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The Gatekeepers

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When it comes to female-founded startups receiving funding, these three angel investors in Austin are out to convince the world women business owners have nowhere to go but up.

By Shelley Seale, Photos by Annie Ray

Growing up, sisters Kelly Gasink and Jill Burns spent summers on their grandparents’ farm. Every day at 5:30 p.m. sharp, their grandfather would drop whatever farming work he was doing for his afternoon ritual of cocktail time. This treasured tradition inspired a lifelong appreciation for cocktails in the sisters, who eventually started a business together, Austin Cocktails, to disrupt the craft-bottled cocktail space with their organic, high-quality product.

The venture was very capital-intensive; such a company cannot make it without investment. Gasink and Burns initially put up their own cash to formulate their first two drinks and prove the concept. Next, they sought angel investment to begin producing higher volume and expand sales throughout the country. By 2016, they had raised $1 million through Central Texas Angel Network and another $1 million through venture-capital firm Enhanced Capital. In 2018, Austin Cocktails will be in 14 states and hundreds of venues, including Madison Square Garden, with the sisters giving all they’ve got to scale their idea.

Many may wonder what exactly angel investing is. The short answer: Financial backers, or “angels,” invest in early stage or startup companies in exchange for an equity ownership interest in the company a la TV show Shark Tank.

Throughout the past two decades, the practice of angel investing has become more common in startup culture. Facebook and Uber are just a couple of the high-profile startup success stories that got a boost early on from angel investments.

How it works

When an entrepreneur starts a business, he or she is typically expected to fund the first $25,000 in seed money. From that level to $150,000 in funding, there are several options from which an entrepreneur can pull funds: investments or loans from friends and family, personal loans, home equity or credit cards.

Angel investors generally come in at the $150,000 to $1.5 million level. Typically, a number of individual angel investors contribute to generate the capital desired. In this form of investment, the individual invests directly in the startup. Companies looking for funding beyond the $1.5 million mark then move on to venture-capital firms, which raise multimillion-dollar funds and control the investment and continued relationship.

The Central Texas Angel Network is a group of angel investors comprised of about 185 members who have invested more than $90 million in 150-plus companies since 2006. It’s one of the most active angel-investing groups in the nation. In 2016, according to the Alliance of Texas Angel Network, 73 percent of the deals in the Central Texas region were funded by CTAN, meaning just shy of three-quarters of Texas-based startups did not have to leave the state to nd investors. Austin Woman spoke with three highly successful angel investors to learn what they look for in an investment and how women-owned startups are faring in Austin.

Stephanie Breedlove

Co-founder of Care.com HomePay and author of All In: How Women Entrepreneurs Can Think Bigger, Build Sustainable Businesses, and Change the World

Entrepreneurs generate 80 percent of new jobs each year, not to mention they are the creators of new products, services and new wealth.

“Strength of economic growth is dependent on growth in startups and in transformational entrepreneurs,” says Stephanie Breedlove, an investor in Austin Cocktails. “Access to capital is a key factor for spurring increased entrepreneurial activity and for enhancing the ability to scale.”

Unfortunately, entrepreneurship in the U.S. has been shrinking for the past 30 years, and the percentage of working adults who choose to start a new business each year has been slowly declining. The number of transformational entrepreneurs—entrepreneurs who start companies to pursue growth rather than for flexibility or lifestyle—is also shrinking. At the same time, according to the Kauffman Foundation Startup Activity Index, Austin is ranked the No. 1 city in the country for startup activity. And women are a big part of that.

Data shows women own more than one-third of new businesses and are starting them at two and a half times the national average.

“This is impressive,” Breedlove says of the stat. “But for startups in Austin to defy the statistic of a 90 percent failure rate in the first 10 years of business, the funding ecosystem must be stronger. … I believe that growth and strength of angel investment is pivotal for enabling the transition from startup to scale, the process that generates transformational entrepreneurs.”

Yet women do not seek or receive funding at the same rate as men, nor do they seek as much funding as men, despite the fact that women-led companies have proven they deliver higher returns, according to True Wealth Ventures, a female-founded venture-capital firm in Austin that invests in women-led, primarily Texas-based companies focused on health, wellness and sustainable consumer industries. Women also do not engage in investment activities at the same rate as men. But, Breedlove says, women have nowhere to go but up.

“We are early in the evolution of women in entrepreneurship , and [we have]great reason to celebrate progress to date,” she says. “Yet we must recognize that the barriers are still sizeable, and every person involved has the power to help move the needle and to reap the rewards that will follow. Access to capital, the ability to compete successfully for capital and the expertise to put capital to work effectively is instrumental to changing this picture.”

Breedlove prefers to engage in efforts that are the building blocks of systemic change, the types of efforts that require long-term commitment but have the opportunity to effect large-scale change.

“I believe that change does occur one person, one conversation, one action at a time,” she says. “Our singular efforts matter at epic proportions.” What does Breedlove look for in an angel investment? She employs a preliminary high-level litmus test of sorts using a set of business criteria: the size of the investment opportunity, how well the product or service seizes opportunity and size of marketplace. If an idea passes the litmus test, she then proceeds to her list of five things she must see in an opportunity to invest:

  1. A core component of the founders’ passion must be rooted in the desire to serve before being served. This means placing a priority on industry, company, clients and team before the founders themselves as a strategy for success.
  2. Founders must have an intense willingness to do whatever it takes. They must be willing to be the CEO, the janitor and everything in between. Proof of this is typically exemplified in the early stages by having personal financial investment in the company.
  3. Founders must display a desire for mitigating risk rather than taking risk. Good entrepreneurs are problem-solvers and they usually love it. Successful business development depends on effective problem- solving for mitigating risk.
  4. Founders must innately prioritize continuous learning. This is a core trait of every successful entrepreneur.
  5. Founders should demonstrate an understanding that all facets of a business must be prioritized for creating sustained value: finance operations, efficiency methods, culture, client service, product quality, value- add sales and marketing, etc. The unsexy facets of business are where the magic is made.
Kelsey August

Investor and board member at Central Texas Angel Network

As one of the female investors with CTAN who’s been long involved, Kelsey August has invested in many women-owned and -run businesses throughout the years. With the founding of her first startup two decades ago, she also brings a unique perspective to the table in the form of personal experience starting and running a business.

“I know how to help women with my shared experiences from both my entrepreneurial background and investment knowledge,” August says. “If we want more women to succeed in business, then we need to help them obtain the necessary funds to grow their companies.”

The impact of angel investors is huge to Austin’s entrepreneurial community, funding more than 80 percent of all seed money. Getting guidance from an angel investor is priceless for a small-business owner.

“Most entrepreneurs are running and growing their companies,” August says. “Fundraising is a necessity. However, most do not know their way around a term sheet. Angels spend time with their potential investments and educate them from the big picture down to the step-by-step process.”

What does August look for in an angel investment? The answer: a confident, coachable entrepreneur, she says, who has an innovative and defensible business model. Financially, she needs a reasonable valuation or convertible note with a rational cap.

“As an early stage investor, I am going to get diluted as more monies are invested, perhaps severely if the learning curve is steep for the entrepreneur,” she says. “If I start investing in overvalued companies, then there is typically little financial upside at exit for an angel.”

August believes, quite simply, that more accredited investors should add angel investing into their portfolio mix. As a CTAN board member, she personally extends an invitation to any accredited investor to attend one of the CTAN meetings as her guest.

“Angels move the needle for all entrepreneurs. Startups flourish in Austin because our angel community is active,” August says, noting that in addition to making monetary investments, angels also contribute as mentors through organizations like CTAN and Capital Factory.

Q&A with Claire England, executive director of CTAN 

Austin Woman: How can angel investors help financially empower women and their businesses in Austin?

Claire England: The essential goal for angel investors is to maximize return for their portfolios while minimizing risk. A basic rule: diversification helps mitigate risk. One of the ways to increase diversification is literal diversity. By that, I mean not just the types of companies and industries, but the types of leaders of the startups. At Central Texas Angel Network, we’ve doubled the number of women-founded companies in which members invested from late 2014 through 2017. These aren’t massive numbers so far, but we’ve started moving the needle and change is happening.

AW: Why is it important for more women to become angel investors?

CE: It’s helpful for entrepreneurs to see people like themselves in the room when they’re pitching investors. It makes it easier to build connections and makes founders feel more welcome. We’ve gone from 4 percent of our angel investors being women to 30 percent in roughly the same time frame as we’ve doubled funding in women-founded companies. I’m hopeful increasing the number of women investors creates some self-reinforcing response going forward.

AW: How can other women help increase angel-investing efforts for women-owned businesses?

CE: Angel investors will invest in the companies they think will provide the highest return on their investment. When we try to set aside our unconscious biases—and every one of us has them—we can ask the questions in pitch sessions and [give]due diligence that will help us make better decisions. At the same time, it’s important when entrepreneurs are pitching that they’ve done the work to anticipate the hard questions and identify solid answers. Better mentorship can help with this. So, the more people with business experience can get involved, not just as investors, but as mentors, the better everyone does. There are many ways to get involved in the startup community beyond money. Mentoring entrepreneurs is an important one. Share your lessons, your successes and your failures too. We can all learn from each other.

AW: How do you plan to continue growing the eld of female investors in Austin?

CE: Since being named executive director of CTAN in December 2014, I’ve worked hard to increase our diversity across all aspects: sector, age, gender and ethnicity. As we’ve increased the ratio of women investors by more than fivefold, we’ve also [grown]from 10 to 15 percent ethnic minorities and from 30 to 50 percent under the age of 50. … I don’t plan to stop that effort. So, speci cally to attract women investors, I’ll continue doing what has worked:

  • inviting female accredited investors to learn about angel investing by attending our pitch events and by joining CTAN, or any angel group, as a member
  • encouraging new-member applicants, whether male or female, to consider getting active in angel investing as a couple, if married
  • suggesting that [families]introduce the younger generation to angel investing, including their daughters and sisters
Kristen Spindler

Director of IncubatorCTX at Concordia University Texas

As the top U.S. city for startups, Austin has a strong network of collaborative angel investors to provide business advice and financial support to innovative early stage companies, Kristin Spindler says.

When Spindler was studying for her Master of Business Administration degree at the University of Texas, she was president of the Graduate Business Women’s Network. Today, she is the director of IncubatorCTX at Concordia University Texas, a CTAN investor and a limited partner in True Wealth Ventures.

Spindler is a strong advocate of supporting women in business and, in her words, puts her money where her mouth is.

“I volunteer time mentoring entrepreneurs and invest in exceptional female-led startups,” she says. “I encourage not just women, but all entrepreneurs, men and women, of diverse backgrounds and a range of ages.”

Although True Wealth Ventures has found that women-led companies perform better financially than male-led companies, these businesses remain an untapped market for investors. A mere 2 percent of venture-capital dollars go to women-led startups, and only 15 percent to those with a woman on the leadership team.

“As more women are part of organizations that invest—angels, venture-capital firms, banks, private equity—they and others will invest more capital in women-led companies,” Spindler says. “This is a growing trend, and Austin is a good place to be part of it.”

Spindler looks for several key factors when assessing her investments: the management team, profitability prospects of the company, and its scalability and valuation.

“Most important to me are experience, persistence and the management team’s willingness to be coached,” she says. “I take a portfolio approach to angel investing, knowing that the average company will take about seven to eight years to pay out, and that out of 10 investments, two may generate outsize returns, several may return one to two times and the rest fail.”

In fact, one of an angel investor’s main roles is to have an impact on the company’s direction through mentoring, advising or being on the company’s board. Entrepreneurs who strategically and carefully select their angel investors have a leg up, Spindler says.

“They have investors who know their industry, are invested in the entrepreneur’s success and can help advise the entrepreneur and connect him or her to the right people to grow their business profitability ,” she says.

Taking a 30,000-foot view, Spindler thinks women are incredibly fortunate to be living in Austin, and in the U.S. as a whole.

“Women in many parts of the world don’t have the same rights as men—at home, at work or under the law. For them, economic empowerment through access to capital and accumulation of wealth is critical,” she says. “To the extent that female entrepreneurs in Austin have access to a gold mine of entrepreneurial programming, incubators, accelerators and funding, successful Austin businesswomen have the opportunity to lead the way for others.”

 

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