Latest / The SmallBizChat with Melinda Emerson / Angel Investing and Access to Funding with Brooke Daniels

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Angel Investing and Access to Funding with Brooke Daniels · The SmallBizChat with Melinda Emerson

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  I think also after testing the market, so actually piloting, getting a minimum viable
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  product out there, making sure your customers are gonna pay for what you want, after you've
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  done some of that led work to set a strategy, build your business model, test what your pilot
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  with your customer.
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  I think at that point, you're ready to really pursue funding.
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  Maybe a little bit in those early days, but it should be light until you kinda take that
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  milestone.
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  You're like, yep.
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  I've got my past minimal viable product.
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  Customers are gonna pay for this.
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  I know how much runway I need, and now I'm ready to think about how to actually get that
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  funding.
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  0 ignition, liftoff.
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  Ending small business failure.
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  Welcome to the small biz chat podcast with the number one small business expert, Melinda
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  Emerson.
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  Melinda's goal is to end small business failure.
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  And she'll give you the information you need to succeed and live the life you dream of.
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  Now here's your host, the small biz chat lady herself, Melinda Emerson.
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  Hi, everybody.
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  I'm Melinda Emerson, the small biz lady.
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  America's number one small business expert.
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  And it's my pleasure to welcome you to another episode of the small biz chat podcast.
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  We have an amazing show for you tonight.
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  Now my guests here are going to give us the insight on all the different funding options
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  for your business, whether you're a startup or you're ready to scale.
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  Now if you think that you're ready to pursue investment for your business, you're gonna
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  wanna hear from my expert who is an angel investor.
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  She's gonna give you her tips for knowing when you are actually ready.
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  Now, here on the small business chat podcast, Our mission is to end small business failure.
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  This show is for you.
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  I bring in top experts who give advice from multiple angles all with the mission to take
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  your business to the next level.
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  Now, hopefully, you're joining us watching the small biz chat pockets from my YouTube channel
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  or my Facebook page.
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  And as always, if you hear something great, Leave us a comment better yet.
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  Subscribe to my channel so that you never miss another episode of the small business chat
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  podcast.
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  So with that, it is time for me to introduce my guest Brooke Daniels.
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  She has over a decade of experience in tech startups and venture capital, and she's the
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  director of the Salesforce Ventures and CEO of Daniels and co.
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  A business strategy firm supporting entrepreneurs focused on maximizing profit and
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  scalability.
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  Looks passion is supporting entrepreneurs and stemming business failure with her signature
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  ready and launch system, which helps level up enterprises from start up to season companies.
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  She's held corporate roles at Salesforce, NTAP AT and T and BMW Financial Services.
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  For more information, head over to the Brooke Daniels, dotcom.
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  Brooke, welcome to the small business chat podcast.
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  Hello, Melinda.
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  I'm excited to be here tonight.
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  Alright.
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  So I gotta understand your back story.
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  I I wanna hear how it is you went, you know, you you built an an entrepreneurial business
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  yourself and have become an angel investor.
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  Absolutely.
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  My, original background starts as a broadcaster stumbled into tech.
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  So I actually went abroad to Germany and instead of pursuing broadcast fell in love with
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  technology, which brought me to being an operator of startup companies.
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  And from there, had a really incredible journey, Melinda, working at high growth
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  startup companies like NTAP, pivoted to Salesforce, but my husband and I have always
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  had an entrepreneurial bug.
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  And so even working in corporate, I've always been an entrepreneur trying to innovate, find
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  ways to continue to improve, bring new businesses to life markets.
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  And my husband and I started with, a food truck in our twenties, He's a chef, and so he had a
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  food truck called street Spice in Charlotte.
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  Everyone asked what kind of food is it.
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  It was international street food was the theme.
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  So we did really cool internationally themed sliders, and then the rest is kinda history
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  from there.
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  We've had several businesses, after that e commerce business, We now have a business
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  helping entrepreneurs access business credit, which I know we'll touch on a little bit later.
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  But then beyond that, I wanted to also kind of help tackle the funding gap for women and for
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  founders of color.
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  We know it exists less than 2% of the funding.
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  And venture capital goes to women and founders of color.
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  And so I just saw it as a place where I could have a really tremendous impact.
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  And that brought me into venture capital and angel investing.
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  So we could write more checks honestly to the founders that needed the most.
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  So why do you think that access to funding is so important for business owners?
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  It is crucial for business owners.
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  And it's funny because I think sometimes as a small business owner, we feel like the rules
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  are different for us than for larger companies.
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  But if you look at any large company, I don't care if it's Facebook, Amazon, Finty, for
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  example, is also a VC backed company, which a lot of people don't realize, it takes money to
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  make money.
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  And too often, I think, small business owners feel like we can just use, personal capital to
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  get us through, but we're not seeing what our needs are across the horizon.
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  And I think something like 48 percent of businesses go out of business in the 1st 5
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  years.
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  And a large reason for that is, lack of access to capital.
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  Or just simply running out of capital.
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  Alright.
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  So are you suggesting that people shouldn't bootstrap?
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  I don't know that people think that they should only boost your app, but I think it ends up
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  being people's option.
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  I mean, it's like you're you're I I tell people all the time, the money to start your business
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  most likely is gonna come from your right or your left pocket.
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  Right?
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  So what I wanna understand from you do you feel like any business could get investor funding?
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  Absolutely.
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  You can get investor funding.
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  Make no mistakes, though, that you have to have a certain type of business, I think, to get
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  venture capital funding.
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  Venture capital is not for everyone, but I think when people think about bootstrapping, we
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  should widen what we think of that falls under bootstrapping.
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  I think at first, we think bootstrapping is personal cash, right, drain my savings account.
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  I'm going to my 41 k.
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  Maybe I'm taking out a second mortgage on my home is bootstrapping.
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  And there are so many other ways to bootstrap, like business credit, which I can dive into
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  now, if you'd like, we'll lend her a little bit later.
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  But
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  Let's go there.
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  Let's go there.
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  Let's go there.
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  It could be about business credit.
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  Okay.
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  I should bring up my savings account, bro.
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  Okay.
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  Tell me where I should go to get this money.
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  Listen, we have to talk about business credit.
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  Our caveat to say there are other free ways that you can get money.
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  Right?
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  So you can pursue grants, which are very attractive.
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  Right?
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  You can do bridge competitions, which sometimes will get you non dilutive funding.
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  If you win.
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  But business credit is also is always there if you are just taking on, debt financing.
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  And the magic of it, Melinda, is that with business credit, as you use it and access it,
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  true business credit does not actually sit on your personal credit report.
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  So let me say that again.
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  Let's say you go out and get, and there's different types of business credit, but in a
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  simplest form, let's say that you need a $20,000 start for your business and you get
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  that on a business credit card.
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  Unlike personal credit where if you use that 20,000, it's gonna plummet your credit score,
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  right, because your utilization is gonna be high.
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  Your ability to continue to access capital goes away because your utilization's so high and it
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  drops your score, whereas business credit, you can actually use that card for business
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  expenses doesn't show up on your personal credit report, doesn't slow you down.
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  And over time, you can build actual business credit where you're not having to be a personal
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  guarantee, guarantor on, on any of the money that you borrow.
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  And so there's a whole process we take founders through to understand that from Is your LLC
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  structured the right way?
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  1, do you have an LLC?
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  Because if you don't, when you start there and get you in an LLC, then we go through making
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  sure you are showing up legitimate to a business.
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  So no cell phone numbers on your, your business information.
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  We're not using home addresses.
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  We're not using atgmail.com, but we're really showing up as a credible business.
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  Then we establish your business credit reports, which are critical because people don't realize
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  this, but you actually don't have a business credit report the same way you have a personal
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  credit report.
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  It doesn't naturally exist.
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  There are steps you have to take to generate it, but once we go through those steps, then
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  your business credit can stand on its own.
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  But you'd be amazed at how much you're able to access and tap into responsibly, as you need it
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  for for business credit.
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  So I'm a huge proponent for that.
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  So you think someone straight out the box can get business credit, like pre launch or, you
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  know, 1st 6 months in business?
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  You could.
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  I don't recommend thinking straight about funding, usually if you are you kinda have to
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  already have your foundation and strategy in place.
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  And so if I meet an entrepreneur who has to be a great, great idea, but if they don't have a
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  great business yet, a natural business model where they know how they're gonna make revenue,
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  We've done some work to estimate cost.
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  We actually know how much money you need, right, to give you the runway to grow your
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  business.
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  At that point, you can start to consider funding.
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  I think also after testing the market, so actually piloting, getting a minimum viable
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  product out there, making sure your customers are gonna pay for what you want, after you've
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  done some of that led work to set a strategy, build your business model, test what your pilot
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  with your customer.
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  I think at that point, you're ready to really pursue funding.
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  Maybe a little bit in those early days, but it should be light until you kinda take that
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  milestone.
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  You're like, yep.
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  I've got my past minimal viable product.
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  Customers are gonna pay for this.
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  I know how much runway I need, and now I'm ready to think about how to actually get that
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  funding.
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  Yeah.
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  But you're talking about, to me, a 12 to 18 month time frame, but but let me let me push on
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  you one more time, though, because I wanna say, so your first funding, your first, like, I'm
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  ready to quit my job.
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  I'm thinking about it.
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  I got this business I wanna sue that first funding where you go get that.
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  I would normally tell people a CDFI or community development financial institution,
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  but What would you say?
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  CDFIs are great.
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  I'm glad you brought that up, Melinda.
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  But, you know, CDFIs don't work for everyone.
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  I think you have to be in, like an underserved area to be able to qualify for those.
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  So it matters where your business exists.
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  To be able to tap into the CDFI.
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  You can, it's a maturity curve.
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  I know you're looking for a yes or a right or wrong answer Melinda, but is a maturity curve.
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  You can tap into business credit pretty pretty soon once we take those steps I mentioned to
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  get yourself set up the right way.
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  You do need an LLC.
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  You can personal guarantee for some of your first business funding very, very easy, but,
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  you have to have strong personal credit.
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  And so that's why we actually do a lot of financial education with people around how to
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  build personal credit.
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  It's not enough if your personal credit is clean, meaning there's nothing negative on it,
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  but you don't have credit.
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  You actually have to have lines and have built your personal credit, which you can do to tap
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  into business funding.
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  But if you're coming in and you've already got, you know, 680, 700, or higher, personal credit
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  score, your utilization is under 10% or can be, within a given time frame.
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  Then you're in a position where you can access business credit once your LLC is, appropriately
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  set up.
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  So let's switch gears.
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  I wanna talk to you about Angel investing versus venture capital.
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  Can you describe for us the difference between that in your world?
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  Absolutely.
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  They are very, very closely related but different.
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  And so if you think about the overall venture capital model, It really is around investing in
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  high promising startup companies that are rapidly growing.
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  So we're looking at growing 2 x3 plus a year for at least the 1st 3 to 5 years, really high
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  high growth, high market caps.
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  So thinking you have to have a business that your revenue is gonna grow to at least
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  500,000,000, a 1,000,000,000 or so to be a VC back of a business.
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  And angel investing, I think, still tends to play by a lot of those same rules, maybe
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  slightly different, but it still exists to have a return for your investors, but angel
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  investing is more of an individual investor.
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  And so rather than working with a VC fund, that's gonna have pretty particular rules on
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  how they think about investments, where they invest.
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  It's usually a vote based on, multiple partner votes Angel Investing can be a little bit
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  friendlier to founders, especially when you're earlier.
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  So when that friends and family round, I know a lot of people in certain communities don't have
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  a friends and family around to be able to raise, they can go to angel investors, to do
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  that.
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  And so my husband and I, we angel invest through a group called the table coalition.
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  I sit on the investment committee there.
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  It's actually a group that's made up, specifically of Black and Latinx investors.
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  Taking up space on cap tables, and we work to fill those allocations.
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  But it's intentionally set up to be friendly where you can, as an investor, donate as little
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  as $1000 in some cases, $5000, but could be super, super helpful to the founder.
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  And then some angels will write checks directly.
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  So if you're just looking for 5000 here, 10,000 there.
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  When you're very, very early, angel investing can be a good a good place to go.
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  So you mentioned earlier that it is really tough.
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  For women and people of color to get access to this money, angel investors, venture capital.
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  Do you see that getting any better?
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  You know, post George Floyd, you know, I I see a lot of programs talking about Black Moon
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  entrepreneurs, but, you know, what's the real deal?
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  Like, are people getting more acts as to funding these days?
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  I do think it's getting better slowly.
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  I hate to say that it is getting better slowly because Honestly, Melinda, 5 years ago, no one
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  was talking about, supporting black woman investors specifically.
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  All of these emerging fund managers that you see that are popping up to specifically support
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  these groups didn't exist.
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  Right?
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  It's been a surge in the last 5 years and definitely in the last two and a half years
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  since George Floyd.
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  So it is difficult despite that it is still very, very difficult because I think It's it's
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  a small amount.
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  It's under, I think, 2% of the money flows to women and founders of colors a very, very tiny
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  amount.
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  It's because the networks are small, But I tell founders not to give up hope because they're,
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  1, if you have a great viable business, you can absolutely raise.
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  It may take you longer.
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  To do it, but you can absolutely do it, so don't give up, but definitely play a networking
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  game.
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  It is around getting people to the right.
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  Places, make sure you're pitching to funds that are interested in what you actually do, and not
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  pitching to funds that don't even invest in that area, and really building relationships
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  you can pull on help you navigate BC.
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  Well, all of this advice is great, Brooke.
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  Now I actually had the opportunity to be on a panel recently with Arlene Hamilton, who you
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  know is is a top venture capitalist, and she's invested 20,000,000 in 200 businesses.
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  And when we were on the stage together, she made a comment that she is looking for
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  businesses that are hungry, not thirsty.
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  And I was curious as to when you consider businesses that approach you, you know, what is
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  your stance on how people need to come for you if they're interested in really getting you to
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  write a check?
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  I I love that hungry, not thirsty is the way to describe it.
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  And I I would definitely agree.
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  You know, I, again, I meet fans a lot who have great ideas but they've yet to tell me how it's
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  going to be a great business.
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  And, again, angels are investing not just to support the founder, but are investing to also
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  see a return on their money.
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  And so you gotta tell me how it's like a business.
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  And so, again, I think a lot of founders may be where I don't wanna put words in in, Arlin's
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  mouth, but the thirstiness to me kind of comes from feeling like you're ready to raise and not
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  understanding when you maybe have more work to do.
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  And so for me as an angel, I tend to look for companies that have some product work at fit.
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  In the ideation stage, there are definitely resources I can provide intros I can make and
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  really help you kinda navigate that piece.
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  But I'm usually looking for companies that have already done some work to at least get a couple
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  of customers in their space to prove it out, for me personally.
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  I don't know that a lot of a lot of angels invest in the ideation stage.
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  Some do.
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  But, generally, you've gotta really get out there and get a couple of, customers on your
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  belt.
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  And so for me, that's the difference between hungry, which is passionate about an idea,
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  dedicated, smart, motivated.
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  I know that I'm gonna go out and achieve this, and being thirsty, which is almost desperate,
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  when you're not really in position that I understand how I'm gonna get my money back as
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  an angel.
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  Like, as an investor, people invest to get their money back.
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  And so I think for me, that's the difference is your approach and where you are, in terms of
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  the investor feeling like, are you ready or not?
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  Are you asking for money prematurely?
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  Well, let me let me ask you about another form of fundraising that I've seen got hot, and I
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  think it's cooled off.
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  And that's crowd funding.
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  Is crowdfunding still something, worth pursuing?
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  Do you see a lot of African American business owners really being successful with that?
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  I do.
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  I think crowdfunding is viable, and the regulations continue to get friendlier towards
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  crowd funding.
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  So I actually think we'll see an expansion of it.
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  I think at this point, you can raise up to 5,000,000, crowdfunded from nonaccredited
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  investors before you have to raise from accredited investors.
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  That distinction is really huge because, you know, a credit investor is defined as, I
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  believe, someone that, has a a 1,000,000 plus in network makes 200,000 a year, looking back
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  over 2 to 3 years or works in some area where they would have, a in-depth understanding of
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  securities.
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  And so to be able to raise 5,000,000 from people that don't qualify as a credit is
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  tremendous.
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  So I love crowdfunding.
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  There's some good ones out there.
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  Most people are familiar with Kickstarter.
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  Fundable.
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  Their seed invest.
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  We fund a ton out there, but I think they're also very, very viable, especially if you've
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  got something that you're raising money for.
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  That's easy for a consumer or someone to understand and be like, this is really cool.
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  I wanna put money in here.
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  Mhmm.
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  But I do know that the average crowdfunding campaign only generate $10,000.
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  So I do realize that if you get that hot product, definitely, you can go up to 5,000,000
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  but most people don't.
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  And so I tell people all the time.
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  It's a great way to get distracted from running your business.
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  So unless you really know what you're doing, and you have a really shrewd marketing plan and
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  some people who have done it successfully on your team.
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  It's a hard thing to do.
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  And it and it might just be better for you to go out and actually pursue customers as opposed
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  to doing it.
• 19:18
  Alright, Brooke.
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  We've gotta wrap this up.
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  So tell me, what is the best business advice you have ever been given.
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  Oh, that's a good one.
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  I would say maybe not this is gonna sound cliche, but not being afraid to fail and move
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  on.
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  I think sometimes as business owners, when we fail, we beat ourselves up.
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  We feel really bad about it.
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  We lost money.
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  Right?
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  Usually, the mistake has some money to it.
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  We fall really down, really.
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  You know, and sometimes when you fall down, you can lose your confidence, lose your ego.
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  You can even get desperate, right, by taking those punches.
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  And the advice to me was like, don't beat yourself up.
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  You're actually stronger by failing.
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  There are some VCs out there and investors in general that would rather invest in a second
• 20:05
  time founder who failed the first time than a first time founder because of all the things
• 20:10
  you you just have to learn by doing it yourself.
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  And so for me getting some of that energy to just pick myself back up, not be ashamed, admit
• 20:18
  that I've made mistakes where we have lost money for the business.
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  Totally happens to all of us.
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  But being able to kinda own that and say, what can I take away from?
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  And then how can I move forward was just good advice to me, which I would share to anybody
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  out there?
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  There's nothing to be embarrassed about.
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  Makes you a lot stronger.
• 20:34
  Oh, yeah.
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  I I believe that you, you know, you don't lose.
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  You, you know, some of the lessons just get to be more expensive than others for for sure.
• 20:41
  Well, listen, Brooke, thank you so much for being with me.
• 20:44
  If you guys want more information about how she helps small businesses go to the
• 20:48
  brookdaniels.com And if you're interested in learning about what kind of boss you might be,
• 20:55
  head over to boss quiz.com.
• 20:58
  It's not a quiz.
• 20:59
  It's actually gonna give you a twelve page business assessment about what is gonna be the
• 21:03
  right type of business for you.
• 21:06
  I'm Melinda Emerson, the small biz lady, and I'm so glad that you spent time with me on the
• 21:12
  small biz chat podcast.
• 21:13
  I will leave you with this.
• 21:14
  You never lose in business.
• 21:16
  Either you win or you won't.
• 21:18
  God bless everybody.
• 21:22
  Thanks for listening to the Small Biz chat podcast with Melinda Emerson.
• 21:27
  Subscribe to this podcast, wherever you listen to podcasts and join us next Wednesday for more
• 21:32
  fantastic information and interviews.
• 21:35
  You can find more sources and small business success strategies by visiting Melinda's
• 21:40
  website succeed as your own boss dot com.
• 21:43
  Thanks again for listening, and we'll see you next week.