Guest Blog by Erin Sisko
Founder, The Elleiance Network
In the US, it is now less than 2% of capital that goes to women founders. This is not ok but it is something we can change together.
Do you have some expendable income and are starting to think about the best places to put it that is meaningful and also make a good return? The stock market is generally the first to mind but have you also thought about investing in another business? Did you even know this is an option for you? Even if you are not at this point yet, it is really important to understand this world a bit more as a way to build wealth.
Investing is the best way and arguably the only way to build generational wealth. This is not something that is taught in school but the truth is, you don’t get really rich by making a salary. What we need to focus on is the income that is generated when you are sleeping. That you don’t have to be actively putting in hours to get.
What I am passionate about is women being owners of the next big thing. That could be you starting your own company and building equity that way, you joining an early-stage start-up and becoming an equity holder, or you are an angel investor or venture capitalist contributing knowledge and/or resources for equity. These are long term ways to build wealth but it can pay off really well.
So how do I get equity in someone’s company?
Angel investing is one common way. What this means is you are investing your own money and you are usually investing in early-stage companies and taking a small share of equity. Angel investing is an amazing way to not only build wealth but also get a front row seat to the innovations and businesses driving the future. Angel investing is a great way to express your feminism values, drive change and vote with your dollars.
Money is energy…how is flows matters. Are you supporting women’s businesses? Are you supporting people of colours businesses? Or are you just feeding money back into the big corporates that are owned by the same group of people? Investing in start-ups creates this amazing wide space for people to play in.
It does need to be said that angel investing is a high risk, long-term, illiquid type of investment. But it is also a very high returning asset class. Most people are blocked off from being able to make these types of investments, they are also blocked off from making real returns on their money. If you invest in public markets, mutual funds, bonds, etc. their target returns are barely 10%. In Angel Investing and VC’s the return annually could be 20-30% or higher. If you are not getting access to that then your portfolio is not really being optimized and your overall portfolio returns will be impacted because you don’t have a high running asset class creating the majority of the returns for you.
It is for these reasons it is part of my mission to get more women into the world of business investing because it is so fun and it doesn’t require that much to start. With as little as $1,000 you can get started and build a good size portfolio in 1-3 years.
I just want to go back to the risk component of angel investing because this isn’t for everyone and if you are curious or are thinking about getting started in this type of investing you need to have your eyes wide open to all aspects. As a fellow entrepreneur you know that not all businesses make it. For this reason, it is important that you invest in multiple companies so that some could be returning really well for you while others may not be returning that well and some companies might die where you lose that investment. But when a company becomes a winner, it could return your money 20-30x making up for all your losses. A good rule of thumb is to have at least 10 companies in your portfolio. So instead of investing $50,000 into one company, maybe invest $5,000 into 10 companies or $1,000 into 50 companies. This will help you learn what you like and what companies tend to do well.
Deal flow – where do I find these companies?
Deal flow can come from anywhere. The best thing to do is to insert yourself into that world. Put Angel Investor on your LinkedIn profile, leverage your local networks, talk to entrepreneurs that you know, reach out to your Chamber or Economic Development Centre or Innovation Centre. Ask them. When you come across a company that you personally love, ask them how you can develop a more long-term relationship with them. Instead of paying you for your services in just cash, maybe they could pay you in equity instead or a combination of both. Start-up’s often do not have a lot of cash so this could be a really attractive for them. Leverage your knowledge to work more creatively for you!
Why this all really matters
All of the biggest companies in the world today were backed in their early days by investors. Investors/VC’s are literally voting with their dollars to determine which companies get the resources they need to get to that next level, reach more customers, to become a bigger company and really shape the future. I think women have to be part of that decision making. We need to support companies that are for us, by us. To date, the entire system has been designed by a small group of white men. This impact is profound in every way from government, to city development, healthcare, education, professional world, policy making, etc. All of this could be improved for all of us when decisions are being made across all sectors and wealth is growing diversely. Ultimately, if we can direct our dollars into businesses that could really fit into that more inclusive, more diverse, more colourful future this world will be such a better place.
Interested in learning more and becoming an Angel in Northwestern Ontario’s first Female Investment Club? Let’s talk!
Erin is a guest blogger who organizes and runs The Elleiance Network which helps women entrepreneurs and women investors succeed. For more information about her Female Investment Club visit https://www.elleiance.ca/