To see the recap of the first half of the SoGal Sydney December panel, click here.
SoGal Sydney is currently running a series of events on women in investing — both as female VCs and angel investors, and as female founders and entrepreneurs seeking investment. The very first panel was made up of Elicia McDonald (Airtree Ventures), Dr Michelle Deaker (Managing Partner of OneVentures), Clive Mayhew (angel), and the event was MCed by SoGal Sydney’s Director, Ariel Xue.
Before things got too underway, the panelists spoke about exit strategies and what it means to them as investors. One of the top priorities for investors is the exit strategy of the companies they choose to support, as it’s their main source of income. For angel investors, it’s their only source of income from their investments. For VCs, they also charge their LPs (limited partners, the people and companies who put their money in VC funds and entrust them to bring them returns) ongoing fees for managing the funds and then a performance fee after the investment is returned.
While LPs provide the bulk of the funds, GPs (general partners, usually staff or founders of VC firms) also invest in their own funds, however only GPs are able to make decisions on investments. Angels, on the other hand, manage their own funds and have full control over who and what they invest in, without the pressure of needing to provide a return for a third party.
Other differences between angels and VCs include how long they expect to wait for a return, how varied their portfolios are (angels are limited by smaller funds and their own personal strengths so can’t invest in too many things, or things that are outside their realm of expertise), and how many failures they can afford to have.
After these explanations, the first question of the night was what do you need to be/do to become an investor?
Mr Mayhew said you need a “willingness to risk” and to “stay in your knowledge comfort zone”. By investing in things you don’t know much about, you open yourself up to being taken for a ride and not being able to recognise success — or red flags. Dr Deaker was originally an entrepreneur herself, and was mentoring others before becoming a VC. She volunteers at a VC firm for one day a week for a year before feeling like she had a good handle on how things worked and was confident enough to step into the role of being a VC. Ms McDonald offered the advice of really figuring out where you can add value, and having “founder empathy” is also a valuable skill as you’re on the journey with them. All agreed that not all businesses are suited to VC or angel investment, and to check your maths before agreeing to anything.
For those who want to get into investing as either a VC or an angel, where to find investment opportunities can be intimidating. Mr Mayhew volunteers at UNSW as an entrepreneur in residence, and uses this as a way to stay up to date with early stage startups and a way to find people he wants to invest in. Ms McDonald and Dr Deaker both attend startup events and meetups (like SoGal Sydney!) to meet entrepreneurs and listen to pitches. Coworking spaces also act as address books for startups.
On the opposite side of the fence, should people looking for someone to invest in their company approach VCs and angels? The answer is a unanimous yes. Although it can take some time to build a relationship, VCs and angels are happy to take coffee meetings and introductions provided you contact them through the appropriate channels. Most VCs will have information on how to best contact them, though angels are a little more obscure. The best thing to do is find them at events and chat to them, or email them and let them know you have a clear idea of what you want to talk to them about so they know you’re not just looking to ‘pick their brains’. Don’t always expect to pitch for investment the first time you meet an investor, first they have to decide if they’re even interested or open to the idea of investing in you.
Final pieces of advice from each speaker:
Dr Deaker says to plan everything, including how much risk you’re willing to take and warned against taking out loans or mortgaging your house just to invest in someone. Mr Mayhew stressed the importance of not taking money from unqualified investors if you’re a startup — not all money is good money and you need to do as much due diligence on people offering you money as the investors do on you. Finally, Ms McDonald closed the night with encouraging those interested in investing, regardless of which side of the deal you’re on, to educate yourself and have an area of expertise, as well as making long term plans. She also recommended reading Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist by Brad Feld and Jason Mendelson.
SoGal has its own VC firm which invests in startups with female leaders or female focused products. They’ve started hosting monthly events in Sydney for people (not just women!) who are interested in becoming their own boss or an investor. Keep an eye out for their events by joining the Facebook group or the mailing list!