An Intro to Angel Investing and Venture Capital — with Mark Bernfeld
On the 1st of October, Prof. Mark Bernfeld led an interactive workshop on angel investing and venture capital. We settled in for an engaging 1.5 hour session filled with plenty of questions, comments and jokes. Prof. Bernfeld’s insights into this world were emphasized very astutely through his personal experiences; and brought down from the danger of solemnity though his quick wit and sarcasm.
Mark is a professor here at Northeastern, teaching one of the most sought after classes in the business school: ‘Entrepreneurial Finance, Innovation Valuation and Private Equity’. Surprisingly enough, he started his career — following his studies at Dartmouth and the Wharton MBA program — in the field of insurance. He moved on to entrepreneurship and consulting. He is now an accredited angel investor with a commitment to cleantech ventures.
The preference for cleantech came about quite naturally for Mark. He wanted to invest his money in companies with big ideas, solving major pain points. This was in fact an important consideration in his diligence process, but it comes second to his requirement of a strong leadership team.
Mark’s due diligence process had some important points which we should take note of and learn from:
- The most important thing: the CEO and the leadership team. There is a need for honesty and trustworthiness, especially since you are considering giving your money to them. They need to be dependable and willing to listen. They also need to be competitive, with a desire to win above all, but not compromising on their ability to work with others. If they are not nice, not many good people would be willing to work for them.
- A big idea. He wants to invest his money to solve a major pain point.
- The market size of the company and their potential competition.
- Why does this company have a sustainable competitive advantage?
- Normal evaluations of the business model and financials (e.g. market strategy — how are you going to sell?; future prospects — how will you make money and how much money do you require for this? etc.)
- Exit strategies (important consideration in angel investing where your investment will be illiquid and quite risky)
- Terms
As we continued the workshop, we came to understand the differences between angel investing and venture capital. As the earliest stage of funding, angel investing allows little leeway into the evaluation of the start-up. This makes it a highly risky endeavor. Not much money is invested per business and the expectations for a high-profit exit are low. However, angel investing is rewarding in its own way — one gets to be a part of a business they believe in and influence its direction from the very beginning. On the other hand, venture capital deals with growth-stage businesses need much larger amounts of funding. VCs are willing to take on the risk of a large amount of possibly failed investments, in return for a few highly-profitable, unicorn-like start-ups.
When asked about the current thoughts in the private equity universe regarding impact investing, Mark intimated with us the bias that still exists in the community against investing in social and environmental ventures. There is a belief that such concerns are better addressed by non-profits, and many are more than willing to donate rather than invest. On the other hand, there is a growing shift in ideology towards understanding the lucrativeness in solving the big issues in the world, and an ever-rising belief in the ability of private capital to make a difference.
Join us, as we cause the catalysis of this shift in ideology, and bring impact investing into the forefront.
