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When Lovey Hammel was recently asked to join a new investing group for women with high net worths, she jumped at the chance. "I had been looking to invest in some local companies, but just didn't have enough knowledge to do it on my own," says Hammel, co-founder of Employment Enterprises, a national staffing and human resources outsourcing company in Manassas, Va. Women Angels.net turned out to be just what she was looking for. The Washington (D.C.) club of 85 women has raised $6 million to research and invest in high-tech startups in the region. Each woman contributed $75,000 to the club, which is looking to make investments of $300,000 to $750,000 in 8 to 10 companies.
Women Angels.net is just one of many women-only investing clubs that have sprung up in the past year. Angel investing is a type of private equity. Investors typically invest between $25,000 and $2 million of their own money to finance early-stage companies, an investment that usually is locked up for 5 to 10 years.
Typically, angels provide second-stage financing -- after an entrepreneur has raised seed capital, but before professional venture-capital groups weigh in with big institutional bucks for companies whose business is well advanced. The lure is the huge returns angel investors earn when they pick a winner. While investors have racked up 15% to 20% a year the past few years on the typical stock portfolio, angel investors have earned 2 to 10 times that on companies that succeed. But more often, the angels have made nothing or lost their entire investment.
REQUIREMENTS.
No doubt, angel investing is risky, which is why the Securities & Exchange Commission requires investors of this type have a net worth of at least $1 million (including your home) or an annual income of $200,000 if you're single, $300,000, if you're married. "Angel investing is not for the faint of heart," says John May, managing partner of New Vantage Partners private equity advisory firm that manages two Washington (D.C.) angel clubs. "You shouldn't invest more than 5% or 10% of your disposable net worth because these are risky and illiquid investments," he adds.
If you have the assets and the tolerance for risk, angel investing may be for you. But before you jump headlong into a group that is investing in the next technology startup, here's what you should consider. First, "you must decide what role you want to play as an investor," says Patty Abramson, a co-founder of Women Angels.net. You can either seek and invest in new ventures on your own, join an alliance where investors share information but invest individually, or become a member of a club where everyone researches and invests together.
Regardless of which option you choose, you must realize that you could be giving a lot more than money -- perhaps your time, too. "The individual founders of these young companies have different needs," says Kay Koplovitz, CEO of Working Woman Network and an active angel investor. "Some need lots of attention and very active participation on the part of the investors." Ann Kaplan, co-founder of Angel2Angel -- a New York City-based national network of women who invest in women-led startups and managing director at Goldman Sachs -- agrees: "The part of the process that is so crucial is mentoring the entrepreneurs."
One of the advantages to joining a club is the ability to leverage your time. Obviously, you'll spend much more of it you become a sole angel investor. The time commitment is greatly reduced when you work with a group. Angel investing club members estimate they spend four to six hours a month attending meetings and researching investing opportunities.
SAFETY IN NUMBERS.
So what do you look for in a group? "Make sure you have some responsibility of where the proceeds of the fund are going so that you can learn about the investing process and safeguard your investment," recommends Mary Lehman MacLachlan, co-founder of Breakthrough!, a New York-based national network of high-net-worth women who invest in professionally managed venture-capital deals. MacLachlan also suggests that you join a group that has at least 50 people in it. "You're counting on the group wisdom rather than your own," she says. "The larger the group, the more you will get pockets of expertise."
When evaluating groups, you'll want to make sure there's the full-time structure in place to handle the financial and legal aspect of startup investing. For example, angel investors must do extensive due diligence when evaluating new ventures. "You need to analyze the company's business plan, do background checks on the entrepreneur and management team, and scrutinize all projections and evaluations," says Gerald Benjamin, author of Angel Financing: How to Find and Invest in Private Equity (John Wiley & Sons, $49.95).
Abramson had a professional background that instilled faith in the women she recruited to join the Washington group. She runs the Women's Growth Capital fund, which invests in women-run enterprises in the mid-Atlantic region. Hammel says she joined the group in part because of Abramson's good reputation. "I did a background check on those who were going to be running the group," says Hammel. "Due your own due diligence on the club."
Here are more resources to help you learn about angel investing and how to choose the right club.
Angel Financing: How to Find and Invest in Private Equity, by Gerald A. Benjamin, Joel A. Margulis
Angel Investing: Matching Start-up Funds with Start-up Companies -- A Guide for Entrepreneurs and Individual Investors, by Robert J. Robinson, Mark Van Osnabrugge
New Venture Creation: Entrepreneurship for the 21st Century, by Jeffry A. Timmons
The Guide for Venture Investing Angels : Financing and Investing in Private Companies, Arthur Lipper III
Venture Capital Investing: The Complete Handbook for Investing in Small Private Businesses, by David Gladstone
Copyright 2000 , by The McGraw-Hill Companies Inc. All rights reserved.
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