Investing In Under-Hyped Categories Of Start-Ups With Nisa Amoils
Did you get a chance to check out last week’s episode, lucky #13? Angela Jackson, from the Portland seed fund was on the show, telling us all about convertible notes. If you’ve been wanting to know more about the notes, check it out here.
Have you heard the big news? Shortly before Christmas, the SEC released a report proposing revisions to their accredited investor definition. Right now, these are just the suggestions, and not yet the law. There is some good and some bad news for angel investors if these suggestions get adopted, and become the law as currently proposed. The bad news is that the thresholds for income and net worth to qualify as an accredited investor are going up, and will be indexed each year for inflation.
People who qualify now, at the low end of the spectrum, based on an income of $200,000 individually, or $300,000 with a spouse, will be limited to investing no more than 10% of last year’s income in start-ups. To get more information on the proposed changes, I will put a link in the show notes to a great blog post by Marianne Hudson, who writes for Forbes. Remember, these are just the proposed changes right now. The Angel Capital Association is going to continue to work with our government, to keep the accredited investor definition flexible enough to allow many of the people to remain or become, accredited investors and continue to support our start-ups. The good news is the proposed revisions will allow sophisticated investors to count as accredited investors, regardless of income, or net worth.
These sophisticated investors will include anybody who passed the series 7, 65, or 82 exams, anybody who made over 10 private investments, and a couple of other suggestions. The 10 private investment qualification is the most exciting, because it does not require these 10 investments to be made with your own money. If a person participates in an Angel group, and actively engages in the process of investment, like screening, due diligence, term reviews, in 10 deals, then that person would be considered an accredited investor, regardless of income or net worth. Again, check out the show notes for more information on these suggestions from the SEC. Now, let me tell you about today’s guest. Her name is Nisa Amoils. Nisa is young, energetic, and passionate about start-ups.
A perfect example of the new wave of Angel investors, that we need in this country. Nisa is also an attorney by training, and as you know, I have a soft spot for lawyers, being a former lawyer myself. Nisa is a member of New York Angels and 37 Angels, and will tell us more about these great Angel groups. She is also a guest speaker and judge on business plan competitions at Wharton School of Business. I hope you enjoy getting to know Nisa as much as I did. Here she is. Hi Nisa, how are you?
Good, how are you?
Pretty good as well. It’s so awesome to have you as a guest. Where are you joining us from today?
I’m joining you from New York City. It’s great to be here.
Thank you. Well, I love New York City. What an awesome city, and awesome start-up ecosystem there as well, from what I hear. Nisa, I’m curious how you got into start ups, and Angel Investing. You’re young. You started Angel Investing in your 30s, and you’re the perfect example of this new wave of Angel Investors, that I think we absolutely need right now. Please, tell us your story.
Sure, thank you. I am actually unique because I don’t come from a finance background. I come from an operational background. I started out as a corporate lawyer, as you did, and I also worked in media and entertainment in various roles, as business development, or marketing. Then I got involved with the launch of a skin care company. That was my first real foray into entrepreneurship. I found that I loved it, and I really enjoyed the whole process. Right around the same time, I started investing on my own, and then a friend of mine recommended a boot camp called 37 Angels, which is an organization here in New York that trains women to be Angel Investors, and goes through different course work about looking at term sheets, and due diligence, and sourcing deals. I went through the boot camp, and then I started to get more active as an Angel Investor through that network.
I started getting more deal flow there, and also more deal flow on my own. Shortly thereafter, I joined another Angel organization in New York called New York Angels, which is long running, established, and gets quite a bit of deal flow. I’ve been a member there for the past couple of years, and that’s how I started investing.
That’s a fascinating story, and I love having people who are not from the NBA background on the show. We’ve had quite a few NBAs and I was even getting a little nervous and intimidated, because I don’t have that financial background, but as I assured my readers, we can always find people to surround us with, who kind of fill those gaps. It’s great to have another former attorney who is an Angel Investor. It’s pretty cool that you did the boot camp 37 Angels - can you tell us a little bit more? Is it just basically New York? Do you have to be a New Yorker, or have to travel there?
That’s correct. Yes.
How long does the curriculum take?
I think I spread that course over a few weeks, but now they do them on a more consolidated basis, so you can actually do it in a few days.
Oh wow, that’s pretty nice.
I’m doing Pipeline Angels, which is also a boot camp, and it’s also geared for female Angel investors, and I’m really enjoying it, but it is an in-person program, so you have to travel, and I know for some people, the travel part might be a little bit tough. Or if you don’t live in New York, with 37 Angels.
I’ve actually been brainstorming. I don’t know if anything would come of it or not, but thinking maybe as an addition to this podcast, maybe do some type of an online type of a boot camp, so we’ll see. That’s kind of where my thought process is going right now.
That’s a great idea.
Nisa, you also mentioned New York Angels, and we’ve had quite a few guests who really think highly of joining Angel groups as a great first step. Can you tell us a little bit more about New York Angels? Is it hard to join, or in your experience, are Angel groups hard to join? Are they worth joining? Usually there are fees of some sort?
Yes. Sure, there are fees that you need to pay for any Angel group, and there is also a minimum investment requirement, so by definition, you need to be an accredited investor. Certain Angel groups have different requirements than others. I know in the case of New York Angels, they look for people who have already done some early stage investing in their past, or they bring a specific knowledge set about a certain industry, so that it could really add to the discussion. I actually think it’s been very valuable to be part of it, because when you’re going through due diligence, you get to sit with all these other experienced Angel investors, and they raise things that you might not think of, and I think the collaborative process is really helpful when deciding on a company.
I also think we have these educational seminars, where we have speakers come in and speak to the group, so I find those to be very relevant, very helpful, whether it’s certain VCs, or certain government organizations, the city of New York, etc., I find that to be very educational. Also, the deal flow. You have people who are screening the deals for you, so one thing is, as an Angel investor, you can’t scale your own time, so it’s just very efficient to kind of have other people doing this for you.
I totally agree; when I first joined my local Angel group as a new Angel investor, I had, I guess a fear, of not having enough deal flow. I know you and I talked a little bit about it. Angel groups are of course a great way to get deal flow, but I know that you also started expanding your own deal flow, and I started doing that as well after a while. I’d like to talk a little bit more about how you’re doing it. Outside of the Angel group, how are you expanding your own deal flow?
Part of it is just because I’ve done a bunch of podcasts, I’ve spoken on panels, I’ve been a judge on shark tank-type programs, such as CNBC, Fox Business, or MSNBC, and that just raises my own awareness, so people can find me. They can find me on LinkedIn or Twitter, and then they end up sending me deals. Then also, just part of my network, ends up sending me deals, outside of the Angel groups.
I think those are all great points, and for everybody listening, I know that there are always start up competitions going on, and New York of course, is a big city, so there is a lot happening there, but even where I am in Idaho, we’re a smaller state, but there’s still a lot of opportunity to get involved with accelerators, or incubators, and demo days, to be a mentor, or a judge like you said, and it helps build your own brand. One of our guests - maybe it was even Adam Quinton whom you know - was talking a little bit about the importance of building your own brand as an Angel investor, and I think that’s kind of what you were talking about, building your brand as an Angel investor.
Exactly, and I also think to your point about accelerators, that’s a great way for newer Angels to get involved, because you’re getting access to the companies, so it’s a great way to do due diligence in real time. Also, a lot of these accelerators have funds that you can invest in, micro funds, for a minimum of say $10,000. You’re getting all their deal flow, plus you’re diversifying your portfolio at the same time, so I think being involved in accelerators, and there’s a lot more of them lately, is a really valuable thing to do as well.
I completely agree. We had a show with Rob Coons, who runs an accelerator in Salt Lake City, which we were discussing exactly these points, so thank you for bringing them up again. Definitely a very valid way to get involved as a new Angel investor. Love those organizations. Nisa, we also were talking before the show, a little bit about online tools, because again, maybe some people live in smaller communities outside of New York, Silicon Valley, smaller states, and I know that online tools can be a great way to develop deal flow. Can you talk a little bit about the online tools that you like?
Sure. I’m a big fan of Angel List, which has really grown in the past few years. You can find deals on Angel List, you can create syndicates, it’s just a great resource. In addition to that, I also read veraciously, so anything from newsletters like CB Insights, or Matter Mark, or Strictly VC, to Dan Primack’s Term Sheet, those I find, are great. Then also Tech Crunch, or Crunch Base are also great for articles or looking up companies, as well as listening to podcasts. All of that is just really helpful.
Say you are on Angel List, and you are looking for start-ups in New York, because that’s where you are, and there is a start-up that catches your eye - what is the next step?
I’m not restricted to New York, but generally if there is one, I’ll just reach out to the founder directly, or I’ll see if any of his or her existing investors are people that I know, I might reach out to one of them as well, for an introduction.
That’s great. That’s a great strategy, and I’ve used it on my own too, kind of doing the same thing. You can usually see their LinkedIn, and then that makes it really easy to see if there’s anybody in common that you can reach out. What is the next step? You found a start-up, you’ve reached out, or maybe they reached out to you, and you’ve made that initial connection, what do you do next? Do you like to collaborate or are you more of a lone wolf, and you just do your own thing? What happens after you find a start up?
It really depends what sector the start-up is in. If it’s a particular area of interest where I have a lot of operational expertise, I might just engage myself, or if it’s an area where I know that other Angels could really add value, I would bring them into the meetings, or maybe even bring it to an Angel group, if I think it’s appropriate for that level.
What are some of the sectors that you like to look at?
I really like to invest where I can add value, because I sit on a bunch of advisory boards, I really like to get involved operationally in some of the heavy lifting. I have a background in entertainment and beauty, and legal, so those are areas where a lot of companies will come to me, but there are other areas that I’m excited about right now, that are trending. For example, frontier technologies. Everything from robotics, to driver-less cars, to autonomous innovations, to drones - all these new technologies that are really gaining a lot of attention, that are mission critical, and also have some kind of social impact. I find sectors like that to be exciting as well.
I love technology, and I guess where I don’t have a lot of experience is more, like you said, fashion, or start-ups that have more of a supply/chain type of environment. Maybe, can you tell us a little bit more, as an investor, when you come across these supply/chain, or maybe more consumer type start-ups, versus technology, what are some of the challenges?
I think that there is consumer side, and then there is enterprise side for technology. I think that I’ve learned over Angel investing and consumer, is it’s challenging. I like to really focus on the enterprise side. I’ve definitely done consumer, but I feel that a lot of times, the market could be more well defined on the enterprise side of technology.
By enterprise side, you mean business to business right?
Yes. Business to business. Software as a service, sales cycles, where you’re really selling to other enterprises, businesses.
I definitely prefer to invest in the technology side, that doesn’t necessarily have manufacturing, because I simply don’t know a lot about it, or understand. We’ve had several guests that tell us, invest in what you know, or what you understand. I know that for me, there is a little bit of a black box when it comes to consumer-type products.
You mentioned a little bit of the social and impact investing, and you are the first guest that actually brought that up. Maybe we can spend a few minutes talking a little bit about it, because none of the guests happened to talk about it. Can you tell us a little bit more about the social investing, or impact investing, and what it is exactly?
I think it’s trending right now. There’s certainly been a bunch of VC funds that have been set up to invest in opportunities where you’re not only making money, but you’re also doing good. In fact, there’s something called a B Corp now, which is a new legal entity that’s been created for these types of investments. The millennials, on the consumer side, the research has shown that they’re interested in investing in products with some kind of social impact. That’s been shown in companies like Tom Shoes, or Warby Parker, and then the same goes for the enterprise side, where there’s a lot of companies that are being started right now, that are trying to have some kind of giving back, and I think for family offices, it’s also important for their focus on philanthropy, and having some kind of impact as well, so I think it’s a trending area.
I agree. I wish we would see more in Idaho, but I think again, because we’re kind of a smaller state, not necessarily on the forefront of impact investing, but it’s a great area, and I’m glad to see it. Like you said, it’s trending now. I hope our readers keep that in mind, when you guys are looking at companies, and doing your research into investing, to see if there is an additional bonus of some type of a social benefit as well.
I know we got a little sidetracked Nisa, but let’s get back to what happens with your process of start-up investing. We left off at the point where you might bring a promising start-up to an Angel group, or the next step is due diligence. Can you tell us a little bit more about due diligence? It’s a legal term, but what exactly does it mean?
Well, really I’m a late seed investor, and I like to look at companies where there is some kind of product market fit, ideally some traction already, and it comes down to, at that stage of investing, really intangibles on the entrepreneur, and I like to refer to this time performance matrix, where you really get to know the entrepreneur over time, and you’re filling in a series of dots on the matrix. Getting to know them, are they tenacious, are they willing to get on a plane at 6:00am, versus 10:00am, to go to a meeting? Are they really the team to be doing this right now? I think the now is really important, because if you look at the research about companies that have succeeded, a lot of it has to do with the market timing. What market forces have come together to allow you to create this business, at this time? Would it have succeeded 5, 10 years ago, and why are you the right team to be doing this right now?
I think those are really important in terms of questions on due diligence, in addition to the usual checklist that you’d go through, in a pitch deck, and what you’re looking for.
I definitely agree, and let me just reiterate it. You’re looking at the entrepreneur, and you’re looking if that person is tenacious, and ambitious, and driven, and then you’re also looking at the team that that entrepreneur assembled, and the quality of the team is very important. Then, I love the ‘why now?’ question. I personally love seeing, in the slide deck, if there is a slide that specifically addresses the ‘why now?’. I think it’s crucial, because timing can be off, and it doesn’t matter how good of a founder you are, or how great of a team. If you’re too late, you’re too late, or I guess if you’re too early, people might not understand what you’re doing. Thank you for sharing that. How long do you typically spend on due diligence, or how long should our readers expect to spend on due diligence, time-wise?
I think in fairness to the entrepreneur, you try and expedite it as quickly as you can, because it is really time-consuming for entrepreneurs to be raising money, but I would say probably a few weeks. Maximum, 1 or 2 months.
I definitely agree with that. I’ve heard a few entrepreneurs complain if it takes too long, so I definitely understand that it can derail them. It’s not just that they’re being impatient, or anything like that, but it’s hard to focus on building their company, when they have to spend so much time fundraising.
Right, and one of the questions I really like to ask, by the way, about founders, is: ‘would I want to work for this person and with this person?’, because ideally if you’re investing is for a long period of time, then you really need to have that kind of good working relationship.
But wait…there’s more!
This post has been adapted from the Angel Investing with Tatyana Gray podcast. Listen to this recent episode for more great information from NISA AMOILS!
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When Tatyana learned that out of almost 9 million accredited investors in the United states only 300,000 (about 3%) were active angel investors, she made it her mission to attract, educate, and inspire the next wave of angel investors in this country.
As a new angel investor herself, Tatyana loves to learn the craft of investing in startups from experienced angel investors. It was only natural to share this process with a broader audience via her Angel Investing podcast.
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