Join us as we interview our guest – Kiki Tidwell – a prolific angel investor, philanthropist, and cleantech evangelist. Among her many activities, Kiki is also a Founding Member of the Tech Advisory Group for the Stanford Center for Human Rights and International Justice. More on Kiki here: https://humanrights.stanford.edu/people/kiki-tidwell
In this episode, we discuss how Kiki invests. Her process – starting from sourcing deal-flow, conducting diligence, evaluating the team and more. Kiki also shares her insights on success and failure and how to build a portfolio.
We must emphasize, as always, that investing in early stage, unproven startups, is a high risk activity. There is no exact science to evaluating these companies. These investments carry the risk of complete capital loss.
This is Propel(x) podcast, discussion on investing in all things startups. Startup investing is highly risky. Please listen carefully to the disclosures at the end of this podcast.
Swati Chaturvedi: Hey, this is Swati and this is the Propel(x) podcast. We have a very experienced angel with us today, who is our guest Kiki Tidwell. Kiki has been a longtime investor in clean tech among other things, and she’s also a Kauffman Fellow and has been an entrepreneur. She has a long background in investing and I’m eager to start with her. Welcome, Kiki.
Kiki Tidwell: Thank you, Swati
Swati Chaturvedi: So let’s get started. Just..to get you oriented, this podcast is targeted at early angels; people who are considering it or who are very early in the process. So tell us how you think about angel investing, how that fits into your portfolio as a whole.
Kiki Tidwell: Yes, I’ve thought about this a lot. I was one of the first angels ever accepted into the Kauffman Fellow’s venture capital training program as an angel investor. And I was mentored by Rob Wiltbank who has studied the returns in angel investing.
Swati Chaturvedi: The famous one?
Kiki Tidwell: Right..which angels actually make money. And..there are very specific things that an angel can do to tip the scales in your favor. And that is to join an angel group so that you’re sharing information and education and due diligence. So that’s investing in what you know…you know.. if you have a long career in say real estate, maybe there’s some aspect of real estate that you can invest in, that pertains to what you already know, and diversify in terms of ‘place a lot of bets.’ I think a problem that a lot of first-time angels like I did you know.. you put too much money in the first couple of companies because you get so convicted and you don’t realize that these companies can get hit from a lot of different directions, even if it’s a really great idea and a great team. You really want to have a portfolio of investments. And so how you would think about it in your overall net worth as a high net worth person is to just take maybe a small percentage of your portfolio, say 10%, and that’s going to be your angel bucket and you will invest that over a period of time through several different, maybe 12 investments, and not put all of that money into the first thing that sounds good.
Swati Chaturvedi: No, absolutely. So this is something that we have also been emphasizing, and I’m glad to hear you share similar numbers. We had said you should set aside 5% to 10% of your net worth to invest in alternatives and to diversify that over a minimum of 20 investments. So I’m glad that you are reinforcing that. Thank you for that. So let’s talk about how you got started in angel investing. Can you recall the first deal that you invested in and how you heard about it? Tell me the story of that.
Kiki Tidwell: Well, I think a lot of people get started in angel investing before they even call it angel investing because they’re tapped in friends or family around. And in my case, I was doing a lot of philanthropy and investing in businesses that actually grew to help the nonprofits that they were supporting. But I had a friend from the Seattle area who introduced me to a group called Keiretsu and then I came down to Boise and I saw pitch meetings and I saw these deals presented. At the same time, I was investing heavily in clean tech in general. And so.. I think one of the first investments that I made was in a startup wind farm company in Idaho, where they had prospected all the wind sites. And I wrote them a big check. Luckily that was one of my positive exits.
As well, I remember my first Keiretsu investment was something I didn’t know, but it sounded good. And I was lucky actually that the entrepreneur really performed and I got a positive exit off of that one eventually. But what was so interesting to me about that deal is that I think I put $5,000 into a follow on round and that $5,000 returned the whole return for me. You know.. so, there are all sorts of aspects of investing to know like, when do you follow on—good money or good money after bad or more good money after good? So it becomes a lot of education that you can get. But basically, angel investing is investing in people. Is this person going to do what they say they’re going to do? And do they have the skillsets and the team to execute, even if they have good intentions? And do they have enough capacity to attract a great team and lead them through those lean times?
Swati Chaturvedi: How do you judge that? That’s a very controversial topic because everyone has different opinions.
Kiki Tidwell: I look for grittiness. I look for that entrepreneur who will crawl through glass like a Bruce Willis in that movie, you know.. and do whatever it takes to make something happen or to pivot at the right time or dig deep and, and, find a different answer. You know..I’ve been in pitch meetings where one team member’s car didn’t start, and so they didn’t get to the meeting and I’m like there are taxis, Ubers, and buses. And that..I’m not investing in this company, you know?
Swati Chaturvedi: Yeah, getting to the meeting is a good start.
Kiki Tidwell: They were academics and they were doing a startup and they didn’t realize that you’ve got to really dig deep.
Swati Chaturvedi: Yeah. So we’ll probably go into this later. How do you determine grittiness? Because many people just meet for a few times and then you make the investment. It’s very hard to judge or maybe it depends on your experience. If there are any tips on how you determine it, I’d love for you to share.
Kiki Tidwell: Every company is different when you evaluate them. You can go through an intense checklist of due diligence and say, did they do this and this and this? But I think it’s really what the entrepreneurial team gives you in terms of their experience. Maybe they didn’t get into the college they wanted to and so they pivoted and they were able to get a scholarship and make opportunities somewhere else; those sort of histories.
Swati Chaturvedi: Understood. Well, that’s great. So you actually started with an angel group and that’s something that we’ve been telling our audience; join an angel group, how to source deals. So where else do you get deals from?
Kiki Tidwell: I belong to a couple of angel groups—first Keiretsu, and then I found Northwest Energy Angel, which was Clean-tech, only investing up in Seattle. It’s now called E8 Angels. That was wonderful to me because you can rely on other people’s experience; different.. one person was from a utility and knew the utility mindset, one person had built a company in cleantech and sold it and one person was an expert in storage and you really can rely on more than just your experience. I really believe in angel groups. I like the Propel(x) model because you have a community that’s larger than one geographic boundary. You have all these experts all over the U.S. or the world who are weighing in and saying, “Well you know..that battery storage company looks good, but there’s been 10 like it before, and this is why they hit the wall.”
Swati Chaturvedi: Thank you for that.
Kiki Tidwell: It’s really important.
Swati Chaturvedi: I can also speak highly of E8 Angels. I think they are very impressive.
Kiki Tidwell: Right..right.. they’re great. And being in a physical room is good but it takes a lot of bandwidths to get to meetings parking in this or that rate. So it’s really nice to have more of a streamlined online opportunity now where you get great deal flow. Propel(x) gets great deal flow from the labs and the universities. And you know … I’ve looked at companies that have tried to build their technology without that support system of a national lab or a university, and they’re up against such a uneven playing field. The resources that these labs have and the universities have are just amazing and you really want to get that top-level deal flow.
Swati Chaturvedi: Yeah. In fact, there was this research done by First Round capital where they came out with this idea that people that are affiliated with some of the top universities have been the most successful entrepreneurs. I think extrapolating from that, the reason is because of the network. It’s not like the people inherently are some superstars, it’s that they have this network behind them and resources. So that’s a valid point. I think that’s great. So that’s how you source your deal flows – online platforms as well as angel groups. How do you evaluate? But before I go there, you’ve mentioned a few times that you invest in cleantech. Why? Is it a passion of yours? Is it a life mission?
Kiki Tidwell: Yes, that is exactly what I’ve been doing is.. putting my money where my mouth is because I saw the first farmer in Idaho put up the first-ever net metering, a wind turbine in Idaho. And I called him up in early 2,000 and said, “How does this work for you?” he started talking about continuing jobs for his kids on the farm and the tax credits and how this was going to save them small farmer money. And you know … I just thought about all these small farm communities in Idaho that could seize this wave in renewable energy.
So I’ve been passionate on two tracks, you know..talking about renewable energy, advocating for it, and then also investing in it; you know..investing in wind farms, solar inverter companies, flow battery companies, you know …. and all sorts of technologies. So at the end of the day, not all of my angel investments are going to pay out because two out of 10 are going to be hits. But I’m going to have help to move the wave forward of clean technology. I’m going to be one drop of water in the ocean that helped move this wave of technology forward so we can have these solutions. And so that’s a lot better at the end of the day than you know..having wasted it on some miscellaneous app that didn’t quite succeed. At least I know that there was some carbon saved along the way, or there was some technology that moved.
Swati Chaturvedi: That’s very interesting that you are so mission-driven and it turns out a lot of the people who are angel investing are doing it for other than returns. So we had done actually a survey of all our angel investors. Of course, the number one reason why angel investors return is high returns but following very closely on the heels of it was that most people do it for reasons greater, to have an impact on the world that they live in. And you’ve chosen your field, which is cleantech and I think it’s really commendable. Thank you for that.
Kiki Tidwell: Oh, well it’s wonderful to be associated with these teams that are doing the hard work. I think one of my favorite companies is an entrepreneur out of the design school at Stanford who developed the pay as you go technology; the cell phone tone that powers the solar lights for pennies a day. Millions in developing countries have light and power for the first time off of this technology that she created in Stanford. And..what a wonderful ride that is to be alongside. They’ve gotten to raise their series B from Emerson Collective and they’re firing on all cylinders and they’re deploying and you know..lives are being changed and I’m just a little piece of that. How great and how wonderful that is to be a little piece of that.
Swati Chaturvedi: That’s great. So let’s come to the evaluation. When you..you talked about the team a little bit, you talked about the technology, but when you look at a company, what are the kind of other aspects you evaluated on? How do you make up your mind? How do you do your diligence?
Kiki Tidwell: Well, as I mentioned there’s a lot of things on the due diligence checklist. You learn over time the questions that you should have asked after you invest in a company that you learn you should have asked. Because every company has the question that is the major question. For every company, it’s different so there isn’t one due diligence question that you can ask. But you really want to make sure that this company isn’t going to run out of money before it can really start to get some traction. And you really want a passionate entrepreneur or entrepreneurial team that is going to, I guess..as I’ve mentioned, crawl through glass and dig deep. You want an idea, but you want more than just a good idea. You want…
Swati Chaturvedi: Action or traction.
Kiki Tidwell: Yes. Traction. How are they getting to this? One pitfall to be aware of is some entrepreneurs try to go in three directions at once. They try to do refrigeration batteries, but they also want to do escalators or something….efficient escalators. You just want to have one thing that drives you and you are going to execute it. There’s this great book called Founders at Work, and its older stories now of entrepreneurs who succeeded. They all had a very main similarity: They were passionate about their product. They just wanted to make the best product and solve the customer’s pain point. It just drove them to develop that product and be in touch with the customer and keep iterating and keep developing something that was just awesome. And all the rest of it was extraneous. They really had a passion about building something.
Swati Chaturvedi: That’s cool. So let’s talk about once you’ve invested. Do you stay updated on the companies? How often? What is your expectation in terms of how often the companies should update you? Are they going to be these audited financials or are they going to be bullet points or somewhere in between? Tell our audience a little bit about what really happens once you’ve made the investment?
Kiki Tidwell: Well, I think the job of an angel is to do whatever they can do to help this company besides dollars because our dollars are relatively little right.. in the scheme of things. And so can we make a connection for them personally that they may not already have in their rolodex, right? Can we introduce them to a new business opportunity that they may not have had before? And so, I only try to take on enough companies that I can help. That’s my personal style because I make myself available to do whatever the company needs. If the company is fine and they don’t want my help then great; go ahead. But let me know how I can help. Unfortunately, a lot of startup companies.. they go silent on their investors until they need more money. And if they had kept updating their investors and said, “Well, that was a win. Oh, well that was not the direction we should go in.” If we found out before they need the money—because if you keep involved in the storyline of a company, you’re much more likely to say, “Oh, here’s the next check.”
Swati Chaturvedi: Understood. So people should keep their investors updated. Understood. And tell us about exits: Give us some stories of some of the exits that you’ve had or not. Have you had positive returns or not so much? What’s your experience with that?
Kiki Tidwell: Yes, I have had exits and my little angel track record is better than some of the venture capital funds that I’ve been in.
Swati Chaturvedi: Why does that sound so familiar?
Well, you know, they’re using bigger dollars too really. Shoot for the fences, and I see that my job as an angel investor is more to help companies get to the next fundraising stage. And I really wished them well. But there’s a lot of things that can happen after an angel invests that are way beyond your control. You can, you can spend a gazillion hours with attorneys on the best term sheet and work it all out and then more money comes in after you and wipes that whole thing out. So you’re really investing in the entrepreneur who’s going to stick with you and, and give you a good seat at the table in the next couple of rounds.
Swati Chaturvedi: And did you have to review these term sheets even at the time of exit? Because I’ve heard these stories where people didn’t get, or the conversions didn’t have other pre-determined valuations and so on or people didn’t actually get the payout that they anticipated because whomever the buyer was negotiated terms that were not favorable and so on.
Kiki Tidwell: Right..there are a lot of onerous terms that can get thrown in there and liquidation preferences and all sorts of management fees that get stacked in at exits. And you’re really counting on the integrity of the entrepreneurs and I say the only lever that an angel has is before you write the check. That’s it. After you’ve written that check, you really have no influence. So you really have to pick your entrepreneurs well for their integrity and how you think they are going to treat you, right?
Swati Chaturvedi: Yeah. Understood. Well, okay. So that’s really helpful. That’s been a great conversation. You walked us through how you select deals, how you evaluate them, what you invest in and why you invest. I think those are all very important. So let’s wrap up for today. We had you talk for quite a bit. Thank you so much for your time.
Kiki Tidwell: Okay, thank you.
Disclaimer: Propel(x) is a funding platform, not a Broker-Dealer. Securities are offered through Hubble Investments, member FINRA/SIPC, and an affiliate of Propel(x). Private investments are highly illiquid and risky and are not suitable for all investors. Past performance is not indicative of future results. You should speak with your financial advisor, accountant, and/or attorney when evaluating private offerings. Neither Propel(x) nor Hubble Investments makes any recommendations or provides advice about investments.
Content Disclaimer: Past performance is not a guarantee of future performance. The investments mentioned in this podcast (if any) are illiquid and there is no guarantee that an exit strategy will come to pass.