Stephanie Newby, the veteran investor who founded New York-based angel network Golden Seeds Angel Networkin 2004, has advice for companies looking to maximize their potential for success: involve more women.
Newby said diversity raises the collective intelligence of a company’s leadership, because members of different backgrounds can challenge conventional thinking. She cited evidence of this showing that gender-diverse management teams provide a 35 percent higher return on investment than those with only men, and that there is a positive correlation between women heading companies and higher stock prices. “Having women on the team provides a hidden value,” she said.
Newby previously enjoyed a long career at JPMorgan (New York), where she led the company’s diversity initiatives. However, she realized she could do only so much from the top down.
“I realized we weren’t going to change a lot,” she said. “We had to change corporate culture, and that was all about funding women entrepreneurs at the early stage.”
That led her to form Golden Seeds, which invests in women entrepreneurs and early-stage companies with women in leadership roles. According to Newby, it was the third most active U.S.-based angel network in 2011, investing over $10 million dollars.
Golden Seeds also offers seminars for both entrepreneurs and investors through its academy. “We teach people to understand the capital structure of companies,” Newby said. “How do you calculate employee stock options? How much capital should you ask an investor for? What is the right amount of equity to give?”
Newby, who said she likes dealing with data, provided a statistics-driven presentation showing early-stage companies’ potential. She said small companies have accounted for between 60 and 80 percent of new jobs over the past decade in science, engineering and computers; they hire 40 percent of high-tech workers nationwide; and they register 13 times more patents per employee than large firms. All of this, Newby said, gives investors plenty of incentive to back early-stage firms.
Advising entrepreneurs by listing what smart investors look for in potentially successful early-stage companies, Newby said a new company that wants to attract investors needs a scalable product ready to be commercialized, or one in at least the beta stage, and should have an addressable market of $1 billion. She said investors look for that big market. “There has to be room for them to grow,” she explained.
Just as they’re interested in getting in, investors also need a way out, Newby noted. She said early-stage companies should be able to show investors they have a clear exit strategy. “Who would buy the company and why? What kind of price would you expect from them?” Newby asked. She added that new companies should control their own intellectual property whenever possible to form a barrier against competitors.
Newby noted that new companies need experienced management teams. If the partners aren’t experienced themselves, they should recruit an advisory board of industry veterans and experts.
“Think of the best person and just ask them,” Newby said. “You’d be surprised; many people say ‘yes.’ ”
Newby had a final piece of advice that, while sounding like common sense, is still something new entrepreneurs need to practice.
“Get good at networking. People need to get to know you,” she said. “Don’t be shy.”