Episode Summary
An angel investor is an individual who provides capital — mainly for a business — usually in exchange for convertible debt or ownership equity. Angel investors typically support startups in the beginning, when most investors are not prepared to back them. And if you pick the right investments, you’ll get a high reward.
But angel investing can be risky since the investment or the business is unproven. While making money is possible, many angel investors lose their entire investment.
Amber Illig successfully went from angel investor to the role of founding general partner at The Council Fund, an emerging venture firm that invests in technology companies that are transforming traditional industries in Logistics, FinTech, Digital Health, and the Future of Work. She has a handful of successful investments behind her.
In this episode of Taking the Lead, Amber gets into angel investing and venture funding. Amber and our host Christina Brady discuss different ways to invest as an angel investor, how to pick winners, and the impact of COVID on the VC industry.
Guest Profile
- Name: Amber Illig
- What she does: Amber is a partner at The Council.
- Company: The Council
- Noteworthy: Amber was born in the Midwest, studied engineering, and started her career in pharmaceutical manufacturing. Seven years ago, Amber moved to California to work at Apple because of the connection between the medical device she worked on at Eli Lilly and the iPhone, and she has been working in tech ever since. She worked at Snap Inc., then moved to Cruise — where she spent three and a half years — before becoming the head of operations at Atmos. Now, Amber runs a venture fund.
Key Insights
- From being an angel investor to running a venture fund. While working for different companies, Amber collaborated with executives and founders and realized that she wanted to be in a position to make decisions, if not to be a founder. As she points out, it was clear to her that she had to build a track record as an angel investor in order to reach her goal, and Jason Calacanis' book, Angel, was very helpful as a crash course on all the terminology. "That book I recommend to every single person who wants to start angel investing. Plus, The Council really got me off the ground where I felt like, A — I have this book to teach me the basics. And then, B — I have this group of people who're all learning together, and we have a couple of experts whom I can ask questions. And I don't feel silly because it's a safe space. So I think you have to have that network."
- What is an angel investor? If you are a startup company, raising capital is one of your biggest challenges, which an angel investor can help you with. But many people don't really know what an angel investor does. An angel investor provides startups with seed money in exchange for an equity stake in the company. According to Amber, there are several types of angel investors. "Some will invest in consumer packaged goods; some will invest in tech companies; some will invest in brick-and-mortar businesses and restaurants. But there's always an expectation that because they're getting in so early, they are going to be sharing the upside with you, and that it's better for them to get in early than wait until you've proven everything."
- How to pick winners when you invest? You don't need to have a huge amount of money to be an investor. Even with amounts of $1000, you can enter this business and be successful. Amber's experience is such that she has somehow always picked winners, so she explains how she managed to pick incredible bets by investing in pre-seed companies. "You wanna make sure that the founder you're investing in has a real reason why they're doing this that's going to keep them going. So I like to ask that question up front, 'Why are you doing this?' And then the second question I like to ask is, 'What's your ultimate vision for this company?' And what I'm looking for is a big vision. There's no right or wrong answer. There's no right or wrong way to design your business goals. But if I, as an investor, am looking for venture-sized returns on this, I need to know that you wanna build something extremely scalable that's going to be tackling a massive market, and you have a really clear go-to-market plan about how you're going to get into that market and then expand from there."
Episode Highlights
The Valuation Traction Matrix
“Basically, every milestone that a founder hits, their company becomes more valuable. So if they’re talking to you, and they have an idea on a napkin, it’s not super valuable, but it has some value attached to it — it can be worth like $3 or $4 million — the company and the founder themselves. And then once they have a product built, but they haven’t had anybody use it yet, that adds value to the company. If they have their initial users, but they’re not paying yet, that adds value to the company. Once they start paying and you see revenue come in, that adds value to the company. And then finally, once you see traction — not just revenue but also repeat customers — that adds value. And then, from there, you’re looking at that revenue and traction growing over time. And you’re evaluating a lot of different factors too, but that’s why I try to make sure that whatever they’re proposing as valuation makes sense generally, but within a range; I’m not trying to nickel-and-dime them.”
Multiple Ways to Invest as an Angel Investor
“The piece of paper that shows everybody who’s invested in a company is called a cap table. If you want to be directly on the cap table — which means you give your money directly to the founder — you either have to have a major like, ‘I’m gonna be a value add.’ And like, ‘I’m a marketing genius, I’ll help you with anything marketing, but I can only afford a $5,000 – $10,000 check.’ Or some founders will even accept lower than that, but a lot of times, if they’re trying to raise a million dollars, they can’t waste their time talking to a million people who wanna write a $1,000 check for their round.
But there are now these syndicate leads — so you can invest through what’s called an SPV or syndicate, which allows you to invest as little as a thousand dollars. And you’re depending on the syndicate lead to go find the deal, bring back the information to you, and you decide if you want to invest alongside that syndicate lead; and you can invest $1,000, $2,000, $5,000, $10,000, whatever you want, into that round. The catch, when you do that, is you share some of the upsides with that syndicate lead. And then there’s also investing in venture funds like mine — where you’re actually entrusting that lead to pick all the deals — and you’re saying, ‘I don’t have time to diligence all these things, but I want exposure to 30 companies. You go pick them.’ So there are different ways to do it, but I would say that depending on the structures that you’re going after, investing as little as a thousand dollars is reasonable.”
The Impact of COVID on the VC Industry
“When COVID broke out, everybody froze. I was about to go out and start raising my venture fund. Annabel, my senior advisor and partner in the angel community, and I were like, ‘This is not our time; let’s put it on pause for a little while because we don’t know how it’s gonna go.’ And I’m sure a lot of founders were thinking that too. I think there was this time when everybody was frozen, and it was pretty short. From where I’m sitting, it felt like three to four weeks where VCs were like, ‘We don’t know what to do. We don’t know if we should be waiting to see how big this thing goes or what?’
And then there was a period of time when everybody was like, ‘We’re going to keep investing, but we’re only investing in these COVID-centric businesses because this is the new normal.’ […]
And then after that, it was kind of like everybody had normalized. We realized that there are some short-term trends of COVID that are almost risky to bet everything on because this is a temporary thing. And then there are long-term impacts of COVID, like on our supply chains, in the way that we conduct business together, whether it’s live or virtual.”
