#15 When Can a Horrible Credit Record Be a Positive? Alicia Syrett on Founders Investing in Their Own Businesses

Alicia: It's an industry where it's a positive to have a horrible credit record.

Kelly: I'm Kelly Hoey, host of BroadMic. I speak with the most accomplished entrepreneurs, investors, and thought leaders about the issues that matter in building a business. You will get the inspiration as well as the picks and shovels you need to become a better entrepreneur. Be inspired. Take action. Think Broad. My guest today is Alicia Syrett, founder and CEO of Pantegrion Capital, an Angel investment vehicle focused on seed and early-stage investments. Alicia is a member of several Angel networks, including New York Angels. Today we're going to chat about how she became an Angel, what she looks for in founders, and practical advice for those Angels and founders that are listening. Welcome, Alicia.

Alicia: Thanks for having me.

Kelly: So tell us about your background and what was the impetus to become an Angel investor?

Alicia: My background was mainly in the financial services world. I spent 10-plus years in private equity and hedge funds, some of the largest funds out there. And more recently I had been the first employee and CEO of what we grew into a multi-billion dollar private equity firm. And that sounds glamorous, but the truth was it was a startup in every way, shape, and form. I joined as the first employee. We launched simultaneously in New York, London, Mumbai, and Hong Kong. We had 60 employees in the first 6 months and so I was figuring out anything and everything that we had to do to get the firm going. What is D&O insurance? Signing leases in different offices. Raising money for the fund. Even okaying coffeemakers in the offices. So it was really like drinking from a fire hose.

But what I found was once the firm became steady-state, I was sitting in my nice, corner office with my title and everything and I just thought, "You know, it's not as much fun anymore. The fun part was the journey." And just by happenstance, I went to see a panel on Angel investing and I heard some prominent people talking about why they were Angels and they said, "Look, if you've been an entrepreneur, you can really help other entrepreneurs. If you do it right, you can make money and also no matter what's going on in the broader economy, there's always a growth industry in the Angel world." And I thought, "That's it. That is my next step."

So I took some time off to travel and decompress. But then when I came back, that's when I started Pantegrion, which is basically a vehicle for my own Angel investments. And it's been upwards of five years since, but that's what's prompted it. It was the entrepreneurial journey and the desire to stay close to the startup world but maybe not live all the craziness that I lived before. So it's kind of the best of both worlds for me.

Kelly: There's something nice about taking the phone calls when dealing with and mentoring the startup founders when they're having that hellish day, but not actually living it yourself.

Alicia: Exactly. Exactly. And the little bit more variety, too. It's a little bit easier to work with a schedule now than it used to be.

Kelly: So what, in your mind, is the skill set required to be a good Angel investor?

Alicia: Well, it depends on the person. It's really giving whatever you do best to those entrepreneurs. There are some people who are really great at making connections. Above all else, that's probably one of the biggest ways that Angels can help. But a lot of times, it's just being an ear and talking through issues with people. It's walking through financials. It's just the desire to be helpful and to give your best to the company in whatever skill set you have. That's probably the key thing.

Kelly: So anyone, I'm going to say...my background was as a lawyer and startup accelerator, you were in financial services...but really someone could be an executive in consumer packaged goods.

Alicia: Sure.

Kelly: There's not like, "Oh, gee, you have to have this skill set to be..."

Alicia: No, not at all. And there are so many similarities amongst companies. Even if you're talking about a company in life sciences versus a company in the consumer field, you still have core areas, like marketing, like sales, like finance, operations, and those things don't really change. So if you've worked in a company or you've started a company or if you've worked in a law firm, whatever the case is, you've probably had exposure to those core areas and can help in some way. If not with those functions, strategically and just talking through issues with people, giving an outside perspective.

Kelly: Yeah, being a good sounding board.

Alicia: Yes.

Kelly: So what excites you about Angel investing?

Alicia: So I love learning. I'm a voracious reader. I love helping people. I love hearing about the next new thing. I love digging in and making an introduction or doing something that really can help change the trajectory of a firm. I find that really fulfilling.

Kelly: Let's get some practical advice here. As we have talked about money and Lord knows every startup thinks that money is going to solve all their problems. But big picture, what's your typical advice of when you would say to someone when should they start really thinking about raising money?

Alicia: Sure. Well, there are a couple of things I say on this front. One is, when you think about what goes into a pitch deck, the competitive advantage, description, the traction you have to date, the team, all of these basic criteria that investors judge you on, you should go to investors when you feel like you truly stand out in all of these areas because it is a competitive game. You are pitching and trying to get their attention versus 10 other startups the morning of a New York Angels screening.

So one is just being honest with yourself, saying, "Okay, do I have something really compelling to tell in a story about the team that I've already built, about revenues I've generated, or users I have, or partnerships I have? Can I really speak honestly about a strong competitive advantage I have? Have I thought through all the drivers of revenues? Do I have a really strong sense of sales and marketing and how to build the company from here?" And if you really feel, on a relative basis, you're an attractive company versus what else they're seeing then, yeah, that's part of it.

And then the other thing I think, too, certainly matters is if you have some momentum in your raise. If you have advisors that have committed to fund you, too, or maybe a lead investor and there's some sense of scarcity in your round and you're pulling everything together, that's a great time, too. So those are some considerations, but it really is a personal judgment that the entrepreneur has to make about their relative competitiveness and also being really honest with themselves about how they're going to spend the money in the best way and be a really good steward of the person's capital.

Kelly: Do you want to expand on that last little thought for a minute? A lot of entrepreneurs forget that one. We're investors. We're not wealth transfer agents.

Alicia: Well, I'd like to know that if someone is using funds raised for sales and marketing, for example, that they've already tested how they're getting users or generating revenue. So they can tell you, "Okay, well, if I put this much into Facebook ads, this is the result. And so if I allocate more of this raise towards that, here are the revenues that I expect," or, "I have a backlog of orders that I'd like to fill and if I were able to add this person on the team, that we could execute five more orders and this is the revenue that we would generate."

A very clear sense of, "If we take in funds, this is what we'll generate," versus saying, "I have this idea and I think it could potentially pan out and I'm going to test it when I have the money and we're going to see if there is a business there." Really more towards accelerating the growth once you've already figured out the formula that works versus saying, "I'm going to use this money to test it and see if I have a business here."

Kelly: You can do that on your own money or off your own parent's couch...

Alicia: Hopefully, yeah.

Kelly: ...not investor money. So we're talking about you as an Angel investor. And you're syndicating deals obviously with venture capitalists. Just for anyone who doesn't know, what are the key differences between the various levels of funding, between friends and family, Angel, and venture?

Alicia: So friends and family, as you might imagine, are the first group of people that come in and they're usually giving money to the entrepreneur because they truly believe in the person. And so they may not know all the details of the business but they believe in the individual and they're willing to put their money where their mouth is and hopefully help them work out that business model, find out the product market fit.

By the time an entrepreneur reaches an Angel group, they have likely figured out the product market fit and they have some momentum going, they've got their story down pat, and they need the money to supercharge the growth. And Angels, as you know, because you're in the same game with me, Angels are certainly in it to make money but oftentimes they're investing because they also feel like they have a higher purpose. And that is because they find helping entrepreneurs really fulfilling and maybe they want to give back to the next generation or maybe they really love staying in touch with the industry after they've retired. Whatever the case may be, it's usually that kind of dual purpose of really enjoying it and looking to make money, too.

By the time the venture capitalists come in...and of course this fudges a little bit along the way because some venture capitalists obviously invest alongside Angels and some Angels invest later stage, too...but by the time the venture capitalists come in, they are really there to write much larger checks and to really supercharge the growth and they are serving their LPs, they are focused on helping the entrepreneurs to make money for their fund, and that's really the primary concern for them.

Kelly: Have you seen a difference in companies coming and pitching? What I'm getting at is, you've really focused on companies should be coming to pitch Angels when they have some momentum. And is that something you have always seen or...because I'm thinking are we saying that because it's 2016 and some of the glow is off early stage with crazy valuations and other things and funding somebody else's development is not what we Angels are necessarily after?

Alicia: Yeah, it's probably part of that but the bigger issue is just how much cheaper it is to start a company now versus the way that it used to be. If I'm an entrepreneur, I could take out, I don't know, 20-something thousand in credit card debt and get money from family and you can go a long way in launching a company nowadays with that kind of money versus 10 years ago.

And knowing that that's a possibility and that any entrepreneur out there could conceivably take out some personal debt or get some money and really get a website up and get some orders in place...if you're able to do that now, then it sets the bar that much higher for what you really need to accomplish by the time you make it to an Angel group. And I really think that's probably the main reason is that as the cost to launch a company come down, the expectations for what you should accomplish before you get outside money go up.

Kelly: Good advice. And I'm going to say if you see an entrepreneur who's not prepared to max out their credit cards and tap their own network for some cash, is a warning flag.

Alicia: It's an industry where it's a positive to have a horrible credit record. You can have a fantastic exit of $100 million-plus and you can have a horrible FICO score whatever, that's an okay thing in this field.

Kelly: What's your view on companies that come to you that have had successful crowdfunding? Is that positive or questionable with you with respect to how they funded their company or their product to date?

Alicia: So I personally love it. That is my own opinion. One of my portfolio companies, Willa, led by Christy Prunier, raised over a million on Circle Up and the company [inaudible 00:12:31] I mentioned earlier, she also did a crowdfunding campaign, a rewards-based campaign. I love it for a number of reasons. I love it because especially for consumer businesses, you are putting the word out there. It is a marketing campaign. And so that gives me a lot of insight into the entrepreneur.

I also love it because they get so much customer feedback in the process that it allows them to really tweak their product and offering before they ask for outside money. So I'm a huge fan of it, again especially for consumer businesses because it is a fantastic way to learn, a fantastic way to market the product and reduce the risk, kind of de-risk the investment for outside investors because we look at it and we're like, "Okay, you've demonstrated demand. This isn't hypothetical anymore. You've had X thousands of people buy your product in this campaign and you've been able to leverage your network to get the word out. Bravo. That's fantastic." So I'm a huge fan.

Kelly: Good to know. So knowing that we've sat in the hot seats together at Power Pitch and knowing that you are there at every pitch session at New York Angels, what is your guidance to entrepreneurs on successful pitches?

Alicia: Well, there's a number of things. Some of them are obvious and some other ones are kind of pet peeves, don't do this. I would definitely say practice, practice, practice. And practice to the point where you just feel really comfortable doing it and you've knocked away any nervousness. Practice also in front of other people that know nothing about the business and be prepared to field questions. So practice in front of people that throw things at you, like totally out of left field, and so you get used to that feeling, too, and you're confident when you do it.

If you have a co-founder with you, don't argue in front of the crowd. It sounds obvious, but you see that all the time where there's just no coordination on who answers what question. So get into a rhythm with your co-founders. Don't make some of the obvious mistakes like saying that there's no competition or saying, "Oh, if we only get 1% of this huge market, then we'll be billionaires." Those kind of naïve statements are things to watch out for or not citing the appropriate market size statistic for your business.

So what I mean by that...I wrote an article about this in particular...is some people will say, "Oh, the travel industry is a $100 billion industry and this is what we're playing in," and I'm like, "Well, if you're an app and you're just directing people to cheap flights, that's really not the size of your market unless you're starting the new Delta. Your market is probably a smaller subset of that, where it's the marketing spend that you're trying to attract from the airlines." That's still a big market, but just being very honest about the number.

So those are some of the things that I would say and some of the other tips I would say is don't be afraid to throw an ask into your pitch. If you're looking for advisors and if you think that there are strategic ways that an Angel group can help you, throw that in there because that might be a hook that pulls people in to say, "Oh, okay. Well, you need this and let's talk about that." That might be a really nice way to start a relationship. And then other than that, keep the pitch deck 10 to 15 slides. No need for a 30 page deck. People are just going to stop 10 slides in. The rest is superfluous. And make sure that you cover all the points that should be in a classic pitch deck.

I think that one of my frustrations...and again I'm maybe a little OCD about this...I use what should be in the pitch deck as my checklist when I go through it. And so if I don't see someone address key areas like the financials or how they are going to market a company, I come to the conclusion that either they don't think that's important, which is not a great conclusion to come upon, or that they didn't know that it should be in there and neither answer really sits well with you. So just making sure that it's concise, it's bullet-pointed, it's comprehensive, you know it back and forth, you've been through the trenches in answering questions, you and your teammates have a flow together, and you're pulling people in with the story and hopefully starting the relationship to see how they can help you out. Those are the big things that come to mind.

Kelly: So just to educate people about the New York Angels process, from pitching to investment decision, how long does that typically take?

Alicia: Well, the answer that everyone hates hearing, it depends. But I'll tell you what it depends on. So first of all, I would say on average it could take a few weeks and it could take multiple months. And what it really does depend on is a lot relative to the entrepreneur. So if the entrepreneur is a serial entrepreneur, they've done it before, the process will go a lot faster as you know, because they're prepared, they know exactly what documents to throw into DropBox and when investors are like, "So what's your analysis here," they're like, "And here's the link." That makes it so much easier.

But if you haven't been through the process before, those diligence requests take a lot longer. If you don't have the relationships from before, building those relationships take a lot longer. And then there are things that are outside of an entrepreneur's control. So for example, depending on when you pitch during the year, it could take longer. A lot of people don't know that Angel groups don't meet in August and they kind of fall into a few funding cycles during the year. September to December. January to March. April through July. And so if you're starting in the middle of one of those processes, so if entrepreneurs don't know that we don't meet in August, then it just takes them a lot longer because they're figuring that out.

Another big thing is to focus locally on Angels that are nearby. If you don't know that and you're spending a lot of time chasing a big name in Silicon Valley if you're based here or otherwise, maybe it works out, but a lot of times starting locally is what makes a lot of sense. Or just even doing the research on the people in the group and figuring out who's a fit, who's not, and so you're chasing the right people. All of those things will either shorten your time-frame for a raise or elongate it if you're really not familiar with how that plays into it.

Kelly: It's almost one of those things, so many entrepreneurs just want to get the process started when they realize if they spent the time in the research beforehand, they'll speed up the process. And thinking go in cold and create a false sense of urgency and just get that time to pitch, it's not going to speed things up.

Alicia: No. No, it's not at all. And investors see through that because they see hundreds and hundreds of companies. So if someone's like, "Well, if you don't get in now, the raise is going to go on without you," they're like, "Okay." Because we hear that a lot. So that false sense of urgency I just wouldn't recommend. You have to just really be honest and put your best foot forward and do your research. There's no shortcuts to that.

Kelly: So the other thing other than "it depends" that entrepreneurs hate hearing...

Alicia: But I always tell you what it depends on. I will always tell you the factors.

Kelly: All right, because I know you're going to be able to answer this then. What makes an entrepreneur coachable?

Alicia: What makes an entrepreneur coachable is their ability to listen, to process the information, and give a thoughtful response back. And that doesn't mean that they have to agree with you. They absolutely can disagree, but you feel as though they're coachable if you're being heard, if they've processed what you've said, they give you some really high quality feedback, and then they make the best decision for the company. It's that feeling. There's a mutual level of respect here. We've had a dialogue. You've taken this information into account and I trust you because we've hashed through all the info.

Kelly: Now New York Angels, some people might be under the impression that it's just a bunch of the boys, which is not the case. There are women in that group. But predominantly men, so like a lot of Angel groups, female founders having to come in and convince the guys, what's your guidance for female founders who are walking into situations and not the situation where you're having to convince them that, "Hey, I can be the CEO of a company," but they're pitching, I want to say, a product, a service that is predominantly for the female market? Because you have to do it as an Angel. How do you sway the guys over to see that this is a massive opportunity?

Alicia: Traction, traction, traction. Let the numbers speak for themselves. And no matter what business you are pitching, if you can come in and say, "Look at this amazing user growth. Look at the revenues that I've generated. Look at the partnerships that I've formed with major companies," to some extent, it doesn't really matter whether they get the intricacies of the business, but that kind of traction speaks for itself. So that's what you really have to focus on, is getting those metrics together and showing that there is something there and that if they dig in further, they can understand it and you're going to get them on board, but there's something special going on here and the numbers prove it.

Kelly: So tell us about MentHER NYC. What's that initiative and how did that all come about?

Alicia: So MentHER, capital H-E-R, NYC is an event and it came together probably six months or so ago. I was thinking to myself about how there's no methodical way to source companies. So like we talked about earlier, how do you get in touch with me? "Oh, I'm at these events and I'm at New York Angels and people are referring companies to me," but that to me is not as systematic as I would like it to be. You know the whole adage, "If you want advice, ask for money. If you want money, ask for advice." Well, this is all about giving women advice. It's all about advice, but the real goal is to get more women funded in New York City and to really bolster diversity in the ecosystem here.

So how do we do that? Well, I have 55-plus investors, people I know personally, and we're going to have a fireside chat in the morning with Melissa Lee of CNBC and there's a lot to learn from her about how she's built her own brand, certainly in an industry that can be very tough and she's a smart cookie. So that'll be good. We also have a panel of really prominent press professionals to give the women tips on getting press. We also have some what I call role models, a very diverse panel of women who've already raised a million-plus who can give tips.

Diana, we talked about earlier, of [inaudible 00:23:31], she raised money when she was pregnant. But that's a great story to talk about, how you deal with that. And then we'll also have some investors give advice and here's the kicker, is that we have the CNBC Power Pitch crew. The representatives are going to be on-site so we can try to fast-track some of these women entrepreneurs to get national coverage. And so they're going to be there and they're going to be just talking to people.

And so even though I said it's not a pitch event, if the women choose to, they can give their one minute pitch and try to get on TV. But the goal again is that we want people to really start relationships with these potential investors, whether it's for fundraisers in the future, forming advisory boards, and also meeting the other entrepreneurs. So that's the big thing that we really want to provide them. And again the eventual goal is to get more women funded.

Kelly: And what is that website?

Alicia: So it's mentherNYC.monarq.co.

Kelly: Fantastic.

Alicia: And on the website, you can request an invite as an entrepreneur. And if you're an investor, even though we have a wait list going for investors now...we're already filled to capacity on that and we're just starting to spread the word to entrepreneurs soon...we would love to record all of the interests for future events. So part of this is, even if we somehow cannot pull you into this event, we are going to try to find a way to help this community. And we'll see where it goes but I think the whole goal is we've got to help this community and hopefully we'll do that through facilitating these relationships being built and coming full circle, really coming to give them advice.

And that is really so much more valuable than money, even though they probably don't think that's true. What they can learn from a lot of these people who have been in the trenches and seen tons and tons of different startups and share that wisdom with them, I'm hoping that really changes the whole community. I'm hoping it bolsters all the diversity here.

Kelly: I'm gunning for it. Counting on you to make it happen.

Alicia: It's the master plan.

Kelly: All right, so we're going to get our Pay It Forward. This is when I'm going to ask you the questions I ask every guest. So we're going to do this rapid fire. So here we go. What are your primary sources of information?

Alicia: So I read voraciously, like I said. I am all over Feedly. I have 25-plus different feeds going in that. I'm on Twitter every day with 500 some odd people I follow. I follow the LinkedIn feed and I listen to hours of podcasts every day. So I'm listservs, everything. I'm all over everything.

Kelly: Fits in with your OCD on the due diligence. How do you discover new information?

Alicia: In all of those methods. yeah.

Kelly: What book are you reading?

Alicia: Well, I was going through all the Pulitzer Prize books written by women and was on "The Yearling" and then I stopped to start writing a book. So I'm halfway through that.

Kelly: All right.

Alicia: I'll come back to that.

Kelly: We'll come back to that one, for sure. Do you have any rituals or habits you swear by?

Alicia: I write everything down. Every time I have an idea. And I hold myself accountable every day to complete at least eight discrete tasks.

Kelly: Wow. We're going to have to talk about that in a future podcast, too. Who are the entrepreneurs or leaders you would follow and admire most?

Alicia: Angela Merkel, Christine Lagarde, and Melinda Gates.

Kelly: That answer makes me very happy. What is the best advice you've ever received?

Alicia: My stepdad once told me that it is easier to pull someone down off the ladder than to climb up it yourself. And I love that because it just reminds me not to criticize other people and also not to take criticism too personally and just to keep climbing. Just stay on my journey. Stay focused.

Kelly: Keep climbing, I love it. Are there any particular myths that you would like to dispel for our listeners?

Alicia: Well, for entrepreneurs there's this myth that a check comes after the first pitch or a first meeting. And again it really comes down to building relationships, so don't sit down for coffee and expect someone to pull out their checkbook at the end of it. Look to build the relationship because it's numerous points of meeting that usually wind up resulting in a check.

Kelly: I really hope we dispel that myth. What words of advice would you give to listeners about taking risks and closing the confidence gap?

Alicia: I am a huge fan of a few different things. As women, I feel like we are incredibly powerful. So using that charm and laughter to our best advantage. I'm a huge fan of power posing and also not marginalizing yourself in where you sit at meetings. Go right for the middle of the table.

Kelly: What does Think Broad mean to you?

Alicia: To me it means to constantly have the best interests of women in your mind in all your interactions. So thinking about recommending them all the time, thinking about helping them all the time, supporting them with your dollars and your spend behind women-led companies, investing in them, thinking about them in all of your actions and in the way that you spend your money so that you are consistently following your values with how you live your life.

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