea is feasible, is it scalable, and is it really going to work right now? As much as someone may have a great idea or they may be the most talented storyteller in the world or this might be a great company for the future, it may not be a “yes” right now.
Then there are some instances where it’s like, bless their hearts. They’ve either heard you speak somewhere or they just have an idea and it’s not totally formed yet. That may be a blessing and curse of Shark Tank. Now it’s got everyone thinking they can start a business in their home. Sometimes they’ve got a long way to go and you have to be honest with these entrepreneurs. The worst thing you can do is let someone spend their savings or take a third mortgage on their house.
What kind of angel investor are you?
MM:I think because I’m also an entrepreneur, I can provide a real-time sounding board for a lot of experiences or chapters that a company is going through. I’m the person that you call all the time—okay, maybe a few times a week—to ask what I think. It can be anything from investment to employee management to brand partnerships to launch strategies to budget allocation to hiring and recruiting. Those are all the things that I love to talk about.
TBS:I’m really focused on being what I would call a “strategic value-add investor.” I love to sit down with entrepreneurs and dig into the business plan and help them think through different strategic questions. For me, that’s intrinsically rewarding.
What kind of angel investor should entrepreneurs look for?
MM:Go to angel investors who have applicable passion points and experiences and portfolios. You want to go to someone that has a portfolio of business that leverages into the things you’re interested in. Angel investors are the easiest investors to have because they have the least amount of control and influence over your company. I think when you get into your series A, B, and C is where the liability begins with investor relationships. Since your angels also typically aren’t on your board, they really are just more like your champions.
Choosing the right initial set of angel investors can be life-changing. You want people who have great reputations, have good networks, and are generous because early in your company, you need a lot of help. You need someone that you can have great communication with.
What advice do you give to entrepreneurs looking for angel investors?
TBS:For someone who is still in the process of building their network, get out there and do a lot of meetings. Go to industry events or apply to one of those accelerator programs. Most importantly, do your research in a particular area and see what programs are available to help you. What are the angel groups in a particular area? It definitely requires some detective work.
But I think the most important thing is getting out there. You can’t do it in your office or you’re out. For so many businesses, at the end of the day, you have to sell. I think sales is the single most important function in most businesses. People have varying levels of comfort with that, but practicing makes it much easier.
SC:So many people are investing today and it’s never too early to reach out and start the conversation, because raising money always takes longer than you think. It just does. Have a have a clear presentation that shows the product, your financial model, and the scaleability of your business. Be able to say, “I need x amount of money to get me to y.”
How important is it to have a good network?
MM:I think that there’s a millennial belief that a network means how many people you’re friends with on LinkedIn and how many people you know. I don’t think like that. I think about the verticals of industries that I’m involved in. And I think about, “Am I connected to the top five percent of that industry?” I only need a handful of relationships to really activate that entire industry.
TBS:It’s absolutely critical because great people attract other great people. A really talented entrepreneur who says to me, “You should look at this company, I know the founder and she’s really talented. She’s working on something really cool” is a much warmer intro than someone who cold e-mails me through my website.
Are there any misconceptions about angel investors?
MM:I think there’s this misconception that you need to forward business cards and you need to spam people with your e-mails and that it’s important to know 500 people. I would rather know 50 really important people deeply than know 500 peripherally. I think it’s a complete waste of time to be in the “networking business.”
In order for your business to move forward, you need people who are going to make decisions that are going to change the outcome of your business. And people don’t do that unless they’re invested in you. And if people perceive you to be someone that’s an inch deep and a mile wide, they’re not going to be that willing to take a risk on you. It definitely takes time and process and it also takes something else—generosity. You have to actually be in the giving business versus getting business.
Final piece of advice?
SC:I think there are some myths and some misconceptions about when you get into venture capital and private equity. They become the institutions we don’t want. I’ve been in both worlds and not all private equity guys are bad guys. But a lot of them haven’t been on the other side, so they don’t necessarily understand entrepreneur life.
MM:Being a student of your industry and being an expert on what you’re trying to dominate is key. Be well-schooled, be well-researched. Be an absolute student and show up knowing what you’re talking about.