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Forbes Books presents the Startup Science Podcast with Gregory Shepherd,
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brought to you by Startup Science dot Io. Greg is
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an entrepreneur who's built and sold twelve businesses, a recipient
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of four private equity awards, featured ted X speaker and
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Ben bella Publishing and Penguin Random House author. Here's Gregory
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Sheppard today.
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I'm joined by Patrick Gouhen, the CEO of the Angel
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Capital Association, a leading organization representing sixteen thousand accredited angel
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investors across two hundred and fifty groups with the career
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spanning leadership roles in major associations and nonprofits. Patrick has
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a proven track record of driving innovation, fostering collaboration, advancing
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professional communities worldwide. Patrick, Welcome to the podcast.
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Thank you for having me. It's great to be here.
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I'm looking forward to today.
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Yeah, it's really neat to have somebody that's really really
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into the whole angel investing back. Let's start out with
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our first question. How did you change from early engineering
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to prepare for leadership and roles in startup and investing ecosystems.
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You have this engineering background, but then you seem to
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have gone into this investment route, and I'm just curious
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how that happened and what motivated you to make that happen.
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Yeah. So I like to say that I'm in my
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third career and I haven't even got out of the
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a's of the alphabet yet. I started in aerospace as
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an aerospace engineer and then moved into automation running an
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industrial automation society. Took a couple of years off and
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ate healthier, did exercise, and my wife and kids said, geez,
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you should do something productive with your life. I didn't
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want to kind of go back to the routine that
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I was in, and so I found this wonderful opportunity
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that I didn't know anything about angel investing, but I
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knew how to take a kind of startup organization and
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institutionalize that and turn it into a professional society. I
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started talking with the ACA board the founder was retiring,
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and that was almost six years ago, and it's been
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a marriage made and heaven since then.
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Wow. So, what was the most transformational lesson you learned
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transitioning from technical roles to executive leadership. It's it's quite
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a shift. So I'm sure that you were able to
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bring some of the technical engineering background, logic and way
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of thinking with you.
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Well, you know a lot of it was the engineering,
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you know, community based upon principles that are three or
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four hundred years old. And you know, physics doesn't change, right,
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you throw things up, they fall to the ground as
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long as there's gravity. And you know, you get into
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these large engineering companies communities that are doing multi billion
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dollar activities and everything's very disciplined, very structured approach, project
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management front and center on everything, and you know, everything
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follows a gant chart. Well, moving into the early stage space,
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it wasn't that disciplined. You know, quite often you've got
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that minimally viable product, you put it out there, you
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see what the product market fit is and you adjust.
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So that was the biggest you know, transformational change for
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me is understanding that all of that infrastructure around project
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management and being risk averse was not baked into startup ecosystems.
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That's true, That's absolutely true. So when you define a
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successful leadership role in a startup and the investment communities,
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how do you do that? How do you define a
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successful leadership role in a startup and an investment community? Like,
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how do you think about this? Do you think about
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it in terms of a successful leader, is this being
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logical or soft skills? And a startup investment community, is
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this being you know, this sort of culture, like, how
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do you go about understanding how how you can apply
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your leadership skills in logic to this ecosystem?
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You know? I think there's a whole lot of attention
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by a lot of people that are a lot brighter
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than me, that have gone into asking that question and
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trying to answer it over the years. But I would
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say to you that we still haven't quite figured it
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out right because with these early stage startups there's a
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fifty percent or so chance that they're going to fail.
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But the number one criteria that comes out time and
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time again when we talk to angel investment groups relative
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to what's the most important thing to them, it's that
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founder management team and all that they have to offer.
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There's hard skills in there, there's soft skills too. Nobody's perfect.
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It's about understanding what your weaknesses and deficiencies are and
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then making sure that you've got a way to compensate
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for those, maybe bringing in others on that early management
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team and maybe working with a coach. It may be
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tapping into your investors and where there's drinks are The
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number one reason we hear that companies are not invested
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in by angels is usually because that founder is not coachable.
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So that's a very important part about it is to
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you know, recognize your weakness, is listen to others and compensate,
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you know, as best you can. And I think we
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see those CEOs that are doing that, those founders that
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are doing that generally have you know, kind of a
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leg up on the others.
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Let's drill in here a little bit on the trends
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that you're currently seeing in angel investing, Like what excites
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you most, What concerns do you have, and I mean
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across legislation and across the communities themselves, trends, anything that
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you see, uh, that could affect the angel investing ecosystem
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in a positive way or a negative way.
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Yeah, boy, there's sure is a whole lot to unpack
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in that question, you know. I mean, if you look
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back at the recent years, certainly we've had to deal
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with war, inflation, COVID, PIBDEMA, you know, related supply chain
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disruptions and all of those things that really took a
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bull market of more than a decade twelve years or
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so and brought an into it. You know, in twenty
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twenty one, we just saw record years, whether you were
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an angel, you were VC, the amount of capital that
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was there, you know, that drove up valuations to what
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most of my community would say were unsustainable levels. And
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we definitely you know, have seen a correlation to public
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markets and what's going on in the VC community. But overall,
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angels have been pretty resilient, meaning the ramp ups in
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valuation were not there. We've seen a continued deployment of
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capital by all of our groups, and at ACA we've
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got about two hundred and fifty member groups that have
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sixteen thousand you know investors in them that dependent upon
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the year, we'll invest anywhere between five hundred million and
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a billion dollars into three to four thousand startup So,
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as I said, twenty one was kind of the peak.
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We've seen a decline you know since then. However, now
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we believe we're getting back to you know, a new
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normal that was pre pandemic, and that's exciting. We're certainly
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seeing new sectors erupt such as artificial intelligence and all
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going on you know there that does kind of buck
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some of the declining trends that we've seen, but overall,
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there's no question that the market has changed, you know,
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from that of the seller to the buyer, just as
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in real estate, meaning that you know, twenty one and
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before that, we really saw the investors having a lot
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of the leverage when it came to negotiations. Cash started
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to dry up a little bit and that leverage switched,
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you know, to the investor. And so we're kind of
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going through that change at the moment and seeing how
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that all works out. But I think there's a lot
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of hope for the future. Again, Angels are you know,
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patient capital right, They're not watching what happens in the
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stock market this month because you know it's going to
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be a five to ten year journey before you get
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that liquidity in your investment. One of the other areas
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that you mentioned was kind of on the legislative side.
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That's one of the major benefits of the Angel Capital
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Association is the advocacy work that we do in Washington,
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d C. And really representing both investors and entrepreneurs and
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making sure that we you know, have investor protection but
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also drive capital formation. And so we work closely with
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the Securities and Exchange Commission on such things as the
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accredited investor definition and making sure that those thresholds are
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maintained and potentially opened up for additional measures of sophistication
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to let underserved communities in. And then you know, there's
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a lot of work on the legislative side as well
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make sure proper incentives are there. At the top of
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that list is probably what's known as the International Revenue
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Codes Section twelve oh two, or qualified Small Business Stock,
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which provides an incentive to both investors and entrepreneurs who
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hold that qualified small business stock for more than five
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years and then it is a tax free you know,
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liquidity event when it does happen. There's some other parameters
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in there, but we would like to see enhancements to
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legislation such as that that would really you know, continue
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to drive capital formation around the country, not just on
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the coast, but in every thriving you know ecosystem that's
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out there. And we work closely with incubators, accelerators, you know,
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the the university entrepreneurship programs and so forth to make
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sure that we've got a partnership where the private investors
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are bringing their after tax dollars in to leverage that
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innovation on a very local level. And I think all
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of those things give us a lot of reason to
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believe in a very bright future that will be filled
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with innovation that will keep America competitive. So how do you.
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Think about what's changed since you became CEO, Like, you know,
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not just in the market, but in terms of specific
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to founders and specific to angels, Like what what do
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you think has changed since you entered the market?
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Well, you know, I mentioned that engineering is based upon
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hundreds of years worth of principles. Really, if you take
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the angel investment community, we're talking about decades at most.
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ACA has only been around for twenty years or so.
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So really, if you think about the evolution from a
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black art to a science, I think that's the journey
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we are on is through data analytics and through studying
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what's going on winners and losers, we're becoming smarter about
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how we do this and that benefits both you know,
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the investor and the entrepreneurs as well. So I think
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that is one of the primary targets. You know, at
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a mapro level, if we kind of bring that down
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to a micro level and look at specifically ACA what's
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different that is that I would say, for you know,
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our first decade or two, we really look internally, meaning
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we were an organization of only investors, and that's kind
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of where we built the walls, so that we were
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talking amongst ourselves and that was probably, you know, proper
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because we were trying to figure it all out. We
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were trying to write the rules of the game and
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figure out the best practices and harmonize against those and
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so forth. But then along that journey we said, well,
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wait a minute. You know, our responsibility as a professional
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society is really to be the steward of the asset class.
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And once we looked at it with that filter, we said,
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you know what, we really need to embrace other ecosystem builders,
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others in the startup community. We shouldn't be afraid of them,
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we shouldn't be keeping secrets. Let's work together. And so
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we took the content that had been curated over fifteen
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years or two so and we turned it into what
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we call Angel University, which is now a twelve course
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curriculum that was originally focused on investors, and then we said, well,
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let's open that up to entrepreneurs as well, and a
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really cool thing happened and that that was this you know,
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interactive conversation took place between the investor and the entrepreneur,
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both getting a better feel and appreciation for each other,
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which helped kind of calibrate their expectations. So I think,
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you know, if you look at a particular angel group
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and a founder comes in and they make a pitch,
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I'd like to think that now, because of those best
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practices in the harmonization, if they find that there's an
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interest and they get down to looking at a term sheet,
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they're closer together. You know, there's not the divide that
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maybe there once was, whether we talk about valuation or
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some you know, subcomponent therein, And I think that's allowed
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us to kind of really fast track the con station
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put more capital in the hands of more entrepreneurs earlier.
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You know, you hear this thing investibility all the time, right,
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So is the deal investible? And how do you get
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to investability and investor readiness in all these different terms
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when you look at the qualities of a startup to
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make them investible? What are those qualities?
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You know that really depends upon the particular group and
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their investment thesis in what they are looking for and
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that is to say that most angels are playing in
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the precede, the seed or the series a space, not
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really going much above that. But there's a big difference
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between what they expect out of a preceed you know,
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round and that of a seed route. But you know,
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it all starts with making sure that that entrepreneur has
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a vision, they have a concept that there is a
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market there, that there is some sort of barrier to entry,
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electoral property or something they've got that will allow them
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to kind of you know, take this, you know, this idea,
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this innovation and scale it, you know, across the country,
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across the world for that matter. Angels are not terribly
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interested in lifestyle businesses, meaning you know, kind of the
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mom and pop shop or something that's not going to
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have high growth, and they want to know about, you know,
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that exit strategy so that the more that entrepreneur is
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thinking about, you know, here are the milestones over the
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next three to five years that I've got to you know,
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drive to that will get me the revenues I need,
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that will get me the multiple of you know, whatever
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particular sector it is that they're looking for, so that
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there's a liquidity of that and you know this is
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a shared goal, right, because if the founder succeeds, then
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the investors are going to succeed. If the investors succeed,
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the founder is going to succeed. And it's not you
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know the conflict that some might think based on popular
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television shows that you know show it as more of
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a competitive environment.
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So when you think about this from the angel investor side, right,
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what makes a good angel investor for a startup? Like,
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what are the characteristics if there's a startup listening and
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they're raising money from an angel investor, how can they
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vet the angel investor. Founders also have an issue with
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you know, investors that are in experience, haven't done it before,
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and they become very difficult for the founder to deal with.
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How would you educate a founder? Hey, this is the
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qualifications of a good investor.
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I think that is a great point because you know,
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we see that all the time as it works its
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way through later rounds in your cap table and you've
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got this you know, dirty cap table that's got investors
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that might have had expectations beyond the norm. So at ACA,
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this is a big part of what we do is
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we try to harmonize the community across the country, and
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we do it through two hundred and fifty angel groups.
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So it's very much a team sport. We're still on
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that journey from you know, an art to a science,
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but I think that is the the number one criteria
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would be making sure if you're the entrepreneur, you're dealing
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with what i'll use the phrase professional investors, but those
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that are doing it following a you know, a prescribed path,
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you know, and it starts with something as easy as
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the templates, you know, the legal advice that you get.
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You know, you as a founder might have an uncle
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that's an elder care lawyer. That person probably doesn't know
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anything about, you know, early stage startups and what they
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need to do to prepare for a priced round. So
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it's about building that network and making sure that you're
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kind of following the best practices that are out there.
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And I think, you know, it's just like a job offer,
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it's a marriage between the employer and the candidate. It's
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no different when you're talking about investor and entrepreneurs. It's
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a marriage. You're going to be together for quite a while,
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and you've got to have the right balance in there
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with mutual respect coming from both sides.
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When you think about some of the cool stuff you've done,
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I mean, you had brought up this is what we do.
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You guys do a lot of stuff like this Angel
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Investor Foundation. Maybe you could tell the folks listening what
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the Angel Investor Foundation is, how you got the idea,
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and how it serves both Angel investors and founders.
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The fundamental difference here is that there are two different
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types of nonprofit associations. One are trade organizations and the
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other is individual member organization. Generally speaking, the trade organizations
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are stood up as five oh one C six organizations,
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whereas those that have a more charitable purpose, such as foundations,
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are C three organizations. So ACA was set up twenty
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years ago as a five ZHO one C six, which
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meant that we could take on the advocacy arm. We
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could do a lot of the you know, typical traditional
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things that are done. What we could not do are
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the charitable you know, activities where we could offer tax
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deductible contributions. So in twenty twenty we stood up as
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a wholly owned subsidiary of the ACA, a five O
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one C three organization called the Angel Investor Foundation, and
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that is where we've done a lot of the philanthropy
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for the community. And again this is in the spirit
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of trying to move from an art to a science,
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to bringing out data analytics, to educating, to training, to
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doing all of those things. So today we use both
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of those brands, two different companies for a variety of
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different purposes, but based within the legal structure of the IRS.
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It gives us the benefit of having both of those
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We do hope to be able to, you know, open
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this up further in the years ahead, to gain more
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supporters and more followers to see that really, at the
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end of the day, this is all about economic growth.
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It's about innovation. It's about driving that capital formation into
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the hands of entrepreneurs that are going to change the world.
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And to do that, you know, it's a journey, but
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we've got to keep taking the small steps. And the
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two legal structures are what allows us to do that.
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As I mentioned, to be the steward of the asset class.
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When you think about the ACA and where you are
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and where you're headed, is there any new innovations or
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any new directions that the ACA is intending on taking
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in the coming year outside of this Angel Investor foundation,
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which is friggin' awesome by the way, Well.
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Thank you for that. And we have invested in the
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past eighteen months or so because of that Angel Investor
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Foundation in back office infrastructure. So we've updated our website.
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We've added what's called an Association management system that gives
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us better tracking ability on the engagement of our members,
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what they're doing, where they care about and you know,
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we're trying to build in opportunities for new engagement from
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them because this is their community, you know, this is
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the professional society of the Angel Investment community, and together
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that is a very you know, powerful force that can
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you know, build the content generation we need, disseminated it
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out there and really you know, advance all that we're doing,
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so you know, expect to see that.
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You know.
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Syndication is another area that we are investing in, and
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that means different things to different people. But what we
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saw coming out of the pandemic is that, you know,
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before the pandemic, most groups said, now we only look
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at deal flow in our own backyard, and you know,
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we have to do it face to face. Well that
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was taken away from them. They figured out how to
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do it by zoom it worked well, and then they said, well,
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why are we only looking at deal flow in our
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own backyard. So a trust built between angel groups in
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different cities, and we are now, you know, a couple
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of years after the pandemic, really seeing that explode. So
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we are creating regional syndicate groups of maybe twenty or
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thirty you know angel groups from across the northeast or
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the southeast, or the Midwest or whatever it may be,
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that are holding regular monthly meetings where they are sharing
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information on deals. Now, the beautiful part about this is
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that if you're that entrepreneur and you've got you know,
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inroads to your local angel group and they invest in
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your round. I mean, let's just say it's a million
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dollar round and that local group says, hey, we're in
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for two hundred and fifty thousand. What's happening every day
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now is that that group will say, well, let us
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reach out to our neighbors over in the next city,
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share our due diligence with them, and see if they
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have an interest in joining your round. And so the
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entrepreneurs really have investors in many cases working on their
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behalf to make introductions to get them the additional capital
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that they need to fill out that round quicker, because
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what all the investors want is the founders and the
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man's been team working on the business, not out there fundraising, right.
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So I think that's added a lot of efficiency, you know,
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to the process that benefits both the investor and the entrepreneur,
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and I think you can expect to see more of
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that in the future. The final area that I would
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mention is, uh, the potential of artificial intelligence and what
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can we do with that as a professional society to
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take all of that content that our members have curated
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and repurposed that so it's easy to find. It's in
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bite sized, digestible you know, nuggets, and available on you know,
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multiple platforms, multiple formats in a way that you know,
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the particular investor or entrepreneur can get whatever they need
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whenever they need it at an affordable price. So those
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are the questions that kind of keep me up at
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night that we're trying to resolve to really change the
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way the game is played.
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All right, I want to stop for a second. I
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want to dive into a fascinating topic risk, but we'll
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save for next time. Coming up. In my conversation with
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Patrick Goohen, CEO of the Angel Capital Association. He'll share
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one key piece of advice for entrepreneurs.
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Make sure that your coachable. Don't think that you've got
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all the answers. It's a team sport. Look for those
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investors that you're going to bring on and they've got
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a lot of experience. Most likely they want to contribute
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beyond just the capital that they provide. Take advantage of
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all that. But it starts with you know, being coachable
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and listing.
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This Startup Science Podcast with Gregory Shepherd is brought to
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you by startup Science dot Io. Founders can log on
409
00:23:38.319 --> 00:23:42.680
too startupscience dot io and use code Forbes to get
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00:23:42.720 --> 00:23:46.160
free access to connect and find out more about greg
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Go to Gregory Shepherd dot com. The Startup Science Podcast
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is a production of Forbes Books.
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Forbes Books presents the Startup Science Podcast with Gregory Shepherd,
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00:00:06.559 --> 00:00:10.400
brought to you by Startup Science dot Io. Greg is
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00:00:10.400 --> 00:00:14.599
an entrepreneur who's built and sold twelve businesses, a recipient
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00:00:14.720 --> 00:00:18.719
of four private equity awards, featured ted X speaker and
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Ben bella Publishing and Penguin Random House author. Here's Gregory
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Sheppard today.
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I'm joined by Patrick Gouhen, the CEO of the Angel
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Capital Association, a leading organization representing sixteen thousand accredited angel
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investors across two hundred and fifty groups with the career
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spanning leadership roles in major associations and nonprofits. Patrick has
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a proven track record of driving innovation, fostering collaboration, advancing
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professional communities worldwide. Patrick, Welcome to the podcast.
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Thank you for having me. It's great to be here.
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I'm looking forward to today.
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Yeah, it's really neat to have somebody that's really really
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into the whole angel investing back. Let's start out with
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our first question. How did you change from early engineering
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to prepare for leadership and roles in startup and investing ecosystems.
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You have this engineering background, but then you seem to
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have gone into this investment route, and I'm just curious
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how that happened and what motivated you to make that happen.
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Yeah. So I like to say that I'm in my
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third career and I haven't even got out of the
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a's of the alphabet yet. I started in aerospace as
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an aerospace engineer and then moved into automation running an
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industrial automation society. Took a couple of years off and
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ate healthier, did exercise, and my wife and kids said, geez,
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you should do something productive with your life. I didn't
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want to kind of go back to the routine that
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I was in, and so I found this wonderful opportunity
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that I didn't know anything about angel investing, but I
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knew how to take a kind of startup organization and
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institutionalize that and turn it into a professional society. I
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started talking with the ACA board the founder was retiring,
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and that was almost six years ago, and it's been
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a marriage made and heaven since then.
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Wow. So, what was the most transformational lesson you learned
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transitioning from technical roles to executive leadership. It's it's quite
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a shift. So I'm sure that you were able to
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bring some of the technical engineering background, logic and way
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of thinking with you.
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Well, you know a lot of it was the engineering,
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you know, community based upon principles that are three or
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four hundred years old. And you know, physics doesn't change, right,
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you throw things up, they fall to the ground as
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long as there's gravity. And you know, you get into
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these large engineering companies communities that are doing multi billion
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dollar activities and everything's very disciplined, very structured approach, project
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management front and center on everything, and you know, everything
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follows a gant chart. Well, moving into the early stage space,
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it wasn't that disciplined. You know, quite often you've got
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that minimally viable product, you put it out there, you
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see what the product market fit is and you adjust.
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So that was the biggest you know, transformational change for
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me is understanding that all of that infrastructure around project
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management and being risk averse was not baked into startup ecosystems.
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That's true, That's absolutely true. So when you define a
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successful leadership role in a startup and the investment communities,
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how do you do that? How do you define a
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successful leadership role in a startup and an investment community? Like,
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how do you think about this? Do you think about
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it in terms of a successful leader, is this being
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logical or soft skills? And a startup investment community, is
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this being you know, this sort of culture, like, how
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do you go about understanding how how you can apply
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your leadership skills in logic to this ecosystem?
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You know? I think there's a whole lot of attention
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by a lot of people that are a lot brighter
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than me, that have gone into asking that question and
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trying to answer it over the years. But I would
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say to you that we still haven't quite figured it
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out right because with these early stage startups there's a
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fifty percent or so chance that they're going to fail.
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But the number one criteria that comes out time and
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time again when we talk to angel investment groups relative
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to what's the most important thing to them, it's that
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founder management team and all that they have to offer.
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There's hard skills in there, there's soft skills too. Nobody's perfect.
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It's about understanding what your weaknesses and deficiencies are and
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then making sure that you've got a way to compensate
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for those, maybe bringing in others on that early management
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team and maybe working with a coach. It may be
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tapping into your investors and where there's drinks are The
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number one reason we hear that companies are not invested
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in by angels is usually because that founder is not coachable.
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So that's a very important part about it is to
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you know, recognize your weakness, is listen to others and compensate,
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you know, as best you can. And I think we
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see those CEOs that are doing that, those founders that
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are doing that generally have you know, kind of a
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leg up on the others.
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Let's drill in here a little bit on the trends
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that you're currently seeing in angel investing, Like what excites
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you most, What concerns do you have, and I mean
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across legislation and across the communities themselves, trends, anything that
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you see, uh, that could affect the angel investing ecosystem
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in a positive way or a negative way.
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Yeah, boy, there's sure is a whole lot to unpack
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in that question, you know. I mean, if you look
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back at the recent years, certainly we've had to deal
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with war, inflation, COVID, PIBDEMA, you know, related supply chain
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disruptions and all of those things that really took a
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bull market of more than a decade twelve years or
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so and brought an into it. You know, in twenty
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twenty one, we just saw record years, whether you were
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an angel, you were VC, the amount of capital that
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was there, you know, that drove up valuations to what
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most of my community would say were unsustainable levels. And
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we definitely you know, have seen a correlation to public
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markets and what's going on in the VC community. But overall,
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angels have been pretty resilient, meaning the ramp ups in
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valuation were not there. We've seen a continued deployment of
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capital by all of our groups, and at ACA we've
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got about two hundred and fifty member groups that have
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sixteen thousand you know investors in them that dependent upon
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the year, we'll invest anywhere between five hundred million and
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a billion dollars into three to four thousand startup So,
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as I said, twenty one was kind of the peak.
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We've seen a decline you know since then. However, now
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we believe we're getting back to you know, a new
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normal that was pre pandemic, and that's exciting. We're certainly
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seeing new sectors erupt such as artificial intelligence and all
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going on you know there that does kind of buck
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some of the declining trends that we've seen, but overall,
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there's no question that the market has changed, you know,
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from that of the seller to the buyer, just as
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in real estate, meaning that you know, twenty one and
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before that, we really saw the investors having a lot
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of the leverage when it came to negotiations. Cash started
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to dry up a little bit and that leverage switched,
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you know, to the investor. And so we're kind of
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going through that change at the moment and seeing how
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that all works out. But I think there's a lot
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of hope for the future. Again, Angels are you know,
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patient capital right, They're not watching what happens in the
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stock market this month because you know it's going to
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be a five to ten year journey before you get
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that liquidity in your investment. One of the other areas
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that you mentioned was kind of on the legislative side.
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That's one of the major benefits of the Angel Capital
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Association is the advocacy work that we do in Washington,
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d C. And really representing both investors and entrepreneurs and
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making sure that we you know, have investor protection but
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also drive capital formation. And so we work closely with
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the Securities and Exchange Commission on such things as the
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accredited investor definition and making sure that those thresholds are
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maintained and potentially opened up for additional measures of sophistication
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to let underserved communities in. And then you know, there's
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a lot of work on the legislative side as well
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make sure proper incentives are there. At the top of
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that list is probably what's known as the International Revenue
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Codes Section twelve oh two, or qualified Small Business Stock,
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which provides an incentive to both investors and entrepreneurs who
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hold that qualified small business stock for more than five
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years and then it is a tax free you know,
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liquidity event when it does happen. There's some other parameters
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in there, but we would like to see enhancements to
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legislation such as that that would really you know, continue
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to drive capital formation around the country, not just on
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the coast, but in every thriving you know ecosystem that's
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out there. And we work closely with incubators, accelerators, you know,
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the the university entrepreneurship programs and so forth to make
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sure that we've got a partnership where the private investors
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are bringing their after tax dollars in to leverage that
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innovation on a very local level. And I think all
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of those things give us a lot of reason to
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believe in a very bright future that will be filled
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with innovation that will keep America competitive. So how do you.
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Think about what's changed since you became CEO, Like, you know,
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not just in the market, but in terms of specific
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to founders and specific to angels, Like what what do
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you think has changed since you entered the market?
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Well, you know, I mentioned that engineering is based upon
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hundreds of years worth of principles. Really, if you take
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the angel investment community, we're talking about decades at most.
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ACA has only been around for twenty years or so.
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So really, if you think about the evolution from a
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black art to a science, I think that's the journey
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we are on is through data analytics and through studying
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what's going on winners and losers, we're becoming smarter about
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how we do this and that benefits both you know,
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the investor and the entrepreneurs as well. So I think
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that is one of the primary targets. You know, at
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a mapro level, if we kind of bring that down
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to a micro level and look at specifically ACA what's
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different that is that I would say, for you know,
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our first decade or two, we really look internally, meaning
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we were an organization of only investors, and that's kind
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of where we built the walls, so that we were
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talking amongst ourselves and that was probably, you know, proper
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because we were trying to figure it all out. We
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were trying to write the rules of the game and
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figure out the best practices and harmonize against those and
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so forth. But then along that journey we said, well,
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wait a minute. You know, our responsibility as a professional
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society is really to be the steward of the asset class.
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And once we looked at it with that filter, we said,
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you know what, we really need to embrace other ecosystem builders,
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others in the startup community. We shouldn't be afraid of them,
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we shouldn't be keeping secrets. Let's work together. And so
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we took the content that had been curated over fifteen
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years or two so and we turned it into what
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we call Angel University, which is now a twelve course
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curriculum that was originally focused on investors, and then we said, well,
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let's open that up to entrepreneurs as well, and a
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really cool thing happened and that that was this you know,
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interactive conversation took place between the investor and the entrepreneur,
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both getting a better feel and appreciation for each other,
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which helped kind of calibrate their expectations. So I think,
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you know, if you look at a particular angel group
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and a founder comes in and they make a pitch,
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I'd like to think that now, because of those best
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practices in the harmonization, if they find that there's an
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interest and they get down to looking at a term sheet,
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they're closer together. You know, there's not the divide that
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maybe there once was, whether we talk about valuation or
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some you know, subcomponent therein, And I think that's allowed
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us to kind of really fast track the con station
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put more capital in the hands of more entrepreneurs earlier.
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You know, you hear this thing investibility all the time, right,
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So is the deal investible? And how do you get
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to investability and investor readiness in all these different terms
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when you look at the qualities of a startup to
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make them investible? What are those qualities?
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You know that really depends upon the particular group and
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their investment thesis in what they are looking for and
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that is to say that most angels are playing in
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the precede, the seed or the series a space, not
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really going much above that. But there's a big difference
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between what they expect out of a preceed you know,
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round and that of a seed route. But you know,
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it all starts with making sure that that entrepreneur has
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a vision, they have a concept that there is a
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market there, that there is some sort of barrier to entry,
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electoral property or something they've got that will allow them
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to kind of you know, take this, you know, this idea,
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this innovation and scale it, you know, across the country,
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across the world for that matter. Angels are not terribly
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interested in lifestyle businesses, meaning you know, kind of the
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mom and pop shop or something that's not going to
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have high growth, and they want to know about, you know,
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that exit strategy so that the more that entrepreneur is
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thinking about, you know, here are the milestones over the
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next three to five years that I've got to you know,
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drive to that will get me the revenues I need,
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that will get me the multiple of you know, whatever
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particular sector it is that they're looking for, so that
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there's a liquidity of that and you know this is
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a shared goal, right, because if the founder succeeds, then
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the investors are going to succeed. If the investors succeed,
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the founder is going to succeed. And it's not you
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know the conflict that some might think based on popular
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television shows that you know show it as more of
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a competitive environment.
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So when you think about this from the angel investor side, right,
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what makes a good angel investor for a startup? Like,
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what are the characteristics if there's a startup listening and
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they're raising money from an angel investor, how can they
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vet the angel investor. Founders also have an issue with
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you know, investors that are in experience, haven't done it before,
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and they become very difficult for the founder to deal with.
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How would you educate a founder? Hey, this is the
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qualifications of a good investor.
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I think that is a great point because you know,
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we see that all the time as it works its
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way through later rounds in your cap table and you've
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got this you know, dirty cap table that's got investors
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that might have had expectations beyond the norm. So at ACA,
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this is a big part of what we do is
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we try to harmonize the community across the country, and
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we do it through two hundred and fifty angel groups.
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So it's very much a team sport. We're still on
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that journey from you know, an art to a science,
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but I think that is the the number one criteria
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would be making sure if you're the entrepreneur, you're dealing
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with what i'll use the phrase professional investors, but those
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that are doing it following a you know, a prescribed path,
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you know, and it starts with something as easy as
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the templates, you know, the legal advice that you get.
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You know, you as a founder might have an uncle
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that's an elder care lawyer. That person probably doesn't know
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anything about, you know, early stage startups and what they
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need to do to prepare for a priced round. So
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it's about building that network and making sure that you're
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kind of following the best practices that are out there.
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And I think, you know, it's just like a job offer,
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it's a marriage between the employer and the candidate. It's
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no different when you're talking about investor and entrepreneurs. It's
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a marriage. You're going to be together for quite a while,
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and you've got to have the right balance in there
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with mutual respect coming from both sides.
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When you think about some of the cool stuff you've done,
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I mean, you had brought up this is what we do.
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You guys do a lot of stuff like this Angel
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Investor Foundation. Maybe you could tell the folks listening what
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the Angel Investor Foundation is, how you got the idea,
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and how it serves both Angel investors and founders.
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The fundamental difference here is that there are two different
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types of nonprofit associations. One are trade organizations and the
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other is individual member organization. Generally speaking, the trade organizations
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are stood up as five oh one C six organizations,
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whereas those that have a more charitable purpose, such as foundations,
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are C three organizations. So ACA was set up twenty
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years ago as a five ZHO one C six, which
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meant that we could take on the advocacy arm. We
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could do a lot of the you know, typical traditional
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things that are done. What we could not do are
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the charitable you know, activities where we could offer tax
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deductible contributions. So in twenty twenty we stood up as
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a wholly owned subsidiary of the ACA, a five O
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one C three organization called the Angel Investor Foundation, and
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that is where we've done a lot of the philanthropy
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for the community. And again this is in the spirit
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of trying to move from an art to a science,
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to bringing out data analytics, to educating, to training, to
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doing all of those things. So today we use both
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of those brands, two different companies for a variety of
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different purposes, but based within the legal structure of the IRS.
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It gives us the benefit of having both of those
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We do hope to be able to, you know, open
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this up further in the years ahead, to gain more
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supporters and more followers to see that really, at the
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end of the day, this is all about economic growth.
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It's about innovation. It's about driving that capital formation into
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the hands of entrepreneurs that are going to change the world.
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And to do that, you know, it's a journey, but
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we've got to keep taking the small steps. And the
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two legal structures are what allows us to do that.
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As I mentioned, to be the steward of the asset class.
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When you think about the ACA and where you are
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and where you're headed, is there any new innovations or
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any new directions that the ACA is intending on taking
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in the coming year outside of this Angel Investor foundation,
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which is friggin' awesome by the way, Well.
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Thank you for that. And we have invested in the
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past eighteen months or so because of that Angel Investor
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Foundation in back office infrastructure. So we've updated our website.
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We've added what's called an Association management system that gives
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us better tracking ability on the engagement of our members,
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what they're doing, where they care about and you know,
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we're trying to build in opportunities for new engagement from
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them because this is their community, you know, this is
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the professional society of the Angel Investment community, and together
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that is a very you know, powerful force that can
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you know, build the content generation we need, disseminated it
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out there and really you know, advance all that we're doing,
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so you know, expect to see that.
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You know.
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Syndication is another area that we are investing in, and
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that means different things to different people. But what we
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saw coming out of the pandemic is that, you know,
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before the pandemic, most groups said, now we only look
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at deal flow in our own backyard, and you know,
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we have to do it face to face. Well that
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was taken away from them. They figured out how to
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do it by zoom it worked well, and then they said, well,
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why are we only looking at deal flow in our
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own backyard. So a trust built between angel groups in
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different cities, and we are now, you know, a couple
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of years after the pandemic, really seeing that explode. So
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we are creating regional syndicate groups of maybe twenty or
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thirty you know angel groups from across the northeast or
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the southeast, or the Midwest or whatever it may be,
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that are holding regular monthly meetings where they are sharing
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information on deals. Now, the beautiful part about this is
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that if you're that entrepreneur and you've got you know,
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inroads to your local angel group and they invest in
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your round. I mean, let's just say it's a million
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dollar round and that local group says, hey, we're in
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for two hundred and fifty thousand. What's happening every day
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now is that that group will say, well, let us
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reach out to our neighbors over in the next city,
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share our due diligence with them, and see if they
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have an interest in joining your round. And so the
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entrepreneurs really have investors in many cases working on their
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behalf to make introductions to get them the additional capital
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that they need to fill out that round quicker, because
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what all the investors want is the founders and the
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man's been team working on the business, not out there fundraising, right.
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So I think that's added a lot of efficiency, you know,
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to the process that benefits both the investor and the entrepreneur,
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and I think you can expect to see more of
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that in the future. The final area that I would
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mention is, uh, the potential of artificial intelligence and what
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can we do with that as a professional society to
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take all of that content that our members have curated
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and repurposed that so it's easy to find. It's in
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bite sized, digestible you know, nuggets, and available on you know,
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multiple platforms, multiple formats in a way that you know,
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the particular investor or entrepreneur can get whatever they need
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whenever they need it at an affordable price. So those
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are the questions that kind of keep me up at
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night that we're trying to resolve to really change the
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way the game is played.
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All right, I want to stop for a second. I
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want to dive into a fascinating topic risk, but we'll
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save for next time. Coming up. In my conversation with
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Patrick Goohen, CEO of the Angel Capital Association. He'll share
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one key piece of advice for entrepreneurs.
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Make sure that your coachable. Don't think that you've got
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all the answers. It's a team sport. Look for those
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investors that you're going to bring on and they've got
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a lot of experience. Most likely they want to contribute
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beyond just the capital that they provide. Take advantage of
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all that. But it starts with you know, being coachable
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and listing.
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This Startup Science Podcast with Gregory Shepherd is brought to
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you by startup Science dot Io. Founders can log on
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too startupscience dot io and use code Forbes to get
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00:23:42.720 --> 00:23:46.160
free access to connect and find out more about greg
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Go to Gregory Shepherd dot com. The Startup Science Podcast
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is a production of Forbes Books.
