E66: Different Ways to Invest as an Entrepreneur

By AshaIn TRANSCEND the PodcastPosted 0 Comment(s)

I don’t think there’s any amount that’s too small. It’s just about finding the right fit for what kind of investment you want to make.”

– Asha Wilkerson, Esq.

Episode Summary:

Today’s episode is a high-level overview of four different ways to invest as an entrepreneur.

We talk about direct investing, anonymous investing, venture capital investing, and non-financial investing in the form of mentoring other business owners. We also discuss a few of the platforms and organizations that help make it easier for you to invest in whatever way best suits you.

If you are ready to invest, tune in today to hear how you can use your money and your knowledge to make a positive contribution to your local economy!

You definitely won’t want to miss this one!

What You’ll Learn On This Episode:

  • [01:03] Four key types of financial investments
  • [01:57] Examples of what a direct financial investment can look like
  • [08:41] Crowdfunding platforms that allow for anonymous donations
  • [09:35] How investing in The SMBX work
  • [13:54] Exploring the concept of venture capital investing
  • [16:28]Mentorship; a non-financial way of investing in a business

Resources Mentioned:

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Read Transcript

EPISODE 66

[INTRODUCTION]

[00:00:04] AW: You’re listening to the Transcend Podcast. I’m your host, Asha Wilkerson, an attorney by training and an educator at heart. This podcast is all about empowering you to build a business and leave a legacy. Here’s the thing, the wealth gap in America is consistently increasing, and while full-time entrepreneurship is not for everyone, even a side hustle could change your financial landscape if you’re intentional about using your business to build wealth. I’ve run my own law firm for over 10 years, and in that time, I’ve helped countless California businesses go from idea to six figures. On this podcast, we talk about what it truly takes to build a sustainable business and find financial freedom. Let’s dive in.

[EPISODE]

[00:00:46] AW: We’re going to be looking at how we can make investments as entrepreneurs, because I know that we all have an interest in investing and giving back to our communities as well. I started thinking about, what are the different kinds of investments that we’d be able to make? I came up with four. There’s the direct financial investment, meaning, where the business you’re investing in knows who you are, and you have some kind of a relationship with them. There could be an anonymous financial investment. Then I’m looking at venture capital partnerships, and then just mentorship, which is not a financial investment, but it’s a time commitment. Because as business owners, even if we are still on our road to wherever we want to be, which we are, because there’s always the next level that we’re trying to get to, we know more than somebody else who’s just starting out. We can offer things to people. 

What I’ve found is, every time I try and teach something to somebody, it solidifies how much I know it for myself. It can also be a really good way to gain some more confidence because you’re teaching someone who is earlier on the road than you are and it will help you remember what you do know. 

First, we’ll talk about the direct financial investments. I’m thinking about direct loans. You could literally just loan another business some money. It could be $1,000, $2,000, $20,000. It could be any amount for someone that you know personally, or you could hear about people who are raising money. Now, loans are just like loans we would get from the bank, and I would definitely advise you to have a loan agreement, to have a contract to state an interest rate that you want, so that you’re going to make some money off of the loan. If it’s a new business, I would definitely have a personal guarantee for the loan in case the business goes out. All the things that we’re trying to avoid as business owners, those are the things that would protect us as investors. To have that personal guarantee in case the business isn’t able to make any money, and people will be happy. Sometimes they’ll feel like, “Oh! What’s $1,000 going to do?” But for someone who’s just starting out, especially a product-based business, $1,000 might allow them to get the materials that they need to start up. 

I don’t think there’s any amount that’s too small. It’s just about finding the right fit for what kind of investment you want to make. There could be a grant. You could start, in your own business, you could decide that you’re going to give out grants, maybe for people that you’ve coached. All three of us are either coaches or looking at coaching. If people come through our programs or do something with us, we could create a grant. I think, I’m not 100% sure, but giving a grant might be tax deductible in some kind of a way. That might only be true if it’s a nonprofit, but I’m sure that there’s some kind of a tax write-off that can happen. Even if it’s not business to business, maybe you could donate to a particular program that has a tax-exempt status. Then you can say, “I want this money.” You can have it earmarked. “I want this money to go to a woman of color business owner,” or whatever it is that you want. Then also kind of gets into the donations. If it’s not a grant, if it’s not coming through your business directly, or if you’re not making a personal grant to a business owner, you could certainly make a donation to any of the nonprofit or tax-exempt organizations that are working with nonprofits.

Some venture capitalist companies, I just met some folks from one the other night, they also have a nonprofit arm that is helping to pair – no, their nonprofit is actually religious. But I think that there are nonprofits like my friend, Tunde, created StreetCode Academy, teaching youth initially how to code, and now it’s open to people of all ages. But now they also have a business entrepreneurship track, where they are – it’s like a little mini accelerator helping folks parse out their idea and take it to market. At the end, the participants get a $2,000 grant to be able to use however they want. But you could also make a donation to an organization like that, that has tax-exempt status that’s working with business owners in the communities that you want, that benefits you literally on your taxes, because it’s tax-exempt, but you’re also able to help support local entrepreneurs along the way. It doesn’t have to be huge. It could even just be $200, $100, but that’s still an investment that will be beneficial to the community. The next one. Yes, [inaudible 00:05:39]. Go ahead.

[00:05:41] FEMALE: Asha, I was going to ask you about the donations part. I donate regularly, but I thought I was told by my tax people that that should come out of my personal checking account or whatever, and then that would be a write-off.

[00:06:00] AW: On your personal side.

[00:06:02] FEMALE: Yeah.

[00:06:03] AW: Is it to a business organization or is it to something else unrelated?

[00:06:09] FEMALE: Well, I regularly give to Kiva, so that’s helping other business owners, but it’s through Kiva. Then, sometimes I’ll give to other nonprofits. Yeah, I’ve been doing that using my personal credit card or whatever, and keeping track of it, but I was just curious around that piece. I could ask them as well, but can we donate from our business accounts?

[00:06:37] AW: Yes, as far as I know, but double check. As far as I know, yes, you can absolutely donate from your business. But because your CPA is doing your personal, and your business taxes, it may be more advantageous for you to do it from the personal account, because you have plenty of business write offs. It may be the balancing of your global picture, but businesses certainly donate – I mean, well, professional athletes are their own. Sometimes they form LLCs, or corporations, and they’re getting paid not as individuals. That’s why so many of them create their own foundations, because they need to send a certain percentage of money to a nonprofit to get that tax break or tax write-off. But businesses can do it. I mean, I don’t know. All the investments that Google makes in the professional affinity groups, most of those are nonprofits. Law firms will donate a table at a gala. They’ll pay $1,000 for a table at a gala. That’s a tax write-off because they’re buying a table with an organization that has tax-exempt status. It can be done. The question would be, for your stage right now, is it better to do it for you as an individual, because you get more of a break or for the business, because you get more of a break?

[00:08:03] FEMALE: Thank you.

[00:08:05] AW: Definitely. Okay. Anonymous financial investments. I don’t know why I decided to call it this, but I was thinking, where you don’t necessarily have a relationship with the group. Angel investing, I don’t know that much about angel investing, but I know that you’re making an investment in a company and there’s sort of a wall up so that you’re not participating on the board, you’re not working with the company. It’s like, “Oh, my guardian angel gave me some money.” There are some angel investment firms as well. One thing I didn’t put on here is just crowdfunding like Kiva, or other crowdfunding options we probably see. I can’t even remember what the names are right now. But we’ve all seen the fundraisers, “Help me raise money and get to $10,000.”

[00:08:55] FEMALE: GoFundMe.

[00:08:56] AW: GoFundMe, and there’s a couple others, but yeah, absolutely. Where you’re just one of a hundred or one of thousands, and you’re doing good, but you don’t have to – you could just scroll through and say, “Oh, I like this organization. Let me help this lady start her first company, or let me help this farmer get started,” or whatever it is. But you don’t have to have that personal kind of investment. It still makes a difference. The other one is the SMBX, which I think I showed you all before, but I am going to show you all again, because I like them, and plan to start investing with them as well. The SMBX is a smaller Stock Exchange, which I think is pretty cool. This is like you would be investing in stock or more like bonds, really more like bonds. If you were to go to the government website and find bonds. But you can find businesses in the area that you’re in. There’s one that just closed actually in Berkeley. This is what they are looking for. This is the interest rate. 9% interest rate, and then this is the term. It’s a five-year term. I would have to double check to see if that means after five years, and you would get your money back, or you would be paid back within five years.

This one is a 9.5% interest rate with a 36-month term, that’s just three years. That’s a little bit faster. You could do your research on these companies, as well. They’re smaller companies, they’re not huge, a lot of them are just trying to get started. You could invest whatever amount of money that you want. Then they have information in here about who the company is. Looks like it’s an unsecured investment, and there’s no collateral that’s there. But here’s the prospectus summary, they have SEC filings because it is like a little stock exchange, right? So they have to go through a series of compliance regulations to even come up here. This is their story.

They’ll tell you how they would use the funds, secure a location for an extended period of time, working capital, and to purchase supplies. They’ve broken it down. You get to decide, is this something that you feel like you want to invest in? Do you believe it? Do you think it’s cool, not cool? Whatever. It gives you more information. You can see all of the people who’ve invested. It looks like within this last week, some are as low as $20. Some are as much as $600 and up.

[00:11:37] FEMALE: Asha, did you say you use this platform currently or this is just one you found?

[00:11:42] AW: I have not. I learned about it at the beginning of COVID, and I have not yet actually gone through and made any investments, but I do want to start using them.

[00:11:53] FEMALE: Yeah. I was just going to say, I’d love to invest locally with open businesses. 

[00:12:02] AW: Yeah. This one is San Francisco.

[00:12:05] FEMALE: I want Oakland specific.

[00:12:07] AW: Yeah, I know. You’re right. You’re absolutely right. Okay. Maybe that’s the only one right now, and that one’s in settlement already, so it looks like it’s already closed. But new businesses come on all the time. Save this link, it’s a good one to check. They just closed in Berkeley. I know that they’ve had Oakland, so they do have a wide range of businesses that are there. That’s a nice way where someone has sort of done all the homework for you, and then it’s just like, when you’re picking stocks for yourself, it’s a gamble. It’s not 100% guaranteed, but it would be nice. They do have business owners of color that are on there. A lot of them are white business owners, but they do have some folks of color on there too. So that’s awesome. 

The thing too about a business being able to do this, the interest rate of 9% feels good for us as investors. I think it’s a pretty good interest rate. But it’s also competitive with commercial loans, and with community development, financial institutions that invest in, usually in communities of color or folks who don’t have this glorious financial profile. They tend to have a higher interest rate, because even though it’s easier to get the loan, they make you pay for it on the way back. This is a way that it’s kind of in between. It’s not a traditional loan, but it gets buy-in from people in the community. It’s a good interest rate for you as an investor. It’s not as stiff, I guess, or not as strong, not as high as the interest rate would be if it was the CDFI or Community Development Financial Institution.

Then venture capital investing. I am still learning about venture capital investing. I have recently decided that I do want to join a VC firm somehow, so I’m going to make that happen. I’m going to figure out how to make that happen, figure out what the buy in is, first of all, and figure out how to make that happen. A friend of mine joined a venture capital firm. I should just ask her. I should just flat out ask her like, “How much was it that you had to invest in there?” But what I didn’t realize, which I thought was actually pretty cool, was that they also – aside from the investment partners, they have other folks that they work with because they want to see their businesses thrive and flourish. As we know, as new business owners, or business owners trying to figure out what the heck is going on, we need advice. We need that attorney, we need that business coach, we need that person who’s been in the industry.

Another way to work with a venture capitalist company is to be one of the vendors that the VC might pay or have the company pay as a part of the VC’s financial investment. Even if you’re not able to, or don’t have an interest in becoming a part of a VC firm, you could become one of the vendors that, like the community partners for the VC firm, and choose to work with businesses they’ve invested in to help them maximize the investment, the financial investment from the VC firm. There are a couple of different ways to do it. I knew that, but I didn’t really get it, get it until a couple of days ago. Because from what I had read and just had heard a couple of years ago, is that it’ll usually be, one of the partners of the VC firm will sit on the board, because they want to make and have some influence, because they want to make sure, like Shark Tank.

Shark Tank, the investors are like, “Yeah, I’ll give you $100,000 for 20% of your company, and I’m going to be in there helping you do it.” Or the shark could say, “I’m going to give you $100,000, and I want you to partner, I want you to work with Lilly, because she’s built a business and you all will connect, and she can help you get to the next level.” Then you get paid either from the business that’s receiving the investment, or you get paid by the firm. You can still invest and kind of do that community good to help build up, and it doesn’t mean that you actually have to spend your money to do it.

Then, mentorship. This is one that I think gets overlooked maybe a little bit or maybe one that I just don’t think about a lot when I’m thinking about investing in other businesses. You could mentor a business, or business owner, or a friend starting a business or something like that on your own. You could do it informally, you could do it formally, or you could partner with an organization, like ESO Ventures, or ica.fund, or other local business organizations that are working with the businesses that you would love to invest in. You could reach out to these organizations that are already working with entrepreneurs and say, “Hey, I would like to volunteer 10 hours of my time,” or “I would like to be one of the business coaches on your panel that helps businesses that have come through your entrepreneurship program to get started or to help them grow to this next level.” 

It may be a situation where the business – like I’m doing some coaching with ICA. ICA pays me for my coaching, but there are other organizations like ESO Ventures where it’s volunteer. That also depends on how much I’m able to give, and when and how I’m able to give that as well. It could involve you making money or it could involve you just spending your time. ICA used to stand for Inner City Advisors, and then they dropped Inner City Advisors and just went to ICA. But ICA is right in Oakland on – no, it used to be. It is still in Oakland, but they’ve moved. I don’t think they’re on Broadway anymore. I think they’re out of like a WeWork area. They have invested in and mentored Blue Bottle, Firebrand Coffee, maybe Red Bay, I think. There are a number of businesses that have come through them. I work with them on more of their sort of beginner, they call it the lab, which is like a little accelerator. They have a six- or eight-week set of courses that they go through. Then after that, they’re able to make their pitch to get investments, to get funding up to $50,000. 

Then the next level is, once they – I think once they are grossing $100,000 or trying to get to the next level, they can go through an accelerator, or I think already said that, whichever one is the next one. Then they could get up to like $500,000 of investment. ICA’s mission is, their tagline, at least it used to be, “Fund good jobs.” They’re looking at business owners that are trying to create jobs in the community, so you have a lot of food-based businesses, and a lot of product-based businesses because they’re looking to hire other folks to work with them, as well. I like them, they do good work. 

The cool thing about ICA also, is that I’ve seen a couple of their investments, like how they’re structured. They will take a percentage of ownership in the beginning, but the more the money is paid back to the investor, the lower their ownership interest is until everything’s paid back, and then they no longer have any equity in the company. It’s like collateral. But when the person is done paying, or the business is done paying, then ICA is no longer an owner of the company, which is kind of cool. They could get an investment and then be free of them after a while, but they do good work. I really liked the folks that are there. 

That was my sprint into different ways to invest in businesses. I know that that’s been something that a few of us have been talking about, just being able to contribute a little bit more to our local community, but also without having to totally upend or uproot the stuff that we’re already doing. That’s a number of different ways that I think we might be able to make it fit, make it worthwhile.

[00:20:41] FEMALE: Yeah. We talked about this a lot in my other coaching group I was a part of. Just this idea of giving back or tithing, right, to get back a percentage, whatever that is to you. Because it’s an exchange, it’s an energy exchange. Even if you don’t feel like you have a whole lot right now, it’s like getting into an abundance mindset of giving to others that will just come back to you, and I really believe that.

[00:21:11] AW: Yeah, definitely. I agree. All right. Well, that’s all I have on different ways to invest as an entrepreneur.

[OUTRO]

[00:21:20] AW: Real quick, before we jump off, could you do me one small favor? Share this episode with one other business owner who could benefit from the content. Not only does it help us get the word out about the show, but it will also get your friends one step closer to building a business and leaving a legacy. With your help, we can make it happen. So if you enjoyed today’s episode, spread the word.

[END]

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Asha

Asha

Asha Wilkerson is the founder of The Wilkerson Law Office, P.C. Ms. Wilkerson provides skilled advice and counsel to for-profit, non-profit, and faith-based organizations in the areas of business and employment law. Her mission is to preserve the longevity of your business by ensuring that every aspect of your organization is legally sound and operating in compliance with state and federal law.

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