In this edition of Lived It, we sit down with Susan Preston, a multi-passionate entrepreneur and investor who founded Seraph Capital Forum, the first all-women’s angel investment group in the United States. While Susan said she doesn’t have much time for hobbies these days, her passions are the things that keep her so busy. Her enthusiasm for entrepreneurship, new ideas, and coaching female angel investors and entrepreneurs is obvious and contagious.
We sit down with Susan to discuss her fascination with entrepreneurs and new ideas, what motivated her to found an all-women’s angel investment group, and integrating angel investors as an organic part of the entrepreneurial ecosystem.
Years as an angel investor: 16 years Number of investments: More than 20
“I usually have about seven or eight meetings as well as calls all day long. I work in the evening and I work on the weekend. I even work while I’m on a plane traveling someplace for meetings. It’s generally full.”
“My first investment was in a company called InSpa in 1999. It is brick and mortar shops that offer spa-level services to the everyday person at an affordable price and time periods that are usually no more than an hour at a time. It creates accessibility to the everyday person. I’m not sure if I’ll ever see that investment back but it’s nice to know that InSpa is still operating.
“I got to know the founder and CEO, Colleen Stone, and really liked her. I was impressed with her capabilities, her background, and her vision. At that same time I started the first all-women’s angel investment group in the United States, here in Seattle in 1999, called Seraph Capital Forum.
“There was pent up frustration from many women in the city because they were successful business people and they had the capability to invest but they weren’t being invited to the party. So we decided that we would just create our own party and do it our way.”
“InSpa was the company I asked to come and do the pitch at the introductory meeting that I had for that group. I sent out 225 invitations and 175 women showed up to the first meeting. I had asked Colleen, ‘Would you do your pitch for our first meeting so our women can see what a pitch is like, and what they’ll be doing? I can talk them through how you analyze and evaluate. They can get an idea of how much fun this is going to be.’ Colleen got about 10 investors out of presentation, including me. I invested about $25,000 in InSpa. It was a small foray into angel investing.
“I was still practising full-time as a lawyer when I started Seraph Capital Forum. I was doing securities work and corporate representation, and I saw lots of deals come by me but none of them had any women angel investors. I also knew of at least one woman who had applied to be a member of one of our angel groups in Seattle and had been turned down because she didn’t qualify despite the fact that she was worth well over $100 million – much more than most of the men in the room. But she somehow didn’t qualify. There was pent up frustration from many women in the city because they were successful business people and they had the capability to invest but they weren’t being invited to the party. So we decided that we would just create our own party and do it our way.
“It seemed like a great idea. I had talked to a few friends informally and they said, ‘Yes, let’s do it.’”
“It seemed like a great idea. I had talked to a few friends informally and they said, ‘Yes, let’s do it.’ So we formed a small group of women, as sort of the working group, and we formulated how we wanted to do it. I sent out the invitations and that was how it started. In 1999 everybody wanted to get in the game.”
Susan’s family and friends immediately trusted her judgment when she told them she was going to angel invest. Yet they had no idea what she was talking about in terms of actually investing because it was very different from anything they had heard about before.
“But my colleagues, other women who were angel investing, thought that was great idea. There was a different impression in 1999. The economy was going crazy and everybody was investing in young companies so it wasn’t quite as an oddity at the time. I’ve always done things and been in industries that are highly male-dominated, so for me to be doing something that guys were doing that up until then women really hadn’t done, wasn’t very surprising to people.”
Susan has held board positions for a variety of public and private companies. She also serves as a board member for non-profits
Her passion for – and keen interest in – clean energy has driven her to invest in companies like Allopartis Biotechnologies (where she also serves as board chair), Alphabet Energy, Lumetric Lighting, and REEL Solar, which fast became part of her investment thesis.
“Alphabet Energy is a thermoelectrics waste heat recovery technology company. It falls under the energy efficiency industry, and it’s doing extremely well. I’m very impressed with the company, the founder, and everything going on there. I really thoroughly enjoy that company and what they’re doing.
“There is also another, more recent company I’ve invested in, through the Seattle Angel Fund, called C-SATS and it’s a very cool technology that allows surgeons to record their performance and have it professionally evaluated by the crowd around the world in order to improve skills and processes. It’s just fascinating and they’re starting with laparoscopic surgery. The crowd is assessing the surgeon’s performance against American Medical Association standards on skill sets. The crowd is not even a standard deviation apart from how the experts analyze the surgeons. It’s really fascinating.
“I am a board observer for both of those companies. I’m on other company boards, but these are some fun examples from the standpoint of interesting technology, and are polar opposites in where they’re at.”
“I really enjoy it. I love working with entrepreneurs, I love great new ideas. I am completely fascinated and impressed on a nearly daily basis of how creative people can be, and how they identify new needs in the world.
“You lose money, you make money. You have to play the odds and be smart about how you invest. That’s the best you can do.”
You would think that with all the apps, and applications, and enterprise software, and devices, and products, and everything out in the market there isn’t anything left to do out there, but there really is. And it’s fun. You lose money, you make money. You have to play the odds and be smart about how you invest. That’s the best you can do.”
Susan has a robust list of ways to find new companies to invest in. From word-of-mouth, to networking and letting people know that you’re looking for investments. She attends company showcase events at accelerators, incubators, or universities, and she also finds deals through referrals from attorneys, accountants, other investors, and other angel groups.
“You keep your head up and keep looking around for those good deals. I think it’s probably pretty similar to the way everybody else does it in that respect.
“Most of my investments of late have been through my funds. I put my money into my funds and invest that way. I’ve been doing about three to four companies per year that way. There are about nine active companies right now, because some of them have exited due to sales or going out of business.”
Susan anticipates adding another company to her portfolio by the end of the year and will likely have added about four or five more by the end of 2016.
“I like to invest in cleantech because I really firmly believe in it. I do adamantly understand and agree that we have climate change going on, and that we are singularly responsible for that as human beings. We have to do something about that. We have to take responsibility. This is a fragile planet we live on and we have to make sure that it continues long after we’re here. I’m very big on that area but I do invest in other industries. Through the Seattle Angel Fund I will invest in other companies that I think are really compelling and interesting. I do have some diversification from that standpoint in my portfolio.
“I like to invest in cleantech because I really firmly believe in it. I do adamantly understand and agree that we have climate change going on, and that we are singularly responsible for that as human beings. We have to do something about that. We have to take responsibility.”
“I usually will invest fairly locally because I like to get involved with the company. I like to do either a board seat or board observation rights and it’s pretty tough to do that if you’re in a distant location. I do fly down to the Bay Area on a regular basis for meetings with the companies that I still have in the clean energy fund portfolio. It would be an exception for me to invest a long ways out of my proximity; only because of my interest of being engaged in the company. But I will make exceptions and have made exceptions for companies in other locations, just because I thought that the company and the business proposition was so compelling.”
“I believe that angel investors need to be part of the ecosystem. They shouldn’t just invest and walk away.”
“I believe that angel investors need to be part of the ecosystem. They shouldn’t just invest and walk away,” Susan said. By really giving of themselves, of their time and effort to help the company, they’re helping themselves in the long term because they’re strengthening their investment by partnering with the entrepreneur, she added.
“I love those types of angel investors, and so I have a tendency to focus in on them as what I believe are the great angel investors out there.”
“Presentations are meant to be a sales pitch and you need to get down to the specifics. You really need to analyze the market yourself, you need to do the diligence, and you need to talk to prospective customers.”
When it comes to managing risk, Susan stresses that angel investors must do deep, thorough, and objective due diligence.
“You should not invest just because, ‘Oh, I really like that presentation. That sounds fun,’” she said. “Presentations are meant to be sales pitches and you need to get down to the specifics. You really need to analyze the market yourself, you need to do the diligence, and you need to talk to prospective customers.”
This is where the angel investor must take charge and do the due diligence themselves in order to find out what the real opportunity is for the company. Sound angel investments simply cannot be made any other way, she argued.
“Due diligence is entirely about identifying what the risks are for the company, and then asking how that company is going to mitigate or eliminate that risk through milestones that they accomplish as the company grows.”
“Many, many times you find risks that are possibly insurmountable, and you should not make an investment if that’s the case. Due diligence is entirely about identifying what the risks are for the company, and then asking how that company is going to mitigate or eliminate that risk through milestones that they accomplish as the company grows. It’s as simple as that, but it’s highly complicated trying to identify what those risks are, and how they are going to overcome them. That’s what you have to go through. It is work, and sometimes people just don’t want to do that level of work. It’s not something that they’re interested in doing or they don’t feel that they can.
“You really do have to learn how read and understand financial statements. A lot of effort goes into it. I spend a lot of time teaching angels how to understand these attributes of the diligence process. Understanding how to do that really well comes from years of experience of having made good decisions, bad decisions, and learning from others as well. It’s an extended process of learning how to be a really good investor.
“I enjoy teaching that as well. I get a lot of joy out of being with other young, new angel investors or entrepreneurs and helping them better understand how you identify a great company, and how you build a great company. I find that really rewarding. That’s why I enjoy teaching at the University of Washington.”
“For aspiring angels my advice is to learn: read up, take classes, whatever way you learn best, but you should also join an angel group. Don’t invest right away, but observe. Participate on diligence teams, watch things, and really absorb and learn by doing. I don’t recommend that they just dive in and start investing, because I don’t think you’re going to be very happy with the outcome. Some people get lucky, but most people don’t. If you talk to now-savvy, experienced angel investors they almost always say, ‘Boy, I wish I knew then what I know now. I would never have made that first investment or the first five investments I made.’
“It’s really important to have that background, both from learning your individual passions, but also just the experience of doing it. I think that hands-on experience learning is quite invaluable.”
When seeking investment from investors of any kind, Susan advises that it’s all about learning what your audience wants, and entrepreneurs’ first audience is investors. Entrepreneurs need to figure out what is it that investors are looking for, while understanding that it is more than just their technology that builds a great company. These are just some of the lessons Susan teaches in her course at the University of Washington. The lack of market or bad market timing are the two top reasons why companies fail, she said.
“It doesn’t matter whether it’s an Internet app, Internet of Things, or a medical device. You need to understand what it is the market’s looking for.”
“It’s not the case of something going wrong with the technology or the wrong team. Success has much more to do with the market and whether you’ve hit it right on with what the market wants. That’s why I believe a lot in the process that is espoused in “The Lean Startup”[inaudible 00:32:43] that you need to test against the market. It doesn’t matter whether it’s an Internet app, Internet of Things, or a medical device. You need to understand what it is the market’s looking for. I train entrepreneurs in understanding how to present their financials, and building sound financials off of a sound business model for their particular company, how to grow their team, how to do all of those things.
“It is very complex both to create a successful company and also to invest in the right company. You have to understand how to be able to do both things and all the nuances. Many things come through experience and going through the cycle many times. You just can’t get it any other way.”
Susan recommends that any entrepreneurs who would like to get in touch with her should do so through the Seattle Angel Fund.