How to Make Your First Investment in a Startup

By April Enriquez with insights from Raven O'Neal O’Neal, Sue Bevan Baggott , Lauren A. Rowley, MBA , Taylor Fields and Dr. Silvia Mah PhD, MBA .

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Sixty-eight percent of women feel confident managing their household budget, but only 19 percent feel confident about selecting investments that align with their goals, according to a 2021 Fidelity report. On top of that, for people considering investing in startups, they must meet criteria like having an annual income exceeding $200,000 or a net worth exceeding $1 million, which is a pretty hefty entry point. To overcome this barrier to entry, we’ve looked to women at all stages of investing to share their advice on getting started.

?Where do you start??

?“Before beginning to develop your own portfolio of startup companies, it is vital to get clear on the kind of companies you want to partner with and help to grow,” says Raven O’Neal, CEO of Stella , a nonprofit organization that has helped nearly 400 women launch and scale their businesses through courses, advisement, and access-to-capital events. “For me, that is backing women- and BIPOC-led companies that prioritize positive social impact.”

?In other words, you should get started by developing an investment thesis, which is a personal roadmap that will guide what, where, and with whom you'd like to invest your wealth. It is gravity. It will guide you toward investments that fit your objectives.?

?“As a new or aspiring investor, I suggest interacting with a variety of startup founders to learn about the range of new business ideas out there. Then, you can decide which types of?companies you are most motivated to support with your capital, coaching, and connections,” says Sue Baggott , an angel investor and the founder of Power Within Consulting , a company that accelerates companies via insight-driven business and innovation strategies. “I’m passionate about supporting mission-driven founders who are creating innovative businesses that drive positive impact while growing value.”?

?“Think about what you are passionate about and seek out the companies that are poised to make a difference in spaces that matter to you,” adds O’Neal. “And have fun.”

?What is an example of an investment thesis?

?As an angel investor who has backed more than 100 companies, Dr. Silvia Mah ’s investment thesis states:

?“I invest in women-led or BIPOC-led startups in the seed round, typically $25,000 each deal. I am industry agnostic but prefer tech-enabled solutions. I focus on looking for difficult problems that I believe can be solved with the right team; I am founder first. I can either lead a round if it is in my wheelhouse of expertise or follow-on. I like to take an active role in the advising of the founder, prefer a board seat but not necessary, and request information rights. I look for a liquidity event in 3-5 years and 5-7 years for life science.”

?An investment thesis keeps you focused on the startups that are a match. When you know what is important to you, you won’t waste time chasing people or companies that aren’t aligned.?

?Developing an investment thesis is among the panel discussions that will be covered at Stella’s Women’s Venture Summit this Sept. 16-17, 2022, in San Diego.

?What is a values-aligned investor?

?Just as you are identifying the kinds of companies you want to invest in, founders are also seeking investors who share a passion for their company’s mission and can add value to their team.?

?“Potential investors need to have an investment thesis that is in line with our mission,” shares Taylor Fields , founder of startup Nostalgia Coffee Roasters . “After all, once you take an investment, they are somewhat an extension of your team, so being able to utilize and activate their powers when necessary is the bonus to the investment.”

?Fields was encouraged to take meetings and solidify investments from advisors who aligned with her values, understood her go-to-market strategy and valued her as a first-time founder. As companies scale, it can be a risk to bring investors on board who aren’t fully committed to the mission.?

?Writing Your First Check

?Before you start investing in products like Fields’ brew bags, it’s helpful to know how you can invest. From networking to crowdfunding, there are many ways to start your investing journey before you become an angel or accredited investor.?

?Networking

?“One way to get started in investing is by growing your network of values-aligned advisors and mentors in the startup space who have been investors or are considering that path, and by participating in events like Stella’s Women’s Venture Summit that will expose you to the investor thesis, due diligence and investing process,” says Mah, who created the Summit nine years ago.

?You can also attend events hosted by angel groups that you aspire to be a part of or participate in live pitch competitions and demo days hosted by accelerators.?

?One such group is Stella Angels, a network of accredited angel investors who fund women. Its members invest across industries in companies with some traction. Helping to lead the group is Lauren Rowley , chief investment officer at Stella.

?“Writing your first check as part of an angel group is a way to collectively empower and equip entrepreneurs alongside others with shared goals,” says Rowley. “Wealth creation endows power, a requisite for meaningful inclusion and fostering a true sense of belonging. By taking steps to invest in others, you are creating opportunities for yourself and so many others.

?Equity Crowdfunding

?Another way to try your hand at investing is through crowdfunding platforms like Wefunder, Republic, Seed Invest and more.

?“Investing via equity crowdfunding is an easy-access, highly-inclusive opportunity for many women,” adds O’Neal. “Equity crowdfunding is the most exciting opportunity for women who don't yet meet accredited investor requirements for angel investing. If you invest $100 in 25 companies, you can have a 25-company portfolio for $2,500. That's amazing. It's a way to dip your toe in to make that first investment.”?

?O’Neal’s first investment was on the platform Republic, into a Backstage Capital fund. “I knew the money being raised would support diverse founders,” said O’Neal, who is industry agnostic in her approach, and focused on investing in women-led companies.

?Angel Investing

?As you gain interest or resources, the next step could be to become an angel investor and join an angel group.

?An angel invests in early-stage companies in the pre-seed, seed, and in some cases, bridge to Series A financing rounds. While the amount invested varies by angel, most investments range between $5,000 and $100,000 with the average angel investment being around $25,000.?

?“Angels invest their own wealth and must be accredited angel investors (specific net worth and other ~7 variations) to be a part of an angel group or syndicate; however, founders can accept funding from non-accredited and accredited investors,” says Mah.

?Mah started investing at a pivot point in her life when she decided to leave her science career to focus on bolstering impact-driven women in science, deep tech, healthcare, consumer goods and more.?

?“Through a diversified portfolio, investors at all different stages can reduce risk and back a variety of companies they care about,” says Mah, who is funding women-led startups through her various funds including Next Wave Impact, Stella Impact Capital, Portfolia and Ad Astra Ventures. Mah has increased her investment contributions over time and is equipping others to do the same in ways that work for them. But it all starts with desire and personal alignment, she says.

?Sue Baggott’s investing journey started in 2016 after she realized the potential impact of her investment money.

?“I consider myself an accidental angel investor because early-stage investing was not initially part of my personal or professional plans. In fact, I thought the primary way to make an impact was to donate my time, talent, and treasure to mission-aligned non-profits. However, I was missing the bigger picture. In 2016, I was fortunate to connect with impact-driven thought-leaders Alicia Robb and Janine Firpo. Through our collaboration at Next Wave Impact, I learned to appreciate the power of all my monetary transactions and decided to use them (spending, savings, and investments) to drive positive change in our world. Today, I’m an angel/impact investor supporting innovative entrepreneurs who are building mission-driven for-profit companies.”

?Venture Capital

?At some point in your investor journey, you may become a venture capitalist. A venture capitalist is a professional investor who typically invests in later-stage companies, but investments could occur as early as the seed and Series A rounds.?

?“Venture capital investments generally begin at $3M and go up from there,” notes Mah. “As opposed to angels, who mentor, make introductions to people in their networks, and roll up their sleeves, venture capitalists have more resources and more influence over business strategy and operations.”

?Whether you are hoping to become an angel investor, accredited investor or even start your own fund one day, know that there are steps you can take today to kickstart your journey investing into startups.?

?Once you’ve clarified your investor thesis, you can start by investing $100 into a company on a crowdfunding platform. Now you have skin in the game.?

?Some resources to get you started include attending events like Women’s Venture Summit taking place Sept. 16-17, 2022 in San Diego, where topics will be discussed such as “Start Activating Your Capital At Any Financial Stage” and “Are Your Ethos & Your Investment Statement Aligned?”

?Other resources to review include:?

·???????37 Angels resources and programs

·???????Next Wave Impact videos that were developed by Kauffman Fellows female women leaders to educate limited partners (LPs)

·???????Workshops by Angel Capital Association, of which Mah is a board member

·???????Ellevest for stock market investment training and resources with money coaching and transactional help

·???????San Diego Angel Conference , where the fund each year takes a socratic method of teaching as you invest together in a mixed-gender group with year-round connection through Women of SDAC subhub

·???????Invest for Better , founded and lead by Janine Firpo , who takes a holistic approach to wealth mindsets, and gives women the confidence, skills, and encouragement they need to take control of their assets and use them to influence things they care about

?So, when will you write your first check?