Maggie Sellers On How To Start Angel Investing (Her Secrets Exposed)

0:00Race the rudders! Raise the sails! Raise the sails! Captain, an unidentified ship is approaching. Over. Roger. Wait, is that an enterprise sales solution? Reach sales professionals, not professional sailors. With LinkedIn ads, you can target the right people by industry, job title, and more. Start converting your B2B audience today. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started today at linkedin.com slash campaign. Terms and conditions apply. The Jack Welch Management Institute at Strayer University helps you go from I know the way to I've arrived with our top 10 ranked online MBA.

0:39Gain skills you can learn today and apply tomorrow. Get ready to go from make it happen to made it happen and keep striving. Visit Strayer.edu slash Jack Welch MBA to learn more. Strayer University is certified to operate in Virginia by Shev and as many campuses, including at 2121 15th Street North in Arlington, Virginia.

1:02In case you missed it, you're allowed to be hot, smart, and rich. So let's get into it.

1:12Hi, guys. Welcome back to another episode of Hot, Smart, Rich, the podcast. Thank you so much for tuning in to this episode, every episode. If it's your first, if it's something that you've listened to consistently over the past few weeks, I am so grateful that you're here. This has been such an overwhelming experience for me. I feel like naturally I'm good at this, but there's also a lot about it that I'm naturally getting used to because it feels a little awkward. I have been told that I could literally talk to a dead moose, yet when I try to talk to a dead moose that's literally on the wall in Montana right now, it is so freaking hard.

1:52And so I have to be honest, this is not the first time I have tried to record this episode. I tried to record it with my sister on Zoom. And when I listened back to it, it just didn't feel like it was hitting. And I guess that's what happens when you put out one podcast episode and you get onto the top business charts on Spotify in your first week. First of all, that is only possible because of you guys. That is only possible because you actually want to listen to me, which I feel so grateful to be able to say, but it puts on so much pressure and that's okay. Like I can thrive under pressure. I've actually been better at pressure than I have been when I have a lot of time.

2:35I was always like that in school. I was always better at having to do something last minute than having so many weeks to prepare. I was like one of those people that would just always leave it to the last minute. But I woke up in disbelief when I found out that we had made the top charts on Spotify. That was something that I put onto my vision board for the entire year. I had zero idea that it was possible in our first week. What that has meant for future weeks is this like sense of urgency and this sense of things having to be perfect and things are just not going to be perfect. I'm still getting to learn you guys.

3:11I'm still getting to learn a new format. I posted this a year ago that said something like your first anything will be bad but you can't get to your 95th to be perfect if you're not willing to make your first one bad. And I was anticipating the first 10 being bad at least. And so for it to reach the charts, on the one hand, I'm so grateful. On the other hand, I'm so scared. I hope that while I learn and evolve, you guys stick with me and give me all the feedback. So that being said, if I can ask one favor, it would be to rate, review, comment, and share an episode that means something to you with a friend.

3:47That is the way that this show gets better, the better guests that I can have on, the more honest conversations I'm going to have with you guys. So please, if you can rate, review, comment, subscribe. I never thought I would be one of those people that would say that, but here we are. I am going to start off this episode actually just taking a little spritz of this Maison Louis Marie number four, which is a perfume that I love from Sephora. Somebody actually got this for me and I brought it as one of my perfumes, I'm really big on stepping into the energy that you want to exude. And today's episode is a big one.

4:23It's actually how I created a platform off of TikTok. It's the ins and outs, the angel investing 101 that everybody has been asking for, for honestly years. And I've obviously touched on angel investing. It's like I said, how I created my platform, but part of it, the hesitation to really dive deep into this topic when I only had a short form platform was it is really confusing and it's complex. And depending on if you're a founder, if you're already an angel investor, if you're an aspiring, or if you're just startup curious, like I know a lot of the people that are listening to this are, there are so many different stages and different levels, think of it, that you could get to to understand angel investing.

5:05So just a little disclaimer, this episode is not financial advice, especially from somebody who does not have a financially trained background. I do not hold a CFA. I did not go to an investment bank. I did not work in private equity. I am not a former founder that has a multimillion dollar exit. I am your average marketing manager that had turned a passion and an interest into believing in companies that I thought should exist and didn't and have turned that into a professional platform and career. Today is the day I feel like I finally, even know this episode was planned. This is just kismet from the universe.

5:41Today is the day I finally feel ready to do this because what you look at in investing, especially because outcomes are like seven to 10 years down the line, is a track record. And a track record can mean a lot of things. It can mean that a startup that you invested in at an early stage actually has a liquidity event. So they go and they get listed on the public stock market or they get sold to a holding company or they get sold to an acquirer. But if you don't have that because you've only been investing for a few years, you have something like markups or on paper you've made good investments and you're creating a track record for yourself.

6:16And I have a very exciting announcement that happened just yesterday, even though I technically have known about it for a few months now. My portfolio company, Alara, that I made an angel investment into and I actually brought Vantara Ventures, which I'm an advisor and a venture partner into, they just announced that they have raised a$26 million Series B. The company was founded by Rachel Blank, who actually was a previous VC. She is like the ideal girl on paper, literally, and actually in real life. Honestly, this just doesn't happen that often. And so to see a solo female founder in something that I believed in without having this technical trained background and see where it's at from where we started at, It's just like the motivation and the inspiration that I even needed to record this.

7:04I'm really excited to dive in. Today, we're going to talk all about angel investing 101. One of the things that I've learned to make this the most natural way is asking you guys a bunch of things on my story so that I can answer very specific questions. So some of the things that we're going to get into today is like, what is angel investing? How I personally got into it, and this is really great for anybody who just wants to think creatively because you also don't have a traditional background. some of the myths of angel investing. I really want to talk about how you find deals. Is it right for you?

7:34I want you to leave this episode, maybe not having a decision if it's right for you, but at least understanding how you can start to think about it being right for you. I want to talk really quickly just about some tactical things like, is there a contract? And then your role as an angel investor. So we're going to try to cover a lot. I'm going to aim to make this episode like 30 minutes, I think, because again, we can always do another one, but I don't want to blabber on. But here's another disclaimer to get started. I do not want you to listen to this if your goal is to make money, which is probably the worst advice you've ever heard about investing because you invest to make money.

8:10Anybody that tells you that you're going to become a multimillionaire off of angel investing is just straight up lying to you. And I'm going to break down why. So what is angel investing? Angel investing, I would say, is probably one of the riskiest asset classes or forms of investment. But why do people do it then? And I think about myself as an angel investor in this way, like I've said, is to back things that I think should exist and don't and help them come into the marketplace. It is also an extremely illiquid form of capital, which means that when you invest into the stock market, you can decide, or if your circumstances or situation changes, you can decide to pull your money out.

8:48You cannot do that as an angel investor. Your money is locked up. And like I've said before, it is over a long period of time. If I think about what I have done in the last five or 10 years, I'm 32 now. So being 22 years old, like that is the average life cycle of an angel investment. Your financial situation could change. So I always look at angel investing as money that you are not banking on for the next 10 years or ever. I honestly kind of say goodbye to that money from a financial perspective. And I'm going to talk about all the other reasons why people get involved. But angel investing, why would anybody do this then?

9:27It is really a belief. It is something that you think of yourself as the tooth fairy. You are going around and giving money to people that you think need to have it to be able to bring their idea into the marketplace. And there is some sort of a contract involved, which we'll get into later, although it's not your typical contract that gives protections for both the founder and for the investor to make sure that you're not just investing as charity, like you're doing it to get a financial outcome if you can. But I really want you to detach from the idea that this is about making money because anybody that thinks that way should look at a different form of investing.

10:05There's a big difference between angel investing, venture capital, and private equity. And we're going to really focus on angel investing versus venture capital because angel investing is really an individual sport. It's something that you do to invest your own money. Whereas venture capital is a professional investment group that is investing on behalf of other people's money. So they are pulling money from investors and investing into companies in a diversified portfolio as a profession, whereas angel investing is typically done as an individual exercise. You can call it a passion. You can call it a hobby.

10:42There's a little bit of nuance to that, whereas just to be very clear up front, I'm an angel investor, so I invest my own money. Let's just talk about money for a second. I invest$5 ,000 to$15 ,000 as an individual check. And we also run something called HSR Ventures, which is an angel syndicate. So we then invest$100 ,000 to $500 ,000 into the same type of company early stage. But this time we are pooling money from different investors into one investment group onto a cap table, which is essentially just a fancy way for founders to be able to keep track of who owns ownership in their company.

11:20And that is exactly what angel investing is, is it is ownership. You are giving a founder capital to own a piece of that company. And it always makes me laugh because I always hear people like, especially, you know, at fancy places, people are like, oh, I'm an owner of that company. And then you drill down and you ask them more questions and they invested at like the pre-seed or the seed, a nominal amount. Still amazing that you have great gut instincts if the company ends up being something, because that's usually why people brag, but it definitely doesn't mean you are the owner of the company, but you are an owner.

11:53And that is why when you are a founder or if you are a founder listening to this, it is so important to take money only from people that you can anticipate being in business with for the next 10 years, because it is harder to get an investor off of your cap table than it is to get a divorce. So you are signing up for a long-term arrangement where you as the angel investor are giving a founder money to go and bring their crazy idea into fruition. And the word here is crazy because how investing really got its start was on bringing very contrarian ideas to the marketplace that just couldn't bring a profit at the same time.

12:33They were such innovative concepts that the idea that consumers were ready for it right then and there and there wasn't testing was really the reason why founders were having to go to investors in the first place to fund their ideas. And I think the word investing has diluted itself or become less important of a meaning based on the types of investing that there is. Even the difference between tech investing into companies that you know of like on your phone, like Canva or WantLocker or Uber versus into companies that are consumer, like Set Active you might wear or Bala you might wear or Mejuri as a jewelry brand.

13:11The economics of how those companies make money is so fundamentally different, which is why the type of investing that you need to do is also fundamentally different. Like I said, lots of nuances. I'm going to take a pause because I don't want to go down rabbit holes that we're all not ready for yet. This is like your angel investing 101 and we're going to bring it back to the basics. Why did I start this section off by saying, don't do it if your goal is to make money. The sad reality is that nine out of every 10 startups will not make it. And you just have to be okay with that. There are angel investments that I have made where I thought it was a great idea.

13:50The great founder, second time founder who had sold their company for like 150 million. I'm thinking of one in particular. And I put in a small angel check. It was actually an AI education platform. So it was like giving parents that didn't have the same resources to send their kids to like a fancy school. And their kids were like coming home and watching Miss Rachel, which is no shade to Miss Rachel, but it was more like a one-to-one education platform to really help them on their specific development. And literally like seven months after I gave her money, I get an email that she's just not going to be continuing on with the company.

14:22That happens. There's other angel investments that I've made like Lara, where it's like, wow, you can really see your progression. But the reason that founders even want your capital at the beginning is because there is a need for capital. And without runway, without capital, ideas and businesses go to die. But very quickly, there is a switch that happens when the company has progressed and they've maybe turned profitable or there's a ton of interest from more professional groups that can deploy more capital, venture capitalists. And cash no longer becomes the most important resource, and that's in quotations because cash is obviously king, cash is the most important, but equity becomes extremely important to them because that is their ownership perspective that they will get to make a large payout one day off of.

15:11That's where you see founders that are like, we sold our company for 400 million and you think that they have 400 million. Well, it really depends how much of their company they gave up in exchange for cash as they were building their business. And this is such a great segue into how I got into it. And I'm sure the tech bro, if they listen to this, sweetie, this is not for you, but they are going to pick me apart on Reddit or whatever threads they use, X, I refuse to go on there. Because I would actually describe my entry into angel investing in a completely different way than most would. Like I said, I am the anti-archetype of the angel investor.

15:49You're typically looking at the circles of like the people that live in San Francisco and New York. They were investment bankers or they were in private equity or they're former founders with a multi-million dollar exit. And I am just your average marketing girl who understood the power of ownership and equity at startups as an employee. And what I'm talking about is something called an employee stock option plan. And I can say proudly that I have never worked at a startup that I did not own a piece of the company with through an ESOP program. So instead of just getting, let's just use easy numbers, let's say$100 ,000 as compensation, salary plus bonus, I would drop my salary down and then negotiate for a piece of equity vested over a period of time.

16:35So that's like how many years you actually have to work for it to be able to say that it's yours. I loved that because I was that employee that worked my ass off. I was constantly going above and beyond. At one startup, I literally became best friends with like the head of finance because we would be in the office until like 11 p.m. every single night. And I probably didn't have to do that, but that's just the way that I work. So having a piece of ownership felt like it was worth it versus just knowing that I was like clocking in and clocking out every single day. So I would actually argue, especially because the first startup that I worked at, I was so lucky.

17:11I have to shout out Matt Corrin. Like I worked for him directly during the last few months of my tenure at this company called Freshie. and during that time we went public and I remember like staring at Matt as he was on the stage at the TSX the Toronto Stock Exchange so I remember looking at him and being like oh this is the goal of every single company and what they want to do one day which is like to essentially go from building it yourself with your employees to go to like having a larger ownership pool and that's really what an IPO or an acquisition does. I remember we after we left the stock exchange we went back to the office and Matt offered to take me for a walk and we were walking and I was obsessed with gum at this time.

17:53And so I used to buy like five packs of gum and I put it down on the counter and I tried to go pay for it. He's like, I got it. Trust me. Like I just made some money. I got it. And it was in that moment where I was like, oh, that's liquidity. Like, especially when you have a large ownership perspective, like this is a big deal. This is like how you make generational wealth. So from there, I left, I went and worked at other startups. And the real pivotal moment came when I had worked at a very high growth startup, we had raised$120 million. This is the reason I even moved to Los Angeles. And the former president of the company after two years of both of us working there very intimately, decided to leave and go on to his next venture.

18:36And he asked me one day to go for dinner, which was not abnormal. So we leave, we go for dinner, And during dinner, he tells me that he's leaving and he's starting his new company. And he asks me if I'm going to go with him and become the vice president of marketing. And I felt like I had done that role, even though my title was like director of brand marketing or head of brand marketing underneath our CMO. I had deployed an$18 million budget. I was responsible or helped be responsible for all out of home, influencer, geographic expansion, product expansion, retail launches. and I was looking for the next chapter and I wasn't exactly sure what that was at that moment, but I knew it wasn't going back into like a pre-seed company or an idea and building it from scratch as the VP of marketing.

19:23I think I also wasn't super passionate about the idea, but that's a different story. So I decided, and that's not true. I was passionate about the idea, but I wasn't passionate enough to give it everything that I had and to really go and do what I do, which is act like an owner as a VP of marketing for this person in particular. And good thing I didn't. I decided to negotiate and try to become my first advisor to a startup in exchange for equity to essentially do a lot of the roles and responsibilities that he wanted from me, but not full time. So I said that I would help him hire his head of marketing, which I ended up doing and she crashed.

20:01I would help him just figure out how to put influencers into the company as investors and advisory partners through equity. So structuring all the deals, putting together the actual like scope of work that they would be responsible for, roles and responsibilities, and a bunch of other aspects of the company, including like raising money and all the like grunt work that you do wearing so many different hats as an advisor. He ended up going for it. I had no clue what I was doing. And when I fast forward years later, found out what the actual structure of the agreement was for how much I was given in terms of the percentage of equity, it was really disheartening.

20:40I have since decided to no longer be involved with this company. I actually gave up all of my equity based on how unfortunate this was of a situation of being taken advantage of. And I have no beef with anybody, but I just in this stage of my life can choose who I spend time with. and it's not a company nor a person that I'm interested in spending time with and that was the best decision for me. What it taught me was the fundamentals of how to look at deals and how to make decisions based on what I believe should exist and doesn't currently. And I think that's a skill that for anybody that's listening that really wants to be an angel investor, it's like, how do you know which ones to do?

21:22And it's like, think about it if you are starting a job there. How would you evaluate the CEO? How would you evaluate the culture? How would you evaluate the market? Who are their biggest competitors? Like get curious. That is another episode that we're going to do, but I can't help myself and I just have to spill all the secrets right away. That all being said, advising companies for equity, although it wasn't investing my money, it was a big investment of my time. And this is what we call sweat equity, literally putting in the work to get a piece of ownership. And that led me to be comfortable with the idea of parting with money.

21:58And this is also such an interesting thing as you get older. Now my most precious resource is my time, unless it was an insanely amazing idea that I was so passionate about. I don't know if I would be open as much to advising companies now. I'm much more interested in investing and having more of a hands-off approach and not having to put in the same amount of work that I once did because I'm just in a different place of my life where, yes, my priority is obviously my business, HSR Ventures, HSR Media, this podcast now. But I'm also in a very healthy relationship where we're thinking about marriage and kids.

22:37And my time is my most important resource. But for anybody that's listening that really wants to get involved, like the best learning that I did was through my time. And if you don't have the capital to invest, start with one company, figuring out what your superpower is, where can you add value? And then it's the same way when you're trying to get onto a cap table as an investor. It's similar with advising. It's like you're having to convince the founder to let you involved in their baby. And what are you going to be able to offer them? Other than just capital, because if that's not what you have, then you have to get very creative over what that is.

23:17I have since become an angel investor. Like I said before, we're deploying$5 ,000 to$15 ,000 into companies. And to some, that is not a lot. We're going to get into that later. But to me, it's perfect based on my goals with investing. I've also spent time in corporate VCs. So I actually launched a corporate venture arm for a record label where we would invest off of the balance sheet of the record label into mostly music tech startups, but also startups that we felt aligned and could offer value to the roster of artists that was on the label. And that was an amazing opportunity to really understand professional investing.

23:50And now, like I said, we run a syndicate. So this is what I argue is probably the best if you are looking for angel investing to be part of your portfolio, but you can't make it your full-time thing. Part of being a good investor is just a volume game and understanding how many deals there are out there and really making sure that you have eyes on everything, which is why when you're being evaluated as an investor, people are asking you questions like, how do you source deals? What are your areas that you find you're getting proprietary deal flow that I couldn't find somewhere else? So a syndicate is a great way to get exposure to deals, to get exposure to companies.

24:26And we have a lower guardrail from a minimum check size. It's$5 ,000. Usually our investors are investing anywhere from$20 ,000 to$100 ,000 per deal. That's obviously not the requirement. It's as low as 5 ,000 to try to get more people involved. And it is a really great way where you can still be learning, still have something that you're involved in, but it's not something that you're solely responsible for day in and day out. I'm going to talk a little bit more about our syndicate. One of my worst qualities is that I am the worst plug of things. Like I think it's creative anxiety or I don't know what it is.