Let’s Talk Angel Investing: A First-Gen Latina's Guide

The term “angel investor” originated in the Broadway theatrical world since plays were often financed by wealthy individuals, according to Investopedia.

Welcome

Hi, Future Angel Investor! If your first thought after reading that sentence is: What is an angel investor? Keep reading. I wrote this blog post for you.

I’ll share with you my understanding of angel investing, what is an angel investor, as well as why you might want to become one – like what are the benefits? What are the risks?!

My name is Cecilia Hernandez, a first-gen Latina VC analyst at Kapwa Capital, and a part of my job is to share the knowledge that’s been gatekept so that we can help more people who are from underserved communities become angel investors and access generational wealth.

Setting Expectations

I wrote this blog post with the goal of briefly introducing angel investing. It’s meant to be a start, where I share the knowledge I’ve acquired thus far in my fellowships, but it’s only a start. I aimed to include some buzzwords I heard seasoned investors use in conversation, as well as their meanings. Each week, we will dive deeper into core concepts, elaborate on hot topics, and we’re excited to share it with you. Without further ado…

What is Angel Investing?

It’s when an accredited individual provides capital (i.e. money) to a small business or a startup in exchange for equity (i.e. a portion of the business).

As an angel investor, you’re one of the first people to invest in a business idea or at the earliest stages of a company. This means you will likely use one of the following to invest:

A Convertible note – this is a debt instrument (i.e. a financial contract that represents a debt owed by one party to another) that can be converted into equity under certain conditions, such as at the maturity date of the note or when the company reaches a specific valuation (i.e. the estimated worth of the business).
A Simple Agreement for Future Equity (SAFE) – this is a simpler investment contract that directly promises equity in the future, without the complexities of debt instruments. They often convert according to a specified valuation cap or at a discount when a company goes on to raise a priced round, but they don't involve interest or maturity dates.

In essence, SAFEs are a more streamlined alternative to traditional convertible notes.

So then an Angel Investor is …

An accredited individual with the money they’d like to invest. Historically, with the huge advantage given to them by society, rich white men were the main trend of angel investors. About 87.6% of angel investors are white, and 77.9% identify as male, according to findings documented in the Angel Capital Association’s report.

Knowing our U.S. history, these findings are logical to me; white males had the high-net-worth, the ability to take huge risks, and were provided with mentorship and support from their network, who were also skilled investors and/or knew about angel investing.

Here at Kapwa Capital, we aim to democratize access to venture capital with educational content and community to increase the number of diverse angel investors who invest in companies founded by people from underserved communities (you know, sharing the knowledge because knowledge = power!).

Some Benefits of Angel Investing are

Potentially life-changing! Assuming that the business does well and their valuation increases, your equity stake (i.e. the portion of the business that you bought as part of your investment) increases in value. Assuming, again, that the business does so well that the founders can execute their exit strategy (i.e. process of either selling or going public), an angel investor can then sell their shares for a huge profit.

You can make bank – like Steve Jobs’ angel investors did when Apple dominated the tech world. Take Mike Markkula, one of Apple’s earliest investors, who invested $250,000 for a one-third stake in Apple. If he had held onto his shares, they’d be worth $1 Trillion today. Imagine if you had bought an early stake in Apple… *cries in Spanish*

Now, I mentioned the word “assuming” twice, and there’s a reason for that. Keep reading to learn why.

What are the Risks?

Fair warning: Angel investing has a huge-risk, high-reward nature. You’ll invest with the hopes of gaining a high ROI (i.e. return of investment), but there are so many variables at play. Sometimes, for several reasons and more often than not, a business fails. If it does, as an angel investor, you’ll lose your capital.

Angel investing is a long-term game, with patience and flexibility being key characteristics to have as an angel investor. A way to try to mitigate risk is through an angel syndicate (i.e. a community of angel investors who share deal flow or co-invest). However, even with joining a syndicate, you will still need to conduct your own due diligence (i.e. process of FBI-ing that business) – to ensure you’d like to invest. We will cover this hot topic in later blog posts.

How Can I Become an Angel Investor?

That’s an excellent question – one that we’ll partially explore now, and then dive deeper in upcoming blogs. For now, generally, you should start by:

Assessing your financial situation by asking yourself

Am I an accredited investor?
Am I comfortable with the high-risk, high-reward nature of angel investing?
Do I have the time to conduct due diligence, monitor my investment, and provide mentorship?
Do I have a substantial net worth to invest, or at a stage in my life where I have money I’d like to start investing?

Almost in parallel to step 1, start:

Gaining knowledge and educating yourself

Follow an angel investing blog series to help you grow your knowledge on angel investing.
Learn about startups by attending conferences and workshops that focus on supporting startup founders. For example, organizations like TechRise by P33, Matter, mHUB, and 1871 frequently facilitate events centered on highlighting local startups in Chicago.
Consider joining an angel syndicate to receive mentorship, deal flow and create community with other angel investors with similar goals as you.

Once you do those three actionable items in step 2, you’ll naturally start …

Building your network where you’ll connect with entrepreneurs and other investors. You can also leverage your existing network to tap into your professional and social connections.

Next Steps

You might have guessed, after reading this blog, that your career in angel investing is primarily built on networking. Personally, networking is still daunting to me – and I say this as someone who sourced and evaluated 40+ startups during her VC Fellowship at Chicago:Blend.

The way I see it, networking is just another word that means finding your tribe, the people with similar goals as you, and with whom you’ll build a community. Angel investing is a highly rewarding experience, one that is best when you have a community to offer you guidance and mentorship.

My call to action for you, Future Angel Investor, is to continue educating yourself and finding your tribe. One easy way is by following Kapwa Capital on LinkedIn, X, and Instagram (shameless plug - tehe), where we share golden nuggets of wisdom all about angel investing. Talk soon!

Gracias

Thank you for reading the second blog post in the “Empowering Diverse Angels” blog series with Kapwa Capital, where we share hot topics in angel investing every week.

We’d love to hear your thoughts – any reactions or recommendations for the next hot topic we should cover? Email us at hello@kapwacapital.com

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