Angel investors are individuals who provide seed capital to new businesses or startups, usually in exchange for convertible debt or ownership equity. They are often one of the first sources of funding that founders seek out when starting their companies.
The requirements to qualify as an accredited investor, according to the U.S. Securities and Exchange Commission, are a net worth of over $1 million, excluding a primary residence, and an income of over $200,000 for an individual, or $300,000 for a couple, for each of the previous two years.
Angel investing is an option for many individuals with personal wealth, but for those new to investing in startups, there’s a need for a roadmap to get started.
The Business Record spoke with two Iowa angel investors to discuss what it can look like to start angel investing and the role angel investing has in risk capital.
Their responses have been lightly edited for clarity and length.
JACKIE PULLEN
President, FIN Capital, and managing director, CFO-Advantage
Active investor and FIN Capital member since 2017. FIN Capital is an angel investing group of women investors that provides opportunities to invest in startup companies.
Number of investments made to date: Five.
Career background includes serving as vice president of finance and corporate controller at Dice from 2007-2014 and as founder and managing director of CFO-Advantage since 2014.
What are the highs and lows of angel investing for you? High: Getting messages from entrepreneurs excited about the path they’re on. Low: Having to ask for financial results; seeing entrepreneurs don’t have clear direction or understanding of their finances.
Jackie Pullen’s entry point to angel investing came about 10 years ago when she said Mike Colwell of Plains Angels invited her to attend a meeting. Her whole career has been in finance and accounting roles, but angel investing was brand new.
“I soon found out that it’s an area that I have a lot of passion for, in particular helping entrepreneurs sharpen their pencils with regards to how they look at themselves financially, and I find myself digging in a little deeper than a lot of angel investors typically would on financial performance,” Pullen said.
What helped you learn or acclimate to angel investing as you were getting started?
I would say the most important thing from my journey was when I went to a FIN boot camp and I learned about what angel investing was, but also, the presenter was not only an angel investor, she was also an entrepreneur who had exited so she shared both of those avenues. In my experience at Dice, I was doing mergers and acquisitions for them and closed 13 or 14 deals across the country, across the world in that period of time, so those dots connected. But what I found probably most influential for me was the FIN Capital meetings and the ability to go and be among all of the different participants, and their different levels of expertise, and their different levels of comfort. If you’re only willing to put in maybe $5,000, none of that information is public, if you will. And the ability for me to make those decisions at whatever level I was comfortable and still be relevant to an entrepreneur because of our way of investing, those are what really drew me in. I find that every time I have the opportunity to sit down with our membership and listen to the different angles that we all bring in the conversation on our decisions, it’s just very refreshing and I learn something every day. For me, it’s more of the style and the environment that makes it enticing to me. I’m not an aggressive investor by any means nor will I ever be, it’s not my style.
What were your perceptions of angel investing when you started?
There is a perception — I had it — I assume that it’s probably a little more broad than most, which is, I have to be uber-wealthy. The IRS rules for being an accredited angel investor aren’t overly significant, if you will. They’re meant to protect people from themselves, but I think that because somebody looks at that and they maybe don’t take a step back and really think it through, that would cause them not to be interested. The other thing is if your experience, like mine, has been more of the model where everybody invests themselves and the level of the investment needs to be bigger, in general, that might cause people to step back and not want to participate, which is why having the different opportunities, the different methods available to people is important. At FIN, it’s about investing for cause, purpose and collective relevance and you can join and be a part of that. You can have $5,000 that you want to mess around with and figure out if it works for you without necessarily walking away because the level is $25,000 or $50,000. To me, the biggest barrier I think is people probably look at angel investing and assume they have to be an individual rather than they can be a part of a group.
CLAYTON MOONEY
Co-founder and CEO, Clayton Farms, and angel investor
Active investor since 2020.
Number of investments made to date: Almost 30.
Career background includes co-founding Kinosol in 2014 and serving as co-founder and CEO of Clayton Farms (formerly Nebullam) since 2017.
What are the highs and lows of angel investing for you? High: Helping individuals and the startup community to think bigger. “[Thinking big] is really healthy for everybody, whether it’s economic development or just taking more risks and more moonshot opportunities.” Low: Seeing companies fail due to founding teams struggling to work together.
Clayton Mooney had his first exposure to angel investing when he was in a very different career — playing poker full time in Ireland. Influenced by fellow players who turned to tech startups and angel investing, the Iowa State University graduate returned to Iowa and has since co-founded two startups.
Discovering equity crowdfunding platforms like Wefunder where investors can contribute as little as $1,000 to a company’s fundraising round lowered the barrier to entry to start angel investing, Mooney said.
“I had this ‘aha’ moment that you don’t have to start angel investing when you can afford to write $25,000 or $50,000 checks. … I started writing those really small $1,000 checks, and the platforms made it really simple — I just wanted to support friends and peers,” Mooney said.
How has your experience as an entrepreneur influenced your journey as an angel investor?
When we started Clayton Farms, our co-founder and myself knew it was going to be more capital intensive. We had hardware, software and living organisms. From day one, we have raised venture capital. We have raised a little over $4 million to date since 2017, and we have met all various types of investors along the way, from real estate investors to family offices to angel investors. Having built that network, I started to recognize more friends and more peers and more mentors and what their investment theses were. I started to glean from that what I’d really like to build my thesis around if I were to be an angel investor. What it came down to for me was I’m a firm believer that the startup community should be led by founders and it’s the circle of life that founders build a company, have a liquidity event and turn around and invest in the next crop of founders in the area. If I’ve learned one thing over the years, it’s all about sample size. Instead of one $25,000 check, what if you could write 25 $1,000 checks and learn from 25 different companies and their journeys.
How have equity crowdfunding platforms evolved and how did it affect your entry into angel investing?
Kickstarter would be considered the poster child for crowdfunding, but when Wefunder and a couple of the other platforms popped up that were on the equity crowdfunding side, I believe it used to be that you could only raise somewhere around like $1 million or $1.5 million. Now it’s over $5 million, so it’s opened up to where somebody can actually raise an entire round off of equity crowdfunding. I’m pretty excited by that space because it’s a way to validate your product or service from consumers and others who hopefully have an interest in the space. If that had not been available, it would have probably been a couple more years before I realized that friends and peers would be open to taking smaller checks from founders who are in the trenches or at a similar stage of building their company.