Angel Investing 101: Don’t Just Use Tech — Own It

Welcome to angel investing. One on one for black folks. How to go from tech owners to tech consumers. Now, you should know that the first part of this title is kind of a misnomer. This video is going to be about 30 minutes long, and that's not quite enough time to teach you all about angel investing. But what I will try to do is have you all realize that angel investing is an excellent way to to build wealth, gain influence and leverage in an industry that black folks are very underrepresented in right now, even though we're the biggest users of it. And that's tech. My name is Abdul. I have about 25 years experience working in tech, working my way up from a coder all the way to executive at some of the biggest companies in the U.S. in 2022, I retired from corporate tech and started investing in tech startups full time. So I just said black folks are the biggest users in tech now, even though we're the biggest users in tech. And when I say biggest users, I mean we spend about $150 billion every year on digital products and services. Our engagement rates on these tech platforms and digital platforms are 30% higher than the next closest demographic. And black folks, 90% of black folks in the US have a subscription to a streaming service. So when I say we're the biggest users, these are the numbers I'm talking about. So even though we're the biggest users, we have very minimum ownership. Venture, the venture capital industry, which are the big huge companies that invest in tech companies, that is a $77 billion industry, means $77 billion every year is invested by these venture capital firms into various tech companies. In the US the angel investing market is 24 billion. Angel investing is when a person just like you or me takes their personal money and invests in startups. That's big too. $24 billion of investment happens in that space in the US every single year. Now in venture capital, only 5% of the people involved in that industry partner specifically are black. Only 5% in the angel investing market, only 2%. That's it. Now, that may not seem like a big deal, but it's a huge deal because that means black folks aren't participating in the ownership of all this technology that's affecting our everyday lives. And it's important because if we don't have ownership, we don't have influence. So what do I mean by that? So ownership is super important. There are three main things that ownership in these tech companies can give us. When I say us, I mean black folks number One is influence. It gives us influence and voice. Now why is it such a big deal that only 5% of black folks are working in these venture capital firms and only 2% of black folks are involved in the angel investing market? It's because these venture capital investors, most times they're the ones pulling the strings behind the scenes at these companies. They pump huge amount of monies in these companies and they need them to do well. So they do have influence. They can influence the decisions that these companies make. They can influence the types of products that they make, they can influence how those products work. All different kind of things that they can influence with these products that affect us in our daily lives. Now when most people think about big startups, they think about the superstar founders, entrepreneurs like Mark Zuckerberg or Elon Musk and guys like that. But all those guys had investors. All those guys, companies were invested in by venture capital funds and angel investors. And along the way, I guarantee you that these venture capital funds exerted influence in terms of how those companies operated and how they, how their, their, their products operated. Even Mark Zuckerberg almost got kicked out of his company. He fought and he was able to kind of save himself. And then he changed some voting rights so that couldn't happen again. But this is what happens, because these huge investors have power and influence because of the amount of money that they invested and that. And so that means with 5% and 2% participation for black folks, we're not leveraging enough influence in these rooms. And that is a big deal because ownership has power. So let's talk about some of the power that ownership provides. Number one, influence. As I said before, investors become shareholders that have voting rights. They can determine company direction, they can determine who makes up the board for companies, and they can help influence major decisions. So your voice matters in these boardrooms, where products are being developed and talked about that can affect our communities, your communities, every day. The second one is wealth building. Over the past 15 years, tech companies have created more wealth than any other sector. Real estate, crypto, name it, tech investing has outperformed all of them over the past 15 years. When you participate in ownership in these tech companies, that allows you to participate in that wealth growth. And that basically fuels wealth building versus fueling consumption. The other thing that ownership gets you is access. And in networks, when you have investments in these companies, it opens doors to other networks because it's a very network heavy industry. It opens doors to information, you know, kind of behind the scenes information that you couldn't get anyplace else. And you can use that information for other investments in some cases, and even help your career. And so the access and networks can help a bunch of different ways. Why does any of this matter? It matters because the technology decisions being made today in those boardrooms, in those offices, shape the future of economic opportunity for all of us. A few examples of that is the AI revolution happening right now. Every time you look up, somebody's talking about AI, right? AI, along with other digital transformations, are completely reshaping industries. And without ownership, our communities are being risked, are at risk of being left behind. So the AI revolution is transforming healthcare, finance, education, all that stuff directly impacts our community. And if we don't have any ownership in any of that stuff, then of course we don't have any say on how that impacts our community. Financial innovation, fintech companies, financial technology companies are completely changing how we do stuff in our life, changing how we bank, changing how we invest, changing how we build wealth. And so who decides how those tools serve underrepresented communities? Do you want to be able to help decide that or do you want to leave that to them? Right. Also, the future of work, you know, since the pandemic, work from home is very common, but technology is what's driving and shaping how people work. Working remotely really couldn't happen the way it is right now without technology, without the companies giving us the tools that allow us to be productive at home. So that's remote work. Then you have gig economy platforms, automation, all these different things that help determine how jobs are available and what jobs are available, and economic mobility for lots of folks. So if it's not us shaping these sectors, who is it? I'm sure you can guess who it is. I'm sure you can guess. I'm sure everybody can guess, right? Here's what's shaping it. Overwhelmingly, right? And this is, this has come. This is not a surprise, right? This can be a surprise. But the venture capital industry is very homogenous, right? 82% of the partners of venture capital are white men. 82%, 11% are white females. Then you got 3% that are black folks. Then you got 2% Tino, and 2% other. So black and brown investors make up less than 5% of all the decision makers in these industry. In this industry. And those decision makers are producing products that you use every single day. That affects your life every single day, that affects how you work every single day. So they're influencing all that stuff, and it's affecting you every single day. So that lack of representation Also impact what companies get invested in. Who you think all these white male venture capital partners are investing in. They're invested in white male businesses. White male businesses, overwhelmingly. Not even white female businesses. White male businesses. So that means if you not a white male, your chances of getting funding for your business from a venture capital fund is like this big. And so that's underrepresentation of founders. That's why it's so hard for black communities, tech startups, to get investment. That's venture capital. So let's look at the angel industry, which I said was what, 25 billion a year? Surprise, surprise. 79% of people participating in the angel investing industry are white males. 16% white females, even less. For Mac folks, just 1%. 1% for Latino, so black and brown, just 2%. Total 2%. 77 million in venture capital investment. About 25 million in angel investment. That is a. I'm sorry, billion. That is $100 billion of investment where black folks have just a sliver of. Of participation in a tiny, tiny slice less than 5%. That severe lack of representation directly affects who gets money for their businesses, what those businesses build and how that stuff affects people. And we're not in the rooms helping make those decisions because we are not investors. That's the world we're living in now. But it doesn't have to be that way. It does not have to stay this way. Because all of y' all can do angel investing. You don't even realize you can do it, but you can do it. You can participate as an angel investor and you can help influence some of these products that are being developed. You can help influence how these products affect you and your community. So how do you do that? There are really four steps of angel investing. The first one is you got to find deals. That's the first. That's the first thing. You got to find something to invest in. Then you have to evaluate it. You got to find it. Then you got to make sure that is good, good enough to invest in. The second thing you gotta do is you gotta structure and negotiate the deal. Once you find it, you gotta figure out how you gonna make the investment and how much investment you wanna make. Then the third step is you actually make the investment and then you manage it. The last step is that you exit, which is that's when the company sells or gets bought or whatever. That's how you cash out at a high level. Those are the four steps of angel investing. So how do you get started doing that? The first thing you got to do is get educated. You got to learn about it. Learn more about what it is. Learn more about how to do it. Educate yourself. First, YouTube, some books. There's a, There's a book that I. That I've read twice in. Unbelievably. I can't remember the name of the book right now, but it's by a famous angel investor named Jason. I'll put his name in the comments. His book is how he turned $100,000 into $100 million. That was, that was the title of his book, Educate Yourself. The other thing is you can join investment groups. There are investment groups out there, and the purpose of those investment groups is to help people understand how to do angel investing as well as work together to find companies to invest in, do the research on those companies and then invest in them. So they work together to do that. That's called an angel syndicate. In my opinion, that's one of the best ways to get started because the work is split between the different people in the group. And you're not doing everything by yourself. And your investment minimums are a lot less because you're kind of doing it together. It's my favorite way to do angel investing. For most folks, the third path is you can invest directly into a startup yourself. That means you're doing all the work yourself. That means you got to find it yourself. You do the research yourself to figure out if it's a good deal. You do, you do negotiation yourself. And then, you know, you do everything yourself, which can be done. That's how it started. That's how the industry started. People just doing that kind of stuff. And it can be done. I think when you're doing it by yourself, you know, I think that's a higher level of angel investing is normally reserved for more experienced investors. Just from the knowledge perspective, but also from the financial perspective. If you're investing in a company and you're going solo doing it, you know, you can't write a thousand dollar check. That's. That's not going to do any good. If you're investing in a decent, legit company that's looking to do some real things, more than likely you're gonna have to be cutting like a $25,000 check. So you definitely can do it. And lots and lots and lots and lots. Millions of people do it. I did it. That's how I did it. When I first got started, the very first check I wrote to an investment was $25,000. That's how I got started. So people do it all the time. If you got that kind of loot, you got that kind of time, that's a good route to go. The other route is becoming an LP in a venture capital fund. So let me break that down a little bit. First of all, a venture capital fund is ran by a professional investment company that invests in startups for a living. That's what the company does. That's their business. That's how they make their money. They have a big pool of money, and they take from that money and they invest in tech companies. Now, how do they get that big pool of money? They get that big pool of money from a collection of investors. And if you have enough money, you can be one of those investors. The biggest benefit of becoming an investor or LP in a venture capital fund is that you don't have to do any work. You just invest in the fund. And that fund does all the work. They find the deals, they research the deals. You know, they invest in the deals, they manage the deals, they do every single thing. So an option 4 is completely hands off. You just invest and it's completely hands off, and you're done until you get your payout. That's the upside. The downside is it takes a lot of money to invest in a venture capital fund. I run a venture capital fund. Minimum investments when I was raising my fund was a hundred thousand dollars. So if you want to be an investor, investor in my fund, you had to give me $100,000. Not at one time. You had to commit $200,000, and I would take that over four installments. So $25,000 chunks until we got to $100,000, but the commitment was for 100. We just broke that into four chunks. So if you got the big money like that, then that's another great way to go, because again, it's completely hands off. You get instant exposure to a bunch of different startup companies, because that's what the fund does. They invest in a bunch of different startup companies. And that's a very kind of straightforward way to go. But, you know, at 100 grand a pop, most folks can't do that. A lot of folks can, but most folks cannot. So those are the four paths to tech ownership, the four most common and most reputable paths. There are some more sketchy ways to do it, but they're sketchy. These are the more reputable, solid, dependable, legal, good ways to do it. Now, some of y' all may be entrepreneurs out there, some of y' all may be founders. I want to talk to y' all for A second. Just for a second. Because founders, I know how y' all are, right? I've started and sold a couple of companies myself, so I know exactly how it is. I know what your focus is. Your focus is growing that business. But hear me out for a second. I think founders, entrepreneurs are or can be great angel investors because you are uniquely positioned in, in these ecosystems. You can use your expertise as an entrepreneur to spot other good startups, maybe in, you know, industries related to yours. Not direct competition, obviously, but industries related to yours or adjacent to yours. If you're an entrepreneur, I guarantee you, you know other entrepreneurs and they know other entrepreneurs. So you can use your already existing network to find other companies to invest in. Also, because you are an entrepreneur yourself, maybe you can advise other companies with maybe entrepreneurs that may not be as advanced as you are, and maybe you can be an advisor to them and you can take some equity as payment for that. So I tell entrepreneurs all the time, I know you focus on your business, your baby, but you can make a great angel investor if you just kind of wrap your mind around investing in somebody else's business with a little bit of your disposable income. So think about that for a second because it's real. So now I'm talking back to everybody again, any and everybody. So we talked about power and influence as a benefit to being a tech investor, but there's also. There's also the financial returns, obviously, because we all need money. We all want money. Let me tell you how this works. When you're early investor, when you're angel investor, this is kind of a company's life cycle as they're raising money. Back here is very early. This is where angel investors invest very, very early in the company's life cycle. And as we go right to the chart, the company is older, more mature. And as you can see, these are different rounds of investment. A Series A is around for kind of like, you know, companies that are still young but not new. I call this like the kind of teenage age for companies. And then your Series B, our companies are even more mature, they're bigger. They have established customers, established track record, established money, and they're growing and growing and growing. I call this kind of like the young adult stage for companies. And then Series B, you know, these are companies that are kind of like coming out of their 20s, right? They're adults, they're getting pretty mature, they're getting older, and they. They're pretty much know what they're doing, and they're kind of on a Roll. As you can see, the earlier you invest in a company, the more money you make. If you invest very early on, look at how much you can make. Average of 25% a year compared to when you wait to when a company goes public. After a company goes public, your returns are down to just 1.5%, right? 25% when you invest early, 15% a little later, down to 77% if you invest a little later, 3% even later, one and a half percent when the company goes public. Now keep in mind, regular folks, regular folks can invest here. These rounds. These companies are raising millions of dollars in individuals. Unless you happen to be a multimillionaire billionaire, individuals are not writing checks to invest in this phase, but individuals can definitely invest in this phase. And this is actually where you want to be because this is your biggest potential to make the most money. And let me tell you how this works. You may figure like, why would I do that? Why would I invest way here? People feel like they can just wait to a stock is on Robinhood and they start investing. That's what his IPO is when it's public. But by the time the stock gets on Robin Hood, all these folks have made their money already. As a matter of fact, let me tell you how this works. When a company goes public, when a stock is listed on a stock exchange, when you can finally buy it on your Robinhood app or whatever, Charles Schwab or whatever you buy your stocks from when they first list and they, they raise all this money, you know, billions of dollars, Guess where that money is going? That's coming in is going back to these folks, the early investors. So a company goes public, they raise all that money and they say, yeah, we raising this money to, to do more marketing, to grow, to build plants or whatever, whatever, whatever. And some of that may be true, but I guarantee you the number one reason why they're raising money is to pay back all these early investors. Because that is how it works. That's how it works. That is the benefit of becoming an angel investor. That is a benefit of owning tech. That is a benefit from upgrading yourself from just a consumer of tech, doing scrolling on your phone, all of the stuff that you're doing. That's consumer. You are a consumer of tech. When you're doing that, this is how you transition and upgrade from being just a consumer of tech to being an owner of tech. You become an angel investor and you invest here. That's what I'm talking about. That's what I'm talking. So what are the next steps. As I said, you want to educate yourself. That's the very first step. You want to educate yourself. YouTube. Another good book is Venture Deals by a guy named Bradfield. That's another good book joint. Online communities, communities that are focused on startup investing and stuff like that. Now, I will tell you, it ain't many black ones out there. I'm gonna be honest with y'. All. It's a few, but it ain't many. I run one. There are a few more out there, but most of the information that you gonna see, you know they ain't talking to you, right? That's why I'm doing what I'm doing. Because we need more folks like me talking to more folks like y'. All. So educate yourself. Start small. You can start small. Like I said, my first Angel Invest was 25 grand. But you don't have to go there. As a matter of fact, I recommend you do not do it that way. You know, I've made a lot of mistakes early in my investing career, and so I'm trying to help people not make those same mistakes. Start small. The best way to start small is to join an angel investing collective or syndicate. That is the best way because you can join with other folks that are investing, and that makes it so you can write a much, much, much smaller check, like even like a thousand dollars, two thousand dollars to get you started. Right? That's the way I recommend, because you can learn without risking a bunch of money. And it's just a much, much better way to do it. Network, meet people who are doing this, learn from them. Like I said, join local angel investing groups, attend startup events, and just kind of immerse yourself in the industry so you can kind of get a feel for how things operate, how things work. And then once you start to feel comfortable, then you can start doing more. Then you can start kind of scaling. That's what I would do. That's how I would do it. If I can do my investing career over, this is how I would start. So you all have a future as a tech owner, all of you. And I want you to realize that the tech industry needs your perspective, it needs your influence, and it needs your capital. Specifically, black owned companies need capital. The more black investors that are willing to invest in companies, particularly black companies, the better off we will be, because it's these black companies that are focused on doing things that help us, not hurt us for the most part. And I focus on giving or providing stuff that we need, that our communities need. Right? So owning tech builds wealth, builds power and leverage. And all those three things help shape our community's future. For those reasons, you all should be trying to make the transition from simply tech consumers to tech owners. That's it. That's all I got. Like and subscribe to. Get more like this and see you guys later.