Next on The Seed Series we talk with two founding team members from #Angels — Jana Messerschmidt and Katie Stanton. We talk about balancing angel investing with day jobs, the gap table and other interesting topics. The following has been edited for brevity and clarity.
Gené: Welcome to the #Angels founding team’s Katie Stanton and Jana Messerschmitt. All six founding angels met at Twitter. What was the momentum for creating #Angels?
Jana: After the Twitter IPO, one night over cocktails, we shared different tidbits around angel investing. We realized pretty quickly that we were very fortunate to come out of Twitter to see lots of entrepreneurs, and companies that were about to be formed. We decided it would actually be really fun to form this group or collective. Founders get to tap into the operating experience of all six of us. We all ran different parts of organizations and teams at Twitter across a wide variety of areas. We would also be able to take our deal flow and multiply it times six. Working at Twitter together, we built up a tremendous amount of trust. And so we wanted to be able to extend that into angel investing.
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Gené: You all have day jobs outside of #Angels?
Katie: Our day jobs have actually made us better angel investors. It helps us with with operating experiences across product, legal, marketing, and PR. As an investment collective you can put in as much time as you want. You can slow things down, you can dial it up when you need to. We joke that we’re just winging it as angels.
Gené: Do you have a fund structure?
Jana: We invest personal capital. In some cases all six of us might write a check that goes into a company and other cases it might just be one or two of us. Flexibility is really important because at different moments in time with our operating gigs, we might have conflicts of interest. We might be busy with our operating career and we might not have time to look at deals closely.
Katie: A couple of us have been lucky enough to be scouts, which means working with different VCs that give us the capital to further invest in companies. This is a great way for other women, who may not have access to capital, to participate in this economy. The firm can extend their eyes and ears on the ground to different deals and different networks. It’s great for that angel investor who can learn, and have that practice with that capital. It’s great for the founder to reach a wider group of potential investors.
Gené: How does scouting work?
Katie: They’re all a bit different. A VC firm will work with a particular scout, they’ll negotiate terms. That scout will find the different investments and ultimately will make the decision to invest or not to invest, maybe putting together a lightweight deal memo. That scouts name is typically on the cap table of that company.
Jana: Sequoia’s scout program is pretty widely talked about. It’s a mix of founders, operators, and just people who are well-networked, and who have a sense of deal flow. I think that’s the primary driver for a lot of venture firms for their scouts programs is how do we get into networks, into companies that they may not necessarily see at this stage.
Gené: Two of #Angels team are partners at venture firms. Jana you are an investing partner at Lightspeed Venture Partners, and Jessica Verrilli is a general partner at GV. How does that fit with your angel investing strategy?
Jana: #Angels was such a big driver for me to get into venture. It was a great way to try investing, understand what it’s like to work with founders, to come to a consensus on whether you’re excited about something, to get into the right networks. And so through the process of #Angels, I got to know a lot of different venture firms. It ended up turning into an opportunity for me to join LightSpeed Venture Partners. I am nine months in so still early. Jessica had been an associate at Venrock, earlier in her career right after undergrad. Then she ended up going back into venture, having understood a lot more through the #Angels experience.
Gené: Is there a conflict doing #Angels and investing with a fund?
Jana: I think it’s pretty complimentary. #Angels is a valuable source of deal flow. We see so many interesting opportunities. LightSpeed is a little bit further downstream. They’re going to write much larger checks. We do everything from seed, all the way up through growth investing.
Gené: How much do you typically invest per deal? And how do you compete to get into deals?
Katie: Across all the deals that we’ve done, I would say the most common check size has been $25K, sometimes we’ve done $50K. The most we’ve ever done is $200K where we have a lot of conviction in the deal. That’s per person. The large majority have been seed and Series A. Because of our network, from time to time we’ve gotten access to these breakout deals. We’ve invested in AirTable, Carta, Coinbase, and Uber when they were a little bit further along.
Gené: How do you get into them at that late stage? There’s a lot of competing dollars trying to get into those successful companies.
Katie: I think across all six of us we have relationships with many of those founders, or CEOs, or even some of the investors who are looking at not just capital because they get capital from a lot of places. That added value comes from our different experiences, in product, engineering, legal, international, and go to market strategy. Many of them were also looking for more diversity on the cap table, knowing that they had a lot of catch up work to do in terms of bringing diversity to their teams, to their executive teams, but also to their capitalization tables.
Gené: You are interested in getting more women on the cap table of successful startups. How do you make that happen?
Jana: Even though women are making gains in terms of representation in tech, we think that they hold just a fraction of the equity. Henry Ward from Carta reached out and said, I’m sitting on a bunch of data, do you guys want to work together? What came out was that even though women make up a third of employees at tech companies, they hold just 9 percent of the equity value. So that’s a jarring statistic. If you think about what happens then with the wealth generation from these tech companies. It’s what shapes what products get started, and which companies get started, venture funds, angel investors or who has the ability to fund politics, and philanthropic endeavors. We thought that this was a watershed moment for the industry, the first study of its kind.
You have to get more women into the roles that take up the chunks of the cap table. So what are those roles. There’s four major areas. Number one is obviously founders — women still only get 2 to 3 percent of all venture funding. Number two is early employees. These tend to skew to the engineers, because you need people to build products. We need more women in engineering, hired for that first 10, 50, 100 employees. Number three is executives at companies. We need more women in executive roles. And then investors. That could be angel investors, check writing partners at firms. Those are the ways that we start to correct the gap.
Katie: Women on average makes 79 cents on the dollar. But when you factor in the equity involved, it goes to about 47 cents. When we started to angel invest, no one ever asked about who’s on your cap table. Are there women on your cap table? Are there people of color on your cap table? And increasingly we’ve seen founders approach us and say deliberately we have only male investors, we want to diversify our cap table. Would you be interested? That’s a change of mindset, which we think is very important.
Jana: In almost every deal that venture firms structure, there’s usually some amount left on the cap table for strategic investors. And so whether that’s individual angels, or maybe it’s a corporate. Now being a professional investor as well on the venture side whenever I’m doing a deal, I’m often saying, who are the other diverse investors that I can bring along?
Katie: Sometimes you can invest in a company with as little as $5K. You can add other value. You can be an advisor to those companies for free, and they will pay you to deliver some expertise that you have. We host these programming events called Angels Access. We will partner with a different VC firm, or another organization to host something around negotiations, around crypto, to help demystify what it means to become an angel investor.
Gené: Have you worked with any of the angel groups out there?
Jana: There’s a group out of Facebook called F7. They are a group of ex-operators out of Facebook that we’ve worked with quite a bit. And we work with a ton of pre-seed, seed stage funds. You’ll continue to see more of this trend especially since 2019 has been a year rich with tech IPOs. There is an amazing alumni group from Uber that we’ve done some co-investing with. You’ll continue to see more and more companies IPO, more operators who have liquidity to invest.
Gené: Were these groups inspired by #Angels?
Katie: We were so thrilled when All Raise launched bringing so many women in venture together, sharing, not just deals but approaches and building community. Having more insight about how other firms perform. I am a principal. How do I become a partner? How much carry should I expect? To be able to ask questions and push the industry forward.
Gené: What have been the key learnings for you as a group?
Jana: We’ve now invested in 120 companies. We’ve done a bunch of consumer because a lot of us have ties to consumer companies. We’ve actually done quite a bit of enterprise, because we also do have that expertise. One of our #Angels, was the chief product officer at Slack. I worked quite a bit on Twitter’s enterprise business. Katie was the CMO of a genetics company called Color Genomics, so she is our healthcare expert. We invested in a few companies in aerospace. Why not invest in rockets? We invest across multiple different industries, multiple stages. A lot in Silicon Valley, but we have portfolio companies in LA, Austin, Chicago, Denver, Boston, and New York. We have one in Latvia, but not that many internationally. 40 percent of the companies have a female founder or CEO.
Gené: What’s next?
Katie: Becoming great investors and ultimately getting more women on the cap table of successful companies. And I think we want to show progress, pushing the industry forward to close that gap. There are other studies that we think could be informative. What are the root causes of that gap? For example, if you look at all seed stage funds and valuations, do valuations of companies founded by women skew less. I have an offhand observation at the most recent demo day with Y Combinator is that female founded companies that I saw were valued much lower than the male founded companies. Is that a source of part of that disparity?
Jana: When you’re a founder the terms that are set are ultimately driven by your ability to negotiate. Certain founders may only get one term sheet. So that’s the deal that they have to accept because they don’t have as much negotiation leverage. But other founders might go to Sand Hill Road and get six term sheets in a week. They’re going to drive the negotiation. They’re going to have lower dilution, higher valuations, and they’re going to set the terms. And so that’s something we talked about a lot in our group. Do women have as many options when they go out raising? Are they able to command and demand that same sort of excitement about the companies that they’re building where they’re able to drive the negotiation process and set those terms?
Gené: Are there a couple of companies you are excited by?
Jana: So one is Bird, the scooter company. If you just look at product market fit for consumer companies over the last five years, scooters and micro-mobility, it’s one of those incredible companies with consumer product market fit. Both Bird as well as Lime are working on the unit economics and really trying to figure out how to scale this business. When I first talked to the founder a few years ago, it was just so exciting to be part of that journey because it’s completely changing the way that people get around.
Gené: And what stage, did you get involved in Bird?
Jana: I was an angel in Bird a couple of years ago. To see a physical product in the real world — scooters parked on corners. It is constantly reminding people that this is a way to get around your city. Because consumers love the experience so much they are sharing it on social media. It’s a bit like you’re flying. You don’t have to spend marketing dollars to get consumers.
Another company that we were both excited about is a company called Cameo. Most of our deal flow comes through people we know, the founders, or maybe other investors, or people in our network. This was one I randomly saw in the wild on social media. A friend of mine was using Cameo to propose to his girlfriend using the stars of the Bravo show Vanderpump Rules. How did they get these videos from these “celebrities”? I started doing research on the company and dmning the founder on Twitter and LinkedIn. It’s a marketplace that matches celebrities with consumers. The consumer will script what they want the celebrity to say. So it could be a happy birthday message. It could be an engagement message. It could be congratulations on your job promotion. Whatever you want it to be. And then the celebrity decides whether they want to fulfill it. The celebrity also sets their price. You have everything from cameos for $25 all the way up to slots charging a few thousand dollars.
The reaction videos that you get from people are, how did this happen? Is this real? How do you know this person? It’s one of those consumer products where you have virality in so many ways. You have the receiver of the cameo who takes and shares it on social media. You will also have the celebrities promoting it because this is a great way for them to make money.
Katie: Another company is Modern Fertility. We saw that at seed and we love the idea of more products and services giving women more agency over their health. Fertility has been sort of a taboo issue. When I was trying to get pregnant, no one ever talked about it. Am I the only person not getting pregnant immediately? They’ve helped demystify fertility, and giving you more power towards understanding how fertile am I right now? What are my options? The two female founders are incredible. They recently raised their Series A from Kirsten Green at ForeRunner Ventures, which is a perfect person and team to be able to bring that forward and reach a larger audience.
Illustration: Li-Anne Dias.