Last week (February 28th) I had the pleasure of presenting at the 2014 NYC Pipeline Fellowship conference. The Pipeline Fellowship is an “angel investing bootcamp for women,” that since 2011 has trained women to become angel investors. In 2012, only 22% of US angel investors were women, and 5% minorities. Pipeline is one of the programs that want to change that. The very dynamic Natalia Oberti Noguera leads the organization and does a great job at putting together these programs.
I was on a panel with Ellie Wheeler of Greycroft, Tamara Gubins, an attorney with Goodwin Procter (sponsor of the event), and Shaherose Charania, CEO of Women 2.0, to discuss terms and conditions of angel/venture capital investments. While we were talking I could not avoid looking at some of the frightened and puzzled faces in front of me, wondering about some of the abstruse terms we were discussing. At the end I recalled my own experience when I started in venture capital 22 years ago.
I too was puzzled by the obscure clauses typical of term sheets and I had the mistaken notion that the “art of the deal” resided in those documents. As I told the audience, there is nothing further from the truth. At the time I had my friend and attorney Marty Levenglick, of O’Sullivan Graev and Karabell (then one of the very few, if not the only, venture law firm in New York City), sit down with me with their “chinese menu”– a pro-forma document that showed all the possible alternatives that could be used for each term. It was a very useful exercise that helped me understand and demystify the terms of a deal. It also made me understand that what counts on a term sheet are only a very few items, which you need to understand and focus on, and most of the rest is meaningless boilerplate that is almost irrelevant to an early stage investor (some of it becomes more important later on).
As with most endeavors, you learn your craft as you acquire experience, and learning about term sheets is the easy part of angel investing and venture capital. Learning how to drive was a big deal at the beginning, but after a while it becomes second nature and you don’t any longer pay attention to the dynamics of driving per se: you pay attention to traffic signals, driving conditions and those who drive around you. The same is true with angel and VC investing: terms are just a small, albeit important, mechanic. But you have a lot bigger fish to fry: checking out the founders and assessing the market opportunity, just to name a couple.
Which brings me to my other topic. I just finished reading a pre-release version of David S. Rose’s new book, Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups, a “how to” guide that explains the whole process of angel investing.
So many times people don’t ask questions because they happen to be very basic or “stupid” (there are no stupid questions, btw). When it comes to making investments in a small, private company, and you are new to it, it’s hard to know where to start. That’s where David’s book comes in. It takes you step by step, in great detail, through all you need to know regarding angel investing, starting with the basic stuff, in simple, non-intimidating language. The book is coming out in April and I highly recommend it. It would also be a great add-on, or reading material for the Pipeline Fellowship program.