by Jim Verdonik, Innovate Capital Law — August 28, 2019 .
Editor’s note: Jim Verdonik and Benji Jones, co-founders of Innovate Capital Law, are regular contributors to WRAL TechWire.
RESEARCH TRIANGLE PARK – xElle, a new venture capital investment and networking group featuring women only, launches today in the Triangle.
In a Q&A, founders Robbie Hardy and Benji Jones talk about the new venture.
Robbie is a successful software entrepreneur who sold her company and later consulted for the Kauffman Foundation – America’s leading entrepreneur think tank and support institution. She has also been an active angel investor for many years. Benji Jones is one of North Carolina’s most experienced securities lawyers and is the co-founder of Innovate Capital Law. She is also my business partner.
Are you two xElle’s mangers?
HARDY: Not at all, there are 15 founders of xElle Ventures; Benji and I are just two of them. We have all been working on this project since March and are officially launching this month. xElle is a network of smart women investors who want to support and invest in the great opportunities women entrepreneurs offer.
JONES: Membership is by invitation only. We currently have our 15 founder members and we have a list of 80+ potential members. On August 29th we are having an iniital information session for these women.
That’s a big number of potential investors. How did that happen?
HARDY: The story sold itself. Each of the founders shared the opportunity with friends and colleagues and before we knew it, we had a large number of interested women. Our list keeps growing. This shows how far we have come.
It’s hard to believe it’s been 19 years since I tried to form a women’s angel fund with the goal of expanding the role of women in startup investing, my timing was premature for a women’s angel fund. Ultimately this project morphed into a successful angel fund, BUT with only 6 women investors.
I am passionate about empowering women and building a women’s angel group has always been on my bucket list – so here we are 19 years later with xElle Ventures
JONES: We also have a more vibrant business community to pull from. There are more successful women decision makers than there were at the turn of the Century. For example, thanks to Frances Bobbie, the financial advisory firm Baird is sponsoring our first information meeting. They recognize that women investors are a huge opportunity. So, our success is a combination of enthusiasm from our network and the financial power of women.
What makes xElle different from other angel groups?
HARDY: The simple story is probably that all our members are women, both experienced angel investors as well as women who have never done any angel investing. We want to expand the universe of women angels. We will invest in the ideas, products and services of women. But, our membership and investment criteria just scratches the surface of how xElle differs from other investment groups. Our membership and portfolio criteria open the door to new ways of angel investing.
JONES: I’ll be disappointed if all we do is put a skirt on the same old way of investing in private businesses. That works in some situations and not in others. The exciting part of what we are doing is that we are writing new rules on a clean slate. If that works as well as we plan, we’ll be happy to teach the guys how to do the same thing.
Can you provide some examples of your different investing approach?
HARDY: One example is that xElle will be making loans instead of buying equity. Most angel investing mirrors the venture capital model of buying equity in many businesses in the hope that one or or two will generate 10x the investment. The others either fail or drift along without generating an investment return. That’s a legitimate investing approach. We are just choosing another path.
JONES: There are other important implications to this investment strategy. Only 1% to 3% of businesses are legitimate candidates to generate 10X returns. Most business can’t possibly grow fast enough to achieve that kind of investment return. The rest have been shut out of the capital raising world, but that doesn’t mean they aren’t great businesses. They are just being ignored.
Can you give me some examples?
HARDY: When I was a software entrepreneur, I produced good returns for my investors. We didn’t become Google or Facebook, but investors can increase their wealth by investing in a series of good businesses instead of chasing Unicorns.
JONES: The 10x investing model is based on technology and biomedical company investing. When you abandon the 10x investing model, all of a sudden your world expands to consumer products and service companies.
Are there any other benefits to making loans rather than equity investments?
HARDY: One big advantage is that we don’t have to value the company. Is the company worth $1 million? $2 million? $5 million? Who really knows? Negotiating value when there are no objective standards creates unnecessary impediments to doing deals. So, we eliminate that issue.
JONES: We also don’t have to worry about the founder’s exit strategy. The traditional angel investing system is built for serial entrepreneurs who build businesses for the purpose of selling them and then move on to their next idea. That’s great. These are creative productive people. Many of them are my clients. But they are a small percentage of the population. Lots more people want to run their business for decades. They may even pass it to their children. Selling the business isn’t their priority.
Is the focus on women ideological or is there a business reason?
HARDY: It’s both. There is no doubt that our members want to help other women, but we think focusing on women owned businesses makes investment sense. Some of the advantage men have over women in raising capital is the attraction to invest in those who look like “us”. Another is simply not understanding market opportunities that make total sense to women.
JONES: Women have a lot of purchasing power. Women entrepreneurs sometimes waste a lot of time and effort trying to explain to men why women consumers would spend more for a new product compared an existing product that may look the same to a guy. Some guys eventually “get it,” but pitching the same business concept to a group of women investors is going to be an easier sell if women understand the product.
HARDY: Our investment thesis is that for many reasons not enough capital is chasing women owned businesses. First of all we are passionate about investing in women and also where others don’t invest represents an investment opportunity for xElle.
JONES: Many business opportunities involve filling a gap that other market players have ignored. Investing in women owned businesses is just another example of that proven market dynamic.
What do you say to men who want xElle to invest in their businesses?
HARDY and JONES: Hire women into positions that can influence the success of your business and give them an equity stake. Then, we’ll take a look at your business.
We’re not anti-men. Some of our best friends are men. We just think that businesses that empower women to make positive contributions is the right thing to do.
What stage businesses are you targeting and how much do you plan to invest?
HARDY: We plan to invest in startups and early-stage businesses located in North Carolina that are seeking to raise $20,000 to $100,000. We are industry agnostic, because great investment opportunities are not limited to any single industry.
JONES: Businesses we invest in also have to be coachable. Most of our members are very experienced professionals who are willing to mentor these businesses by providing advice and introductions to their extensive networks. So, in many cases we will be investing time as well as money.
Is that enough money for the businesses you invest in?
HARDY: The short answer in many cases is No. But we don’t think xElle is the only capital source our portfolio companies can tap into. We think we’ll make a major impact by helping these businesses grow to the point where they are attractive to other investors. We believe that after our portfolio companies start growing other angel groups will see the light and co-invest in them – either with more loans or equity investments.
JONES: xElle might be North Carolina first women’s investor network, but I doubt it will be the last. We intend to be collaborative and help women in other areas form their own networks. I’ll personally be disappointed if a year from now there aren’t similar networks in Wilmington, the Triad and Charlotte. That will increase our deal making power.
That sounds like the beginning of a movement.
HARDY: We prefer to call it a tribe and right now our founder tribe has women from Wilmington to the Triad – a tribe of bold, brave women who have each other’s back.
What do you have to do to become a member of this tribe?
HARDY: Our membership criteria are simple: We want women who have experience they can share with the group to evaluate investment opportunities. They also have to be accredited investors. I’ve been in a lot of angel meetings. We don’t want “know-it-all’s” who are rude and condescending to entrepreneurs and who alienate the other members. Our goal is to make xElle both profitable and fun.
What kind of fun?
JONES: Well, we might be the only local angel group that has its own signature cocktail. Its designed to promote creativity and give tribe members greater self-confidence.
Can you share the recipe?
JONES: No. It’s for tribe members only. Sorry, dude.
You heard it hear first. Coming soon to your neighborhood – women investors with a checkbook in one hand and a signature cocktail in the other.
If you want to learn more check out https://www.xelleventures.com, or contact Robbie Hardy and Benji Jones at firstname.lastname@example.org and Benji@InnovateCapitalLaw.com.