Advice from an Angel Investor: How Women Entrepreneurs Can Build Wealth and a Legacy
An angel and venture capital investor offers advice for women entrepreneurs looking to take their business to the next level.
By Kim Folsom
I recently talked with Barbara Clarke, Founder and President of The Impact Seat. Since 2012, Barbara has made 60 investments in women-led ventures and invested in 15 funds led by women. With Women’s History Month winding down, I thought it would be a good time to discuss some of the great lessons she has for women founders and CEOs who are looking to attract investment, gain access to experts, and leverage their businesses to build wealth and a legacy.
Today, of the 30 million small businesses (defined by less than 500 employees), 13 million of them are owned by women, including 6.4 million women of color. While those are great numbers, women-run businesses lag way behind their male counterparts when it comes to raising money. A full 92% of growth capital goes to businesses led by male founders.
Yet women are dominant consumers of so many products, and women-run small businesses consistently outperform their male counterparts.
That’s one reason Barbara has been focused on women-led businesses both as an angel investor and an investor in venture capital (VC) funds.
“It’s not a philanthropic fad,” she said. “You have better companies and are more successful as an investor.”
Here are just three of the companies Barbara has invested in:
- CARE Academy: A platform that combines engaging online caregiver training and easy-to-use technology to empower senior home care professionals and agency owners.
- Goal Setter: A financial education app for the whole family — kids, parents, and tweens.
- Page Dip: A technology and services company changing the way we create documents.
Angel investing vs. venture capital funding
But it’s worth noting the difference between angel investing and venture capital investing. Angel investors are typically an individual writing a check to a company. Some angel investors might pool their money and work as a group, but the principle is the same.
Venture capital investments, on the other hand, work through funds where people write a check to the fund and then the leaders of that fund invest the money in companies they select. Essentially, the VC management team is investing other people’s money.
Businesses often start by working with an angel investor and then as their operations and funding needs grow, they may seek venture capital. But it’s important to know the difference. And there are good reasons you might want neither.
For instance, you may be better off funding from operations and not using investors if you want to run your business for ten or fifteen years, or you want to bring family members into it, or you want to leave it as a legacy for your family.
In most cases, an investor only gets paid when you sell. So if you’re not looking to sell your company, it probably won’t be attractive to investors.
Business entity considerations
The one exception has to do with how you structure your business entity. Many businesses are advised to form as a C-Corp, but for businesses not wanting to sell, an LLC might actually be more beneficial. Due to its tax structure, an LLC makes it easier for an angel investor to become more of a partner in the business and generate profits and losses right along with you. That type of entity can also be good for intergenerational wealth because you can add family members to your business pretty simply.
An S-Corp is another alternative that is worth considering. Choose the business entity that works for you. Don’t just blindly choose a C-Corp because that’s what VC investors want. In fact, venture capital is really only one very small portion of the pie when it comes to getting investment dollars.
Think like an investor
Having said that, you have to think like an investor if you want to get funding. You really have to put yourself in their shoes. It’s a similar skill set to sales, Barbara said. You have to ask: What does the customer want? Are you making their life easier? What is motivating them to buy? You have to know what an investor is looking for. Many angel investors are subject matter experts in their field, so they’re able to discern a good investment when they see one.
How to choose an angel investor
That brings up another point Barbara discussed. While you might really be desperate for an influx of cash to achieve your business goals, you don’t want to choose an angel investor just for the money. You do want them to be a subject matter expert in your field. This is a person that you’re going to get advice and connections from. You want them to know their way around your business.
You also want them to be an experienced investor. You want to be able to believe them when they say you have an investable company because they know your field and they know what is successful in that field.
It’s worth it to find that person. And don’t be afraid to ask them how many checks they have written and how many companies they have invested in. If they only write one check a year, you know you have stiff competition — especially when you need another check the next year.
In the end, an investor should be more than just a check, though. You want your investors to help you execute on your journey. You want them to give you access to other experts and resources.
An advisory board vs. board of directors
To take your company to the next level, you’re going to need help and advice from people who have been successful in your industry. Don’t be shy about seeking out that advice. You’ll be surprised how willing people will be to engage with you. Investors love to hear about innovative companies to keep abreast of what’s going on in their field.
Most companies will start off with an advisory board, which is more of a loose collection of individuals, mostly subject matter experts, that you can go to and get advice from. It’s more of a hub and spoke system — with you being the hub.
But once your company reaches a certain level, a formal board of directors will be more beneficial. This is a collection of people who bring diverse perspectives to the table. They hear how your company is doing and the challenges you are up against. They’ll vet ideas. You have to keep them well informed and prepare materials in advance of meeting. They’ll keep you a little more on your toes, but this can be the secret sauce for success.
“As women, we often don’t have the same kind of networks that men have,” Barbara said. “So why not create that board of directors to create that network?”
Building the right team
Finally, don’t underestimate building the right team. Hiring the right people can mean everything.
“Diverse teams outperform monoculture teams,” Barbara said, “because when you leverage the diversity it makes everything work together. Too often we don’t know how to manage diversity and creative friction.”
When you’re used to hearing everybody’s voice, you know their strengths and weaknesses. And that can help you avoid blindspots that can get your business into trouble.
Barbara is an amazing woman to learn from. You can listen to our full chat here.
Kim Folsom is the founder and CEO of Founders First Capital Partners, which has helped accelerate the success of hundreds of small, service-based, business-to-business companies since 2015. Visit our website to learn more.
