25 Oct I Fell into Angel Investing a Decade Ago — What I’ve Learned Since
Like Vegas but better, 3 reasons to jump in and roll the dice.
My entry into angel investing was accidental. I share it as a lesson and perhaps a point of inspiration in the hopes that you consider *ownership* as a way to building wealth and taking control of your destiny.
While not my main gig, I invest in entrepreneurs because I believe in the power of entrepreneurship. My upbringing in an immigrant, highly entrepreneurial home means that to me, this is normal.
For women especially — a group that hasn’t had the representation in this game — I believe jumping in makes sense. Ownership is one of the secrets to wealth creation. ownership in a company that you’re betting will grow. Note, it is a long-term gamble and comes with big risk. You need to be able to afford the loss. Assume you may never seen that money again. Keeping that in mind, and you’re still interested, then read on.
I made a $10,000 seed investment in a software company 10 years ago. They happened to be a client of my tech marketing agency’s at the time. It was my first deal where I took equity in exchange for a month’s retainer.
My experience in ownership was predicated solely on businesses I had run. This was my first foray in owning a portion of another entrepreneur’s company.
Foast forward ten years, that small trade in Infusionsoft has given me a healthy return on my initial investment.
I could say it was all my genius fortitude, risk-taking prowess, my mad number-crunching skills and a deep understanding of the space that got me into a deal that has since returned 20x on my money.
But that wouldn’t be entirely true.
The point of my writing about this is to break it down for regular people who may not be part of any angel networks, “bro” clubs, or steeped in the tech scene.
Here’s how the deal came to be. I got in right before the series-A round led by a well-known Silicon Valley investor, Mohr Davidow. The head of marketing at the time, Dave Lee, was smart, wanting to conserve cash so he made the offer to trade services for equity. In exchange for a month retainer, I’d get shares. Made sense to me so I said ‘yes’.
Looking back now, I chuckle at the fact that I took the deal. I really had no idea what was to become of this fledgling 30-person company. It was a risk of the biggest kind. Category was unclear. Small businesses didn’t understand what this beast of a product that combined ecommerce, email marketing, CRM and marketing automation was. The product UI was jaunty and hard to decipher leaving a lot to be desired in easy-to-use intuitiveness. The pluses: A hard-running team focused on building something special and game-changing. For thousands of entrepreneurs who used Infusionsoft early on, it worked, really, really well. The company had traction in a segment of the entrepreneurial small business market — which at the time, nobbody was servicing other than Intuit. For my naive-at-the-time, but very entrepreneurial mind, that was enough to say “yes”.
Fast forward 10 years and they’re $100+MM in revenue, 700 employees.
I don’t even think I told my husband about the deal until it was close to being done. He had his own new venture launching, a new magazine in San Diego. My thinking was, what’s the downside? To be clear, there was plenty, but my optimism and opportunistic genes kicked into gear. Plus, my agency was doing very well, we were the hottest firm in town among tech companies, and I’m always game for a good game of risk and reward. This was well before it was as mainstream and sexy to be a tech investor. In Phoenix sexy investing meant land. In the desert, real estate made the world go round.
In 2006, the small-but-mighty software company did almost $4MM in 2006. They grew 100% the following year to $7MM. 2007 was the year Infusionsoft took its Series-A, one of the first and few deals done with a Silicon Valley-based venture firm for an Arizona-based company.
And the deal was done. I felt good about the fact I slipped onto the cap table of a company that was now valued at $7MM.
1. Diamonds in the rough are a good thing
Despite the somewhat ugly product and the lack of experience of the team in this space, I invested in the founders. Hardest working guys I know who maniacally understood the needs of their customers. I invested in the promise of what could be. I invested because of their traction and the fact they had rabid, loyal customers and great MRR.
But what I really invested in is the mystery of it all. I had never taken the plunge of putting my own money into another entrepreneur. Everyone has a first. I made Infusionsoft mine.
You have to be ok with losing it. And expect to lose it. But what you get in return is you get to be part of something special and new. I had nothing to lose but ten grand. Don’t get me wrong, that was a meaningful number to me. But in my business that was doing almost a $1 million a year, and signs of continued growth, I knew it was the right bet however contrarian to what professionals were doing at the time locally.
Whatever you are earning as a W-2 employee or an entrepreneur, consider what diamonds in the rough are around you, being run by people you are impressed by. If it’s a perfect specimen of a deal you are waiting for to be walked in for you that is flawless, you won’t find that. And if it’s shiny and gleaming likelihood is affordability in the deal. Valuation will be too high for first-time, or newbie investors. Find the diamonds in the rough that you see something special in but nobody believes in yet.
2. Look for traction.
By this I mean happy fist-pumping customers in a space you know. As a growth strategist and passionate marketer, I know the marketing technology space. Looking at the company then it was clear that Infusionsoft was, and still is, the backbone to any small business — storing its contacts, acting as its growth marketing engine, online payment software, and it has an active community around it. Proof is all the people who on a monthly basis gladly plunked down their AMEX for the chance to use it to run the lifeblood of their business: their marketing and sales.
3. Not The Whole Enchilada
I consider tech investing to be a portion of my portfolio. It’s part fun, part serious business of money growth. It should not be your entire portfolio. I repeat: it’s highly risky. Go in expecting to lose all your money. I still do. But when it hits, and perhaps with some beginner’s luck, you’ll find it’s worth it and delivers a better return than any index fund. As an entrepreneur who’s built four businesses, I put my money where my beliefs are: entrepreneurs. That means investing in my business ideas, my husband’s, and founders I believe in.
Bonus: If you’ve done it once. You are it.
It never ceases to surprise me how much this last point resonates with people I talk to individually or in groups I speak to. Perhaps it’s a gender thing, maybe it’s not. Who cares. The point is that if you’ve done something once — in my case: investing — then you get to call yourself that thing. Ie: investor.
Often we think that we must do the thing for many years, be exceptional or proven or very practiced at it before we can give ourselves the label. I’m a startup advisor now. I also am a writer. I am also reinventing myself based on my interests in totally different markets than I’m used to… so stay tuned for the next thing I say I am.
What’s the benefit? Well, for one it allows you to start to mix in a crowd where deals get done. That’s the currency of investing, getting into a company when the risk/reward ratio meets your personal need. I like to get in early, and am fully aware of and embrace the risk before bigger traction.
I’m grateful to the entrepreneurs I’ve had the chance to support and help grow. And if you ask them, I’d believe they’d say the feeling is mutual, so it’s a satisfactory trade. Consider how much of your portfolio you can set aside for risky behavior like this and go into it with eyes wide open and expect to lose it. But you may get lucky.
There’s a thrill of adrenaline every time. It’s the deals where I can add value that get my attention. When compared to buying publicly traded stocks on Wall Street or playing the roulette tables in Vegas, there’s no comparison. Being part of the startup ride is way more interesting and gratifying.
Note: Years later, I was asked by the CEO to join his executive team to lead marketing intitiaves and communications strategy full-time. With that came stock options, thereby deepening my opportunity to own more of the company — which means I’m still an active shareholder of Infusionsoft and bullish on the company’s future.