What Angels are saying about Impact Investing

Thinking about becoming an impact investor? Are your thoughts and questions the same or different from others? What are they saying?

The Southwest Angel Network recently conducted a survey regarding what makes impact investing attractive and what holds back a decision to become an impact investor.

Here is what we learned.

Why SWAN angels joined SWAN

Survey Question: When you were personally considering joining SWAN what were the top two most compelling factors that most attracted you?

Survey Answers: For SWAN angels, by far the biggest appeal was a desire to make a positive impact on the world. Secondly, many of the angels had no prior angel investing experience and wanted to learn about investing. SWAN is structured to provide that education.

What potential angels liked about SWAN

Survey Question: When our SWAN angels have introduced SWAN to other potential angels, what are the ideas that most strongly resonate?

Answer: Just like the folks who have joined, potential angels like our impact mission, and the ability to learn about angel investing.

What holds people back from becoming Impact Angels

Survey Question: We asked our angels what their pre-joining concerns were and also what concerns they heard when introducing SWAN to potential angels.

Survey Answers: The primary concerns were the amount of investment dollars required , the amount of time required and their lack of experience in angel investing.

The good news is that SWAN assumes that new angels have no startup investment experience. We encourage new SWAN angels to not start investing until they have benefited from our educational webinars and have observed how our experienced angels think about assessing investment risks during our down-selection and due diligence processes.

Further, SWAN does not have a required minimum investment amount. Rather, we suggest that angels think top-down about how much of their assets they are willing to put into Impact investing, and then determine how to use that budget to build a portfolio of 20 investments over a period of years.

And typical of the 80/20 rule, some of our angels enjoy spending significant time advancing the mission of SWAN. And for others, the perfectly reasonable commitment of time is attending our quarterly pitch events, and reading the due diligence reports that SWAN has produced as the final step before we ask angels if they would like to invest in a company that has made it through our rigorous evaluation process.

A Perspective on Prospering in Uncertain Economic Times

I have been around startup companies for 35 years and have experienced both good and bad economic cycles. We have  now entered uncertain times.

That said, from a company’s point of view, a financial down turn can be a good time to create an early-stage  start-up.

  1. There will be fewer competitors of your same vintage, which can help lesson competition in the marketplace and with investors. This advantage persists over time. As the economy recovers from a downturn, companies will see fewer other companies at their specific stage of fund-raising. Said another way, when your company becomes a teenager, there will not be many teenagers around vying for attention.
  2. Operating costs often get more reasonable (e.g., lower cost of office space)
  3. It can be easier to bring on early employees (who may have been laid off)

And from personal experience, I know that a down turn is a really difficult time to for a company to raise a many million-dollar, later-stage VC round. During the 2008 recession, I had to sell my company at a loss to the investors because I could not raise a $12M series C round.

For investors, capital-efficient, pre-seed companies who can get by for a few years on minimal dollars suddenly looking pretty interesting. And the current environment means that pre-money valuations and valuation caps will be more attractive. The balance of power has shifted somewhat toward investors.

Working to Have a Positive Impact on Society

From the Desk of Bob Bridge

Our network thinks about impact in two ways.

Supporting Impact Companies

An important impact goal for our network is funding companies that are working to address serious societal challenges, such as improving education or healthcare outcomes or protecting the environment, or empowering or improving the lives of disadvantaged people.

We look for companies whose primary business mission is clearly focused on having an impact, and where the impact is not a secondary result or a sideline.

We ask the companies for as much evidence as possible that their product or service offerings actually do have a measurable impact and goes beyond “isn’t that a nice idea”.

Supporting Under-represented Founders

It is natural for me, and all of us, to feel most comfortable around others who are most like ourselves and to feel at home in an environment similar to the environment in which we were raised.

As a result, when those with wealth and power, the overclass, all belong to one demographic group, wealth and power tend to get easily shared with others in that group. Such sharing is a natural result and does not necessarily reflect a deliberate strategy to be exclusive or limiting.

Those who possess wealth and power may not have experienced the day-to-day and life-long challenges faced by the underclass, and it easy for the overclass to assume that the same rules that allowed the overclass to be successful in life will allow anyone to achieve similar success. That is not how it normally works for the underclass.

Our network believes that all individuals should have the support needed to reach their full potential. We recognize that glass ceilings exit, and sometimes even concrete ceilings exist and that all entrepreneurs need to be treated with respect and provided encouragement. We welcome under-represented founders into a thoughtful and constructive discussion about their business.

By diversity, we think of those who have historically been disadvantaged in terms of receiving funding, possibly because they are women or people of color. We strive to support startup teams with under-represented C-level founders.

Diversity is neither required nor sufficient to receive funding from us. That said, half of our funding to date has been to teams with an under-represented C-level founder.

And we think about supporting diversity more broadly than just funding companies. For example, we mentor Title 1 high school students in entrepreneurship by partnering with the Greater Austin Hispanic Chamber of Commerce Superstar program, and we provide a college scholarship to a student in that annual program.

“Efficacy” is my new favorite, social-impact word

From the desk of Bob Bridge.

Efficacy is defined as “the ability to produce a desired or intended result”.

It is often used to describe the effectiveness of pharmaceuticals. Does this drug demonstrate the expected impact on a certain disease? And is the drug effective in a large percentage of the treated patients?

The Southwest Angel Network, which focuses on social impact companies, sees many companies who are working earnestly and diligently to address significant societal or environmental challenges. The questions that I ask of the companies include, “Can you provide evidence of the impact-efficacy of your product or service?” and “What is the magnitude of your impact on society?”

For example, most of us would agree that early STEM education for under-represented populations is beneficial to society. Such training should increase the lifetime earning of those under-represented individuals who are today under-represented in technology fields. And technology companies should benefit from having a larger and more under-represented employee pool to draw from.

Consider a company that comes to us waving the STEM impact flag. They state that their STEM education lab tools are significantly cheaper than those of their competitors, and so our network should fund them. Our requests include:

  • Please show us evidence that your product offering has a higher efficacy in terms of improving educational outcomes compared to competing products. When a market segment has many competing products to choose from, what is the impact on educational outcomes of adding one more product to the mix?
  • One requirement for having a significant impact on STEM educational outcomes is being able to have a company’s offering adopted by the largest possible number of classrooms. So please show us evidence that your sales plan has efficacy in terms of penetrating the tough-to-sell-to-education market.

Consider a company that comes to us and states that they can reduce prescription medication prices for low-income individuals, allowing millions of individuals to pay for the medications that they need. What a wonderful idea! The efficacy question is, “Can you reduce the prices far enough to actually enable significantly more people to pay for their meds?”

Consider a company that comes to us and states that they can improve financial security in retirement for people who are today in their 50s. They accomplish this by offering a comprehensive and well-thought-out online retirement planning tool. Efficacy questions include:

  • Do you have evidence that your tools change the spending, savings, and/or investment behaviors of your tool users? Without a change in behavior, there is no societal impact.
  • Consumers today have a wide range of retirement products and services available to them. Can you demonstrate that your tools have higher efficacy than the plethora of competing options in terms of improving financial retirement outcomes?
  • After you have demonstrated that your tools have high efficacy, can you now please describe the efficacy of your go-to-market plan? If not many folks use your tools the overall social-impact is small.

Bob Bridge, Executive Director

My Path to Social Impact Investing

From the desk of Juan Thurman:

I have always been interested in Science and Technology.  As a boy, one of my favorite authors was Isaac Asimov.  He told fantastic, page turning stories based on what science and technology could one day make possible (and some that has come to pass, even in Asimov’s life time).  Of course, the technology was super cool, but more importantly it improved humanity.  His robots did the dangerous/hard/mundane tasks humans no longer wanted to do.  Self- driving cars were just one part of the automated transportation infrastructure, solar energy check and of course space travel was available to most.

This interest has led me to a fascinating and fulfilling career.  From my first job engineering, designing and testing off- road vehicles to make sure their large tires protected sensitive environments like the permafrost; to more recently, leading a team of dedicated professionals selling communication solutions that powered the creation of apps to help depressed patients feel connected,enable municipalities to alert citizens of harmful weather events and more.    Most of my career has been in technology sales, bringing education, innovation and efficiency to businesses that needed them.  Yes, many deals were straight forward and only lead to incremental cost savings.  But, the deals that I found most interesting and motivating were those that made people’s lives better.  I can still remember talking to an entrepreneur who asked if he could use cloud communications to better schedule home health aids or another who was connecting teachers, parents and students.

Recently, like many of you through happenstance and luck, I was re-evaluating my career and goals.  So, I reached out to a number of people that I admire and respect and had some great conversations.  (I encourage you to do the same from time to time).  One of the people I spoke to was Bob Bridge, Executive Director at Southwest Angel Network (SWAN).  He told me about SWAN and the amazing social impact companies that they have funded.  He then invited me to their next pitch dinner and after listening to companies working to reduce food waste, ensure the elderly get to their medical appointments on time, and improve the quality of our drinking water, I joined as an Angel.  I have had the opportunity to learn from some great Angels, mentors and supporters as well as some amazing and interesting entrepreneurs.

So when Bob, asked if I would formally help him run and grow SWAN, I of course said yes.  There are a great number of entrepreneurs out there who not only want to start a new company, grow that company and become profitable, but also want to positively impact this world we all share.  They need our help.  That means access to capital, mentoring, guidance and support.  Bob, has started an important, vibrant and growing angel network.  I hope to help grow the network and support more entrepreneurs who want to make the world better and drive outstanding returns.

Start-up Pitch Competitions vs. Real Business Discussions


From the desk of Bob Bridge: 

I recently have attended two Demo Days, which were the final events of multi-week accelerator programs. The start-up teams were well prepared and polished as they gave highly motivational and somewhat theatrical three-minute Demo pitches. At one of the events, up-beat rock music blared as each successive speaker rushed onto stage with a huge smile and excitedly made eye contact with as many in the audience as possible. Their businesses all sounded so high-energy and wonderful!

One of the Demo-day events also allowed investors to have ten-minute, private one-on-one meetings with the companies prior to the demo-day pitches. At these meetings there were no theatrics, only open and frank discussions about the status of the business, their successes to date and the challenges they face. These meetings were substantial and helpful.

It was interesting to me that in many cases, for a given company, it felt like a different company had been in the one-on-one and in the demo pitches. The demo pitches glossed over the real-world challenges and risk factors. 

I have the same reaction to business plan competitions for university teams. Well-rehearsed theater, with only a partial connection with reality.

an Angel Network that is not just about investing!

The Southwest Angel Network seeks to make a return for investors while helping social-impact startups address significant societal problems.

But we are more than just about investing. We also look for opportunities to advance the social-good in our community.

Recently members of the angel network participated as mentors in a high-school entrepreneurship competition sponsored by the Greater Austin Hispanic Chamber of Commerce. The Chamber ran the program at five diverse Austin high-schools. Our angels mentored eight teams at Akins High School. The winning Akins team advanced to the city-wide competition.

All five finalist teams (shown below) did a great job.

First place was won by three sophomores from Reagan High.  They were amazing with their plan for a company that addresses unmet needs of the Austin’s Hispanic community. We have invited the Reagan team to repeat their pitch at the next evening pitch event of the Southwest Angel Network, alongside three social-impact start-ups.

It will be great evening for the angels, for the Reagan team and the Austin community.

Validating the Market for Your Start-up Company’s Product or Service

From the desk of Bob Bridge:  

Scaling a business is all about profitability. There can no profits without revenue. There can be no revenue without customers. There can be no customers if you don’t solve problems that customers care about.

A real-life example: a university team invented a new type of catheter that would dramatically reduce the rate of urinary infections in patients. Doctors loved the idea, as did the nurses, patients and patients’ families. These people all validated that the new catheter provided great value and benefit. But it turned out that these highly-knowledgeable people were not the customer. Somewhere in the process of doing market validation the team discovered that the actual customer, who actually made catheter purchase decisions, was most often a purchasing clerk who was told to keep the supply cabinet stocked and to stay within the Medicaid reimbursement schedule. The new technology was more expensive than Medicaid would reimburse. The price point caused the clerk a problem rather than solving a problem. The team recognized that their technology would never gain wide market acceptance, and so they team decided not to launch a company.

Said another way, one of the biggest slams investors can make against an early stage company is to say that the company has “created innovative technology or service that now in search of a market”.

A much more promising approach is to first become the world’s expert on a customer problem, and then apply technology to solve that problem.

How do you go about becoming a world’s expert on a customer problem? There is no magic here, just hard work. Simply, get in front of 50 to 100 potential customers and understand their problems. With that number of interviews, you should gain a nuanced understanding of the problem, and understand that problem better than anyone else.

Who is a customer?  Someone with both a big problem and a budget they have the authority to apply to solving the problem.

What is a big problem? A problem that keeps a person awake at night with worry, or a problem when solved will get the person promoted. If your company can uniquely address those kinds of pains or gains, the person should be willing to write you a check (again, if they have the authority to allocate funds).

Nice-to-have or incrementally-better rarely motivates a customer to make a commitment to you. Especially since changing vendors can be risky or a big hassle.

And the customer is an individual. Your customer is not a group, like an engineering department, or a company, or an agency. These types of entities don’t decide to spend money with you. An individual with a name and a desk and a picture of their family on their desk can decide to spend money with you. When you find enough of these individuals willing to write you a check, then you have validated the market need and size.

In complex B2B sales environments there may be a variety of people influencing the purchase decision. But ultimately one individual makes the final decision. You need to interview that person.

When you interview the person, it is not productive to start off by talking about your cool product or technology and then asking the customer if they think your baby is pretty or ugly. No one wants to tell you that your baby is ugly.

And don’t ask about their opinions. You don’t care about their opinion. Opinions don’t buy products or services. Solving pain sells products and services

And don’t talk about the features of your product or service. No one buys features. They pay when your offering beneficially takes away their pain.

The more productive way to approach the customers is to start off by mentioning the general problems area that you are interested in, and then get the interviewee to talk about the pains they have in that general area.

Spend 80% of your time listening and only 20% of the time talking.

At the end of the conversation, if you have successfully identified a pain that you can solve, you can summarize your product or service offering, and ask how much they are willing and able to pay for a solution.

Good hunting!

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