Angel Investor and Startup Advisor

The First Money In: What I Look For In My B2B Angel Investments

Susan Kimberlin: We are on the downwards stretch, downhill roll to the end of the day. Um, and it's nice to go after a nice, like upper kind of guy like Doug (editor: Doug Landis), um, as such and said, thank you for that intro. I'm Susan Kimberlin. Uh, I am an angel investor and advisor to early stage startups. Um, and this is a little bit more about just who I am, where I'm coming from. Um, I, so I'm doing that full time. Um, and I like the fact that well I'm doing it as much as I want to do, which is nice. Um, I wouldn't describe it as like a 40 hour a week kind of thing. It kind of depends from week to week, day to day. Um, I'm also a limited partner and a general partner in several, uh, funds that most olive which also investing in early stage companies. Um, I'm gonna mentor at Acceleprise if some of you heard Whitney Sales earlier.

Susan Kimberlin: She runs excel pies program and for accelerator for B to B SAS companies. And um, I love working with them. I also work with other accelerators in the, uh, B2B SaaS space. I'm here in San Francisco. Uh, my background's in linguistics and natural language processing. As Sachin mentioned, I ran the search, um, teams at salesforce for about seven years, um, as product manager, um, and uh, which is, uh, sort of, uh, gives you a good idea of why I'm interested in B2B since, um, and especially B to B SAS and salesforce kind of invented that category. Um, and I invest in B2B and enterprise, uh, SaaS companies at the very early stage. Uh, I also invest in diversity and inclusion, particularly in the entrepreneurship VC space and in technology. Um, I am the, one of the things that I'm most proud of is that I'm the founding investor in backstage capital, backstage capital investment, underrepresented founders, so women, people of color and LGBT founders.

Susan Kimberlin: Um, and I will talk a little bit more about diversity. Do my pitch for data diversity a little bit later on. Um, fun fact. I'm also in an a capella group. This is, and I've been known to do Karaoke at corporate events and other places and basically anytime there's karaoke available. So that's me singing. Um, and uh, just to kind of give you an idea of know some of the other things I like to do. I love an audience. Um, so who do I invest in? Um, and I should say actually that one, like you'll notice there's a lot of questions in this presentation. Um, I think that basically as an angel investor, the, the thing that I do the most that a good angel investor does the most is ask lots of questions. Uh, individual founders, uh, people working on products, they have a lot of knowledge about what they're doing, but, um, somebody who comes in and asks the right questions can get, can both help expose the things that you need to work on.

Susan Kimberlin: And, um, that's what we need to do in order to get a full picture to make a choice about whether to invest or not. So before I move on, how many people in the room have pitched to an angel investor? Tried to get an angel investor to invest. All right, awesome. How many people are thinking are in the process of fundraising right now? And like I think it's no secret if you're working a startup, you're always fundraising. Um, and how many people are thinking about, of fundraising in the next, say, 12 months. All right. Okay. So you guys all have like a vested interest in what an angel investor might be looking for. Good to know. Alright, so who do I invest in? Um, as I said, mostly B2B, um, and the handful of enterprise, um, SAS startups. Um, I have dabbled in consumer a little bit and gotten stung a little bit.

Susan Kimberlin: So, um, uh, I like B2B and I'll talk more about what it is I liked about B2B and what makes it distinctive. Um, I've made 22 angel investments, um, starting in 2012 but most of them since 2015. Um, as well as three fund investments. And, um, I am proud to say only about four or five years in that my current portfolio value has nearly doubled. Um, one of the things about early stage investing is that there's, um, it takes a long time before you see a return. Um, it's good idea to keep track of what, what valuation your companies that you've invested in are at, but um, but you can't really expect to see a, an accurate reflection of what you're going to get out of your investments until like seven to 10 years down the line. Um, this, there's a handful of companies logos up here.

Susan Kimberlin: These are all companies I've invested in. There's a couple here, I see a couple founders here, um, so that are in my portfolio. So welcome guys and also why are you here? I already angel invested in you so you don't need to know this stuff, but, um, but thank you for your support. Um, actually one more thing about that. Um, another fun fact, my first Angel Investment that I ever made is by far valuation wise, the most successful, um, which is super exciting, unusual most of the time. Your first angel investment is like, you know, you should be prepared to write that off. My second a is in the process of wrapping a business and closing. So I lost that investment completely, which I think is representative of the experience of doing angel investing, especially at a higher volume. If you're not just dabbling, if this is kind of what you do, you have to expect that you're going to get a lot of different outcomes and people are at like various different stages.

Susan Kimberlin: I've had about, I've had three companies close up business. Um, I've had one that got acquired. I've not had any that have gotten public. Um, that doesn't happen all that frequently and certainly it would be too early anyway. Um, and I've had lots and lots of like pivots. Um, people change their business and they move on. Um, what I invested in is no longer what they're doing basically. Okay. So what do I look for in a potential potential angel investment? Um, and this is sort of true of all angel investments. Um, these are important things to, to be prepared for. These are questions that it's important for you to be able to answer if you're pitching an angel. Um, and if angels are not asking you these questions and they're probably not, they probably don't know what they need to know essentially in order to make their choice, which, you know, sometimes if you can get the money anyway, maybe it's fine.

Susan Kimberlin: Um, these are in priority order cause I'm product manager at heart and I prioritize everything. I'm hard to stop that. So number one thing is team early stage. There's, you don't have long track record with this company. You don't how you may have a lot of experience but this company, this product, if I'm talking to you, you're really early stage. It's probably just a couple of founders. Um, if that, and um, so who you are, what you are bringing to it, um, is kind of is the strongest indicator of how successful you're going to be. And also do I want to work with you? Um, the, at the early stage you're going to have a handful of angel investors. You need to have a good relationship with them. Um, cause you're going to work together more, uh, than, and it's, it's, you know, you're going to need to leverage them for other things besides just that first check.

Susan Kimberlin: Um, next is opportunity. So who, who are you selling to? What is the market? What is your, what's your TAM, your total addressable market? Um, this is really important. Second only to team because the opportunity, your target market, your potential, uh, market that you can reach is what is the eventual return for me as an investor is tied to. So I need to see that there is a significant opportunity there that you can grow into and I can potentially get a huge return from, um, then next sort of kind of, um, hand in hand with each other. What are you solving? What problem are you solving and is it compelling? Um, is this something that a significant number of businesses and potential buyers are grappling with? Um, and then how are you solving it? What's your product or solution? Um, big thing about what your product and solution is, is how effective is it going to be at solving that problem?

Susan Kimberlin: Um, how, uh, and is it like technically feasible? Um, something that, you know, depending on what your background is, if you, uh, there's a lot of people around I think especially in the bay area that, um, are technical. They're, you know, they, and so they have a good grasp of what is like possible, um, whether something, whether they can build something, but then sometimes growth is hard. Scaling is hard, those kinds of things. So really knowing really having like a viable solution, uh, is always important. Um, and then a couple of things that are like need to check them off. Um, when I'm looking at an angel investment key metrics, yes, yes. Everybody sort of looks at certain metrics. I do too. Do you have traction? What does it look like? Um, do you have a pipeline of potential customers? Is it healthy or is that, do they seem, they seem closable.

Susan Kimberlin: Um, do you, um, what do you, um, and a sort of, there's a lot of KPIs that I think sort of later stage VCs look at that I look at as well if they're there. But some of these things are not, you know, present yet when it's really early stage and last, um, sort of a check box but kind of but can be like a deal killer. What, what are, where are you at in terms of building your company? Um, how much funding have you taken? What stage are you at? Um, especially for angel investors, it's really, it's much more likely that you're gonna be too late stage either you're raising on a really large valuation that makes my small check not really compelling for me in terms of how much equity I'm going to get. Um, or you know, occasionally it could be too small.

Susan Kimberlin: Like you really, you know, taking outside money is not a great idea yet cause you haven't like haven't built enough of the product and the idea, um, out. And then there's a couple things that I want to get out of the deal as well. Um, one thing is that I want to be able to add more value besides the money. I want to provide expertise, provide network, provide a sounding board. I have some founders I work with that call me and say, Hey, I'm thinking about this. It feels like maybe it's not a great idea. Um, in terms of like how it's going to be perceived or you know, sort of as like a kind of like an emotional kind of, um, a sounding board. Um, things like that. So what am I, what do I have that I can bring besides just the money?

Susan Kimberlin: And I think if you are engaging with angel investors, they need to be strategic. Um, because it's, you're still, you're still small so you need to get as much as you can out of every person that you engage with. So you should be getting more than just money. Um, and then also I want to learn something. I look for companies where they're doing, there's something about it. There's, you know, part of the business model that I've never really had a lot of hands on experience with or they're working in an industry that, um, that I want to learn more about. Um, great example is like me trying to get my head around like cryptocurrencies cause it's all the rage when I'm like, what is that? And like how can I approach that as an angel investor? So on the hunt for, for companies where there's an opportunity for me to invest in then learn something then Oopsie oh yeah.

Susan Kimberlin: Um, so, so if that's kind of what I'm looking for in all angel investments, then what is it about B2B businesses, um, that brings me to and to focus on them. Um, one thing that I think sort of one of the most important things about B2B businesses, and hopefully all of you as practitioners, um, and people who are working in the space can feel this too, that your customer success, your customer has a business, their success at their business is what your success is driven off of. I think that's incredibly important. That something that we focused on thought about, talked about a lot during my time at salesforce when we grew 10x between 2007 and 2014. And, um, and an important piece of that is understanding what, how your customer thinks about their business, thinks about growing at, how your customer measures their growth and their business.

Susan Kimberlin: Um, and being able to articulate to them how your product or service is going to be able to, um, affect their bottom line and make their business more successful. Um, and that's, that is that sort of a core kind of like a fundamental thing about, uh, B2B B to B businesses. Um, that I think is like kind of bottom line when it comes to defining what your product is. Um, so as an investor I want to see that you understand that and that you have that sense for your customers of how to talk to them about why, what their successes and how to talk to them about how you're going to help them with that. Uh, I think also with B2B businesses, uh, there's more money on the table, um, than in consumer businesses. Um, and so for me as an investor, I like that.

Susan Kimberlin: Um, because I, because that means more upside potential upside for me. Um, you're talking to businesses that have a bottom line, they're trying to make their business run. If they have a problem or they just have, um, something that could work better and can help them get more business, um, help them make money and you can enable that, um, then they're willing to pay for your product. Um, and it's, there's, and there's more often budget already established that you can hook into. It's important be able to find, find that budget. Um, but you can hook into that. So there's sort of like a, there's more money available sooner in the process of engaging with customers. Um, and the, the value of an individual customer or contract is usually a lot higher than in consumer businesses, certainly. Um, and then as a product person, um, I always like to think of, I always enjoy the fact about B2B businesses that you have access to more feedback.

Susan Kimberlin: Often customers, they are trying to use your product. Once you have customers, obviously they're trying to use your product in there as part of their day to day process. Um, if they're having an issue, they're usually pretty vocal about letting you know. They're like, Hey, I'm paying you, I have this problem. I need you. I need help to like fix it. I need you to fix it or I need you to know that like this isn't working perfectly for me. Um, certainly as a product manager, uh, I always enjoyed that aspect of working with customers. They were much more motivated to give me feedback. Um, and that's a great thing when you're building products, when you're building new products cause it helps you kind of get to that product market fit. So then what is distinctive about B2B Angel Investments? So what does it take? Everything about making angel investments and everything about B2B and put that together.

Susan Kimberlin: There's a handful of things, um, where these are things that I want to know you as a founder if I'm considering investing, have a grasp on, um, do you, do you know your, who your buyer is and what their budget is? I was just talking about budget that there's often more available, but you need to know what it is. Um, it helps with pricing, which you guys have been hearing about off and on all day. Um, knowing who the buyer is. You've been hearing about that too. Um, when talking about distribution and sales. Um, so knowing where to go, who's going to have the money, who's going to pay you for your product. Incredibly important. Um, another thing about B2B, uh, about, about selling into B to B companies is that the person who is the buyer is not necessarily the person who is the user.

Susan Kimberlin: Um, classic example using like just Salesforce CRM as an example. Sales manager has the budget, um, and the interest is motivated to have a CRM tool, but sales reps are using it almost more than the sales manager is there. They're sort of needs, wants, desires are different from the sales manager. Um, but the sales manager is the person who's gonna write you the check and actually like buy your product, um, if that's what you're trying to sell them. So knowing that, what, knowing that your user may be different from your buyer is important. Um, and I want to know that you have identified all of those people in your target customers if I'm going to invest. Um, another, another big sort of piece of this is matching your go to market strategy to your market segment. Um, and I think the most sort of classic example of this is, is just something along the lines of if you or your product is kind of designed, if you're targeting enterprise a high end of the market, you're looking at big, big companies as your potential customer.

Susan Kimberlin: Do you, are you aware of what it takes to make an enterprise sale? That stuff is really, really harder. It takes a long time. Do you, can you lasts long enough to get through the process of engaging with an enterprise customer? So is your go to market strategy consistent with the market segment that you're going after? Incredibly important. I want to make sure that, you know, you understand that if I'm going to invest, um, and I think this third point you probably can feel just from all of the talks that you've already seen, but you need to have dedicated distribution. I think for B2B products and you need to understand that, um, that it's gonna take more than just somebody picking up the product and using it. Uh, once you want to scale, you're probably going to need somebody. It doesn't have to be sales.

Susan Kimberlin: You don't need a VP of sales, maybe at least not initially at the very early stage, but you are going to need to have some kind of structure around how you're going to shepherd users through to actually closing sales. So some kind of distribution. Um, and then finally the last thing is kind of a pro-tip, um, that if I see a company knows this and is leveraging, it draws me in that when it comes to initial sort of market or, um, initial, um, kind of role that you're targeting your product toward, there's more often budget in sales and distribution. Um, for businesses that's free to try new products, to go out on a limb, take a risk if it seems like it's going to help that your potential customer help them close more business so you can find buying budget, um, in sales organizations. Um, so I love products that are meant to do sales enablement and can materially help, um, businesses close more sales because that's sort of a, that's an easy way to get at budget.

Susan Kimberlin: So what are some other thoughts that I have? Um, so, and then this slide just, I'm cracking up a little bit because I just had this realization last night that, um, I, I was a sugar spun angel and the production of the nutcracker, um, when I was like 11, and our costumes were like the color that I used as like the background for this presentation. And I've got the little angel thing and I'm like, Huh. I was like foreshadowing. Um, so, um, a couple of these are just kind of one off thoughts and then the couple are like really important. I'll start with the one off thoughts. Um, I invest in, I'm an angel investor, so I'm working at really early stage, um, when it's just sometimes a handful of investors and a couple of founders. Um, and you know, working on growing a and just delivering a product to market.

Susan Kimberlin: Um, I think it's incredibly important to build sustainable businesses too. I like working with businesses and founders are focused on creating a product that's solving a problem that people are paying for and what they're paying for. That revenue that you're bringing in actually supports you producing the product and distributing it. Um, and then, you know, hopefully gets you to profit eventually. But the, I liked the idea of focusing on delivering, delivering product, um, getting something out into the world and solving a customer pain point. Um, I'm, I have the luxury of focusing on those kinds of things at the early stage. If you are going for funding later series funding, um, the focus can move away to other metrics. Um, there can be a lot of pressure to grow at all costs and to chase metrics that aren't not as much about customer success and are much more about kind of taking over market share.

Susan Kimberlin: Um, and so it's something to think about. I, when I go in and talk to, um, companies that I might angel invest in, I'm looking for somebody who is looking to build a sustainable business and has like an idea of how to do that. Um, but there certainly is a lot of money out there and a lot of, um, a lot of folks who would be happy to put money in with the goal of just getting to the next round to raise. And so they're sort of like strategic question there of, you know, which, how are you approaching it? Um, it's something that I think about. Um, a, another sort of one off thought is, you know, there's, uh, I think there are different kinds of angel investors. Um, so the question is like, are you an angel? Am I an angel for life or am I a VC in training?

Susan Kimberlin: Cause I think there are lots of people that kind of come from previous exits. Maybe they were an early engineer and early hire at a company that's gone public and done really well. Um, and, uh, they're bringing their, their operational expertise and the fact that they have the capital to invest and going after investing in things that are kind of interesting to them. Um, they tend to be great help as early stage investors. They tend to, um, uh, be able to help you kind of figure out how to solve problems. Um, there'll be there with you a little bit more. Um, there are other investors that are kind of angel investors I should say, that are starting out by making angel investments but are really on a track to become like a partner at a VC firm. Um, and so they're going to be really great.

Susan Kimberlin: I'm really kind of more focused on great at like longterm strategy. And how do you get to the point of, um, how do you get to like that next step in raising capital, um, and kinda playing going that way. And they usually have like great networks of people that can introduce you to somebody at every firm that you might want to talk to. Every VC firm you might want to talk to. Um, so it's, it's something to think about if you're talking to an angel, what is it that you need and, and, um, and sort of taking into account what their makeup is and what they're bringing from that, uh, in that regard. Um, and then judging the founder competence I think is like a, a really important part of angel investing, uh, because as I said, the team is sort of most important part and an early, um, in an early stage company.

Susan Kimberlin: And one of the things that I like to do is ask them, so what brings you to this point in your career? How did you get here? Why are you interested in this? Um, why are you working on this? Um, and I think about that the way, um, you can think about, uh, like origin stories of superheroes that everything that people do along the way is part of their makeup when they are embarking on building a new product, building a new company. Um, so I like to hear how they, how people got there in order to be able to see if they have experienced that they can graft onto what they're doing now to make them successful. That's a huge, that's a big tool that I use for judging whether they've got the right makeup of things in order to be successful. Um, I also like to see if they are able to teach others about what their product is.

Susan Kimberlin: I love it if there's something that I don't understand about their business or that I don't have experience with and I can ask them about it and they can educate me and I get it because that speaks to both mastery of the subject. Um, that if you're able to teach something, you've truly mastered it. If you're able to communicate it to somebody else, um, you find a way to communicate it using, using whatever terms and, and strategies, you know, work for you. Um, and it also speaks to the, their ability to be able to then work with others cause they're not going to do, they're not going to be successful all on their own. They're going to need to work with other people. So if they're, they need to be able to work with and teach other people around them about what it is that they want, what their vision is and that kind of thing.

Susan Kimberlin: So last but certainly not least, um, I mentioned before, I'm an investor in backstage capital. I and I am truly interested in diversity and inclusion, particularly around technology and particularly around venture capital and investment. I really believe that a diverse, like a wide range of experiences that people bring to problem solving and to working on products leads gives you more options for ideas of how you might meet the challenges that you come up against. Um, there's plenty of research that shows that more diverse teams tend to perform better, produce more, produce better. Um, and so I, I like to look for at least a sort of an understanding of diversity. It's hard when there's like a two founder team and it's like, you know, how diverse can you be? Uh, you just, you are who you are, but like do you, that that is something that is going to be an asset to you and your company as you grow a diversity of backgrounds and experiences.

Susan Kimberlin: Um, and, and that there's a lot of economic opportunity in that, in that as well that like that if you have, if you're solving in an unconventional way, um, or just in a way that's like, you know, not as not as often heard, um, you're getting ideas that are not as often heard because it's an underrepresented group, you're more likely to have like a competitive edge because everybody else isn't necessarily thinking that way. So I think that's just a, just a, um, a really good thing to always have in mind as you're building your company and product. So with that, my last question to you is, do you have questions for me? Yes.

Speaker 3: [inaudible] Your view about [inaudible]

Susan Kimberlin: So the question is, um, a lot of your early stage investment, like a lot of investments, if you're going in at the early stage, have a potential to pivot. Um, and what's my view of conflict of interest in a portfolio when that comes up? Um, I will say at the very early stage, um, a lot of stuff is done on trust. Um, and so I'm trying to think. I don't, I don't know if I have any real conflicts. I do have like a couple of companies that are like really marry each other in terms of like who their target market is and, and what they're, like, what their solution is, not identical. Um, and I like if when that came up I went to both of the founders and said, hey, this is, this is a thing. And they were, and do you trust me to not undermine your business in any way in how I interact with these, this other, um, company?

Susan Kimberlin: And they trusted me. So I think most of that, I think for early stage investors, you can manage that through like trust and communication. Um, cause there's not a lot of formality there. On the other hand, you know, I don't want my lawyer, like my lawyer will not let me, will not like Rep will not review my engagement. And deal if they happen to also then be representing a potential investment of mine. So, you know, that does come up and there's usually there's enough network around that you can find somebody else to help you out if there's going to be a potential conflict. It's a good question though. Anybody else? Yes.

Speaker 3: [inaudible]

Susan Kimberlin: how do I do my due diligence? Well that's basically my whole job. So, um, we would need another 28 minutes to cover that probably. But, um, I mean basically like I start with what materials do you have that you can give me about what your product is? Do you have a pitch deck? Do you have an executive summary, et cetera. They'll look at it to see if it's like a reasonably good fit in terms of my interest. Um, and then I will have a first conversation. I'd like to meet in person if at all possible, um, but can do phone when, you know, geography and schedules don't allow that. Um, and it's usually like in a coffee shop somewhere in San Francisco. Um, and, uh, and I will start with the origin story of questions. And, um, and then get into what are the things that I'm interested in at about their business and, um, can they tell me more about it and kind of do the test for like teachability.

Susan Kimberlin: Um, I will, I will dig into any of the questions that came up when I was, um, when I was going through their initial materials. Um, I do also ask a lot of questions kind of in flow as they're like describing their business to me. Um, and I will often then take, if I'm, you know, if that's a reasonably interesting to me, I'll ask for, you know, can I talk to, um, any early customers? Can I talk to other like people that you're working with or you know, sort of like, kind of like a reference check, but you know, it's, it's kind of a like, I want to see how other people are like perceiving it and that's sort of also the product manager and you kind of wants to test to see like is it working, whatever they're doing. Um, and then I'll often ask about like terms and what their timeline is and stuff.

Susan Kimberlin: I think one of the things that sort of rampant in the investor kind of community is that, well I certainly don't and I think a lot of us don't like to say yes or no until we've had some time to sit with it a little bit. So part of my process is also like I want to step back and like am I into this? And that's, it's like that's a hard thing to quantify in a, I can't give you any tips on how to like make this go your way if like if that's um, if this is what you know as part of like the process. But um, like kind of seeing how it fits in with my portfolio and everything else as well. I don't like to be rushed, even though I spent a lot of time around products that are for salespeople and for sales enablement, I don't actually like to be like sold to too hard. So that's also, you know, part of the process for me is just kind of making sure that like there's enough space in the process to make my decisions. I feel like I'm way out of time. I don't even actually know what's going on with the timer, but I feel like I'm way out of time. Does anybody else have a question before I go? All right. Well, my contact information is here. It'll be, you guys will be able to get ahold of me and thank you so much.

Keep me posted on Empower 2019.