Closing the Diversity Gap in Investing: Insights from 37 Angels' Angela Lee
Angela Lee is an award-winning professor and former Chief Innovation Officer at Columbia Business School where she teaches venture capital and leadership courses. Angela started her career in product management and then moved to consulting at McKinsey. She has started 4 startups and is also the founder of 37 Angels, an investing network that has evaluated over 20000 startups, invested in 100, and activates new investors through a startup investment boot camp. She also serves as a venture partner at Fresco Capital, an early-stage venture fund that focuses on the future of work, digital health, and sustainability.
Angela has spoken at the White House and NASA and is an expert in teaching online and making learning scalable. She is a sought-after expert on CNBC, Bloomberg TV, MSNBC and Fox Business. She was recognized by Crain’s as a Notable Women in Tech, by Inc. as one of 17 Inspiring Women to Watch, and by Entrepreneur Magazine as one of 6 Innovative Women to Watch. In 2020, she was awarded the Dean's Award for Teaching Excellence at Columbia Business School and she was awarded the Singhvi Prize for Scholarship by the class of 2022.
Kirby Rosplock
Welcome to the Tamarind Learning podcast. I'm your host, Dr. Kirby Roplock. And today we have Angela Lee. She is the founder of 37 Angels, and she is a premier angel investor, and she is also a professor at Columbia University, and is here to give us the ins and outs of angel investing. And we're so excited to have you today, Angela, and to learn so much more about this very specialized area of investing. Maybe first you can just give us more about your background and how you came to this specific area of investing, and just tell us a little bit more about 37 Angels.
Angela Lee
Well, Kirby, thank you so much for having me. In terms of my path into this space, I very much started off as an entrepreneur. I graduated from UC Berkeley in the dot-com era where money was falling from the sky and started off as an entrepreneur. I was lucky enough to have a couple of successes. A few years later, in 2008, I wrote my first check as an angel investor. For about four years, I was a solo angel, looking at maybe 50 deals a year and maybe writing one check per year. Then in 2012, '13, I decided, You know what? I really want to help other people learn about this space. 37 Angels was started in 2013 with two goals. The first is to really shine a light on the black box that is startup investing. So many of us watch Shark Tank and read these books and these articles. There are so many buzzwords, and I really wanted to help people understand. Because I teach venture capital at Columbia Business School, this is a space I know really well. The second is I wanted to help to close the diversity gap in the space and get more diverse investors out there writing checks.
Kirby Rosplock
Yeah. That's a really interesting point because it doesn't seem like women tend to, or minorities tend to, get nearly as much capital as men do. What is the gap? Is it really as significant as...
Angela Lee
Yeah, it's a huge gap in terms of who gets funding. About 2% of all funding goes to all female founding teams. Under 20% go to mixed teams, which means that over 80% of all venture capital angel funding goes to all male teams. The numbers are even worse on the underrepresented minority side. Sub-1% numbers are going to, for example, Black founders. 37 Angles is not focused necessarily on investing in underrepresented founders, we are focused on educating underrepresented investors. The reason why is because the data shows over and over again when you have more women and minority writing checks, then more women and minorities get funding and different ideas will get funded, too.
Kirby Rosplock
Yeah, that makes a lot of sense. I just can't understand in this day and age why that gap isn't closing. I mean, it just seems like we have increased number of women and diversity in higher Ed and coming into more sophisticated parts of the workforce. Why wouldn't we be funding them at this angel level? I don't know. It escapes me.
Angela Lee
I totally agree.
Kirby Rosplock
Tell us just a little bit more, because I think a lot of folks don't understand that angel investing is not exactly like venture capital, direct investing, or investing in other elements of the Capstack. Can you give us just the basic definition of what is angel investing?
Angela Lee
The primary difference between an angel investor and a venture capitalist is that an angel investor is investing their own money and venture capitalist are investing other people's money. If you think about a venture capital fund, typically it is a venture capital fund manager going out and raising money from a bunch of investors. For those of you who've picked a mutual fund or you've invested in a hedge fund, that's what it feels like. Here's some of my money, You go and invest on my behalf, and I'm going to take a step back and really trust that fund manager to invest my money. Angel investors, contrarily, are actually just investing their own capital. Many angel investors are former founders, some are successful from other walks of business, but they're investing their own money. That's the primary difference. What it means is that angels are typically writing smaller checks, but angels also have a lot more latitude on what they can invest in. For example, maybe there's a really great impact investment that won't have quite the same number of returns, but you deeply believe in that area, that impact that they're having, an angel is going to have a lot more latitude to invest than a venture capitalist that has fiduciary responsibility to their investors.
Kirby Rosplock
That's That's great to think about. Tell us about where angels might show up in terms of age and stage when a company is getting funded. Are they pre-seed, seed, later seed, Series A, B, C? There's so many different points where a company might need capital. Maybe you can tell us more about where you see angels showing up mostly or more often.
Angela Lee
Angel investing, startup investing in general, it's like alphabet soup. The stages are from earliest to latest, pre-seed, seed, A, B, C, D, and so on and so forth. Typically, a startup raises capital every 18 months. So between a pre-seed and a seed, a seed and an A, so on and so forth. Usually these days, I would say pre-seed means free revenue. They have an idea, they maybe have a proof of concept, but they're pre-revenue. Seed stage typically means post-revenue. Then a very common milestone for Series A is they have a million dollars of revenue. That gives you a sense of the stage of companies. Angels primarily play in pre-seed and seed. So either pre-revenue all the way up to having maybe sub a million dollars of revenue in a company. That said, you have angels who participate later stage, but the bulk of angels are going to participate there.
Kirby Rosplock
What are some of the characteristics or qualities of an angel? How do you know if you've got the DNA to really be an angel? What are the characteristics that might be good flags for you to say, 'Hey, that is not me. I should not be doing angel investing?'
Angela Lee
I think the first thing, I would actually argue more so than skill, is just, do you find this fun? I really mean that. I think that there are lots of ways to make money in this world. There are lots of ways to spend time in this world. We should be doing things that we find fun. When you talk to a startup or a founder, are you jazzed and you're really excited about thinking about the future of technology. What is healthcare going to look like in 10 years? If that excites you, I think that's the first thing. You're reading about these things in your spare time. You're watching those shows on YouTube or whatever the case may be. I think that's the first thing. This feels fun to you. Then I would ask yourself, do I have the risk tolerance? This is a very risky asset class. Half the time, you do not get your money back. You write a founder a check and you're like, Sorry, half the time, you're actually not going to get that money back. If that feels petrifying to you, this is not what you should be doing. Go put your money into an index ETF, which is a great place to put your money.
Angela Lee
Don't necessarily do angel investing. If you're like, I'm okay putting 5% of my investments into this really speculative asset class, I think that'd be the second thing, risk tolerance. Then the final thing is, do you feel like you are able to make good decisions with limited data? I would recommend that people watch Shark Tank, right. It's if you watch a Shark Tank pitch and you're like, How on Earth did Mark Cuban or Barbara Corcoran just give someone a million dollars off of a 15-minute conversation? If that sounds absolutely bonkers to you, again, angel investing might not be the thing to do because you do have to give someone money after maybe spending a couple of weeks dealing with them. I think those three things in combination. You like it, you have the risk tolerance, and then you're comfortable making decisions with limited data.
Kirby Rosplock
Yeah, that's really good insights. What do you see Angels doing really well to make sure their investments, those 50% that do work out, come to fruition? What happens after you write the check?
Angela Lee
In terms of after you write the check, you want to see I need to think about how you can be helpful in a way that's unique to you. I think a mistake that I sometimes see people make is like, I'm just going to help all founders do everything. Some angels are really good at helping people find people to hire, especially in a tighter labor force. They're really good at helping someone find salespeople or chief technology offer, stuff like that. Another thing might be you're really good at helping founders fundraise. We have relationships with a few hundred other angels and VCs, and so we can help founders to raise the rest of their seed round, the rest of their Series A. Another thing might be you're really good at helping with PR, maybe your background's branding. What I would do is just really look down at your skill set and say, What am I really good at? And then lead with that. Don't try to help everyone do everything. But I would say one thing that every angel needs to be good at is having a deep network. I think all of us are only as strong as our networks.
Angela Lee
The more you have a deep network that you are willing to bring to help your portfolio, the better.
Kirby Rosplock
That's great advice. Tell me what angel deals that you get most excited about.
Angela Lee
I would say there are two... I mean, I'm excited about a lot of things. I have a little bit of intellectual ADD, but I would say two areas that I'm really interested in right now. One is consumer-driven and personalized healthcare. Our biggest sector is actually digital health. It's really exciting to me that patients are getting data in their hands and they are more able to advocate for themselves. I think that's one area that's really interesting. Then another area that's really interesting is supporting the non-traditional worker, what some people call future of work. All of us were non-traditional workers for a few years there during, obviously, the pandemic, but the way that we work together has fundamentally changed. I could talk for hours about all the different ways, but I think really thinking about how do you build culture, how do you help people save for retirement, how do you help people manage and do skill development when their team member might be 3,000 miles away. Those are some areas that I really love.
Kirby Rosplock
I know, Angela, you are really passionate about supporting entrepreneur education. You've got boot camps, you've got all kinds of resources. Maybe you can just tell us a little bit more about how your company, 37 Angels, really supports the full circle, the whole ecosystem of angel investing.
Angela Lee
Yeah. I mean, again, I'm a professor. That's my full-time job, and so I really love educating people. And so on the investor side, we offer an investment boot camp four times a year that teaches people, how do you source the best deal flow? How do you diligence companies? How do you value companies? When a founder says, I charge worth $10 million, is that fair? Is that not fair? How do you think about post-investment support? Some of the questions that we're talking about today. You can learn more at 37angels.Com/bootcamp to learn more about investment boot camp. On the entrepreneur side, I speak at a ton of conferences every year. We also do a series of workshops, both for our portfolio companies, but also for the broader entrepreneur network. We have a few thousand entrepreneurs that attend our events. We'll pick a topic, How to raise your Series A, How to hire, how to fire, which is a less fun webinar, but sometimes very necessary. How do you size your market? How do you get your first customer? All those different things. We do a lot of education there.
Kirby Rosplock
If there was one or two things that you were going to leave us with that you think would be super important if you're jumping into angel investing, what would it be?
Angela Lee
I think the first thing is just go out there and do it. At the end of the day, there's this quote, You can't learn something from a book. I think the same is very much true of angel investing. Go out there and start hearing pitches. The good thing is The good news is certainly online, but even probably in your local city, I guarantee you there are five events happening tonight where you can hear startup pitches or meet with other investors or other founders. I would just commit yourself once a month, go to an where you are interacting with other investors, founders, and ideally hearing pitches. You get a sense of what the market feels like, what's the language they're using. That's one. Then the second thing I would say is to really commit yourself to learning. That could be learning through a boot camp like a 37 Angels. It could be committing to reading a book. There's a great book called Breaking into Venture by Allison Tompgates. There's Venture Deals by Brad Feld. We have a bunch of great blogs on our website that we share, but really saying, I'm going to read an article once a week, whatever the case may be.
Angela Lee
I find that sometimes it can be really nice to do this with a friend because there's so much jargon, so many acronyms. It can be nice to be like, Hey, that person just said this. Did you understand what that meant? Finding a friend to do that with can be really fun, too.
Kirby Rosplock
I love the idea of having an angel buddy. I think sometimes we get motivated but inspired when somebody else is also just like, Hey, come to this pitch session with me, or, Hey, I just wrote this great article. Angela Lee, you're so inspiring. 37 Angels has so many great resources, and there's so much great information you can glean from your website and all the informational sessions and programs that you offer. If you can jump into one of her Columbia workshops or her programs. So glad you could join us today at the Tamarind Learning podcast. You're incredible. Thanks so much, Angela.
Angela Lee
Thank you so much, Kirby.
