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Thursday, March 4, 2021

Making your first vegan investment

On a mission to fund over a thousand startups in the next decade, vegan impact investor Nathan Kinch walks through the process to invest in a vegan company.

Investing can seem like a daunting thing. It’s a lot of responsibility. The outcome is completely uncertain. But, it can also be a really powerful way to contribute positively to your life and the lives of others.

So, if you’re out there thinking about what you could do to contribute, this article is for you. Specifically, it acts as a very basic starting point. It’s for first-time investors. Think about it as your 101 to investing in vegan companies. I hope it’ll help make some of this process a little clearer and easier to do.

Also, given the way the world works (it often feels like we’re ruled by lawyers…), I have to say upfront that this isn’t investment advice. I’m not telling you to invest in any specific vegan company. I’m here to help give you access to the information that can support your journey, one tiny step at a time.

With that, let’s kick off with some upfront framing.

Starting small

When Damoy, The Vegan Review’s founder, and I were discussing this article, he said: “The main thing I have realised recently is that many people think the title ‘investor’ means you have to have millions and a booming portfolio.’

This is powerful. And he’s absolutely right. From my experience, a lot of people do think that. I used to think that. But it just isn’t the case. Thanks to all different kinds of developments, like Equity Crowdfunding, Angel Syndicates and Special Purpose Vehicles (SPVs), investing directly in startups is more accessible than ever before.

This doesn’t mean it’s easier to invest and make crazy good returns. It might even be harder (statistically speaking). But it does mean you now have the opportunity to start tiny and learn about investing by actually doing it, which, from my perspective, always beats simulated environments.

Direct to the cause

vegan investmentThere are a lot of ways to invest. You might be doing this already if you or your employer contribute to any type of retirement or pension fund. There are lots of issues with that space, unfortunately. That’s for another article. This one is all about investing in startups.

Why?

Well, the main reason is that investing in startups is a way to put your money directly into a cause you want to support. When you invest in the stock market, money basically flows around from investor to investor as part of the buying and selling of that stock. This is different. When you invest in a startup, that money directly contributes to the key activities the startup does to help deliver value and hopefully contribute to the positive impact on the people and communities it serves.

Okay, with the very basics out of the way, let’s get to the good stuff. We’ve structured this as a Q&A. In fact, we actually attempted to crowdsource some of these questions via LinkedIn. You can check out that effort here.

How much money do I need to make an investment?

This is a somewhat challenging question to answer, kinda like most of life. Let’s try to keep it simple.

The first consideration here is not to invest more than you can justifiably lose. This is important. Really important. As of right now, I follow this to a T.

You have to consider a lot of different stuff when making this assessment, the least obvious of which is the opportunity cost. That’s a kind of fancy way of describing what you could have done instead of doing this. So instead of buying that jacket, or taking someone you really like out to dinner (beautiful gesture, of course), you are making a small investment.

There are also some more general considerations, which you’ll actually see as part of most equity crowdfunding platforms, like not investing more than 10% of your net worth in startups. This rule doesn’t apply to you. Remember, we are starting tiny.

What this means in practice is something like this:

  1. You’ll attempt to identify a small sum of disposable income you’re willing to invest. Let’s say it’s $1,000 (not all in the one company; more on that later).
  2. You’ll also consider the things you might be giving up as a result of making this commitment. You want to be happy with the tradeoffs you are making.
  3. You’ll most likely have to start with equity crowdfunding sites like Crowdcube or Republic.
  4. You’ll commit to some level of diversification. Meaning you won’t put all your kale in the one basket. You’ll invest small sums in a few different startups.

But we’re kind of jumping ahead to an extent. All of this assumes that you want to do this, that you have the ability (time, disposable income, some very basic level of knowledge, etc.).

I’m okay with us making those assumptions given the focus of this article.

How do I find vegan companies that are good to invest in?

investing in vegan companiesWe probably need to start by qualifying ‘good’. Let me give you my definition.

For me, good is an early-stage startup that has the opportunity to demonstrably enhance wellbeing through sustainable business practices. This is the highest level summary of our investment thesis at Lamina Community.

For you, good might mean something different. It depends on your purpose, values and principles.

In terms of finding vegan companies to invest in, given the scope we’re proposing, you’re going to stick with Equity Crowdfunding. Angel investing directly or via syndicates is something that might come later, when you’ve got some experience and can justifiably invest 5k or more into each deal.

Some of the platforms I use most frequently to invest in vegan companies are Republic, Crowdcube, Equitise, Funded by Me, and Birchal. There are actually quite a lot. I’ve probably used seven or eight in the last four years.

Start your journey by doing a search. Learn a bit about those that you are legally able to invest in based on where you reside and pay tax in the world (some platforms or even certain campaigns have specific geographical restrictions). Ask folks who are already investing via that platform what their experience has been like. Get started with one or more when you feel you have the confidence to do so.

What do I look for when I find those companies?

Because I invest for impact, I prioritise impact-related metrics (definitely for another post as there’s some complexity and ambiguity in this statement). But, that doesn’t mean I don’t thoughtfully consider stuff that’s super fundamental, like:

  1. The purpose, values and principles of the organisation. In simple terms, why does the organisation exist? What fundamental purpose does it serve?
  2. The founding team composition, their past experience and proxies for credibility: specific and unique expertise that might qualify them to really take advantage of the opportunity they’re presenting. For instance, if you’ve got a cellular biologist as the CEO of a cellular agriculture company, you might assign a little more confidence to some of the ‘team fit’ criteria.
  3. The observable traction, which comes in the form of data — financial and nonfinancial — that the company is able to share. This is super important, but it’s worth noting that, if you’re investing really early, there’s little confidence you can assign to the data. Oh, and past performance isn’t always an indication of future trajectory.
  4. The system or market they are entering and the dynamics — macro and micro — that you might be aware of or can learn about. For instance, I’ve learned a fair bit about the nutritional sciences from some very intentional study over the last six years. That gives me a better than average ability to assess different claims about certain products. I also look to different areas of the behavioural sciences and specifically, the qualities of trustworthiness. This has been the focus of my career. So in short, sticking with what you know isn’t a binary rule, but it can help.
  5. The other people who are investing, among other factors.

When it comes to this stuff, they are a heck of a lot of great resources. My first suggestion would be a quick search for terms like: “What criteria should I prioritise for my first startup investment?”

Don’t stick with this verbatim. Do some dynamic searching. You’ll learn plenty.

Are there any tips and hacks for first-time investors that you would recommend?

I’ve written about a specific approach I use called the Problems Worth Solving Framework in the past. This is one of many things you might consider using to support your decisions.

Other important stuff is:

  1. Connecting with founders directly on platforms like LinkedIn. Developing relationships, regardless of how small your investment might be, can go a long way.
  2. Putting word out to your network that you’re thinking of investing in startups via Equity Crowdfunding. Ask for help. You might be surprised by how many folks come back willing to share things they’ve learned and experienced.

How important is it to have a strategy? And how do I develop one?

A strategy is simply a plan describing how you get from some starting point to some desired end-point. It’s always a speculation, because we never know exactly what the future holds. With that said, I am a firm believer in having at the very least a strategy on a page (basically something super simple that describes how you get from point A to B). Here are the basics of the one-pager I use. Like this article, it’s designed Q&A-style.

Question 1: Where am I now?

This is a simple description of your current state. It could be something like: “I’m just getting started. I’ve decided I want to invest $1,000. I want to put this money directly into companies that align with my personal values.”

Question 2: Where do I want to be?

This is a simple description of a future state that motivates you. For instance: “In 12 months, I want to have made 10 $100 investments in vegan startups. I want to be well on my way to investing more money into more vegan companies.”

Question 3: What will I do to get there?

This is the strategy. It’s the high-level plan that describes what you think will help you close the gap between today and the future you’ve described. It might be something like: “I’m going to start learning about investing, put aside $1,000 and make about one investment every month until the end of the year.”

Question 4: How will I do it?

This is where you start getting into tactics. You’re getting much more specific. Something like: “I’m going to sign up for FoodHack and check it out once each week. I’m going to read The Vegan Review for ten minutes each day. I’m going to start learning about investing in startups by doing a basic course. I’m then going to sign up for a few Equity Crowdfunding Platforms. Then, based on what I’ve learned, I’ll make 10 investments, $100 each, all before the end of the year. For each of these investments, I’ll follow a very simple, documented process where I ask and answer 10 questions. I will only make an investment if I can positively answer each of the ten questions. This is how I will keep the process consistent.”

Question 5: How will I know if I’m making progress?

This is a simple description of what you will measure to keep you informed and motivated. It might end up saying something like: “I will track each deal I review. I will track the number of connections I make with founders and other investors (no point processing their data, just the number is fine). I will track my level of motivation and excitement each month. I will track the ratio between deals reviewed and investments made…”

Hopefully, you get the gist. But again, do your own thinking here. Learn from other people and resources. Bring it all together in a way that’s meaningful and actionable for you.

If you want to talk more about any of this, let’s start a conversation. All of this is complex and often benefits from a more conversational approach.

Here’s to making the world a bit better, one tiny vegan investment at a time.

Nathan Kinch
Nathan is a founder and impact investor. He's spent most of his career helping organisations - from federal governments through to global corporations, fast growing startups and research institutes - design for the qualities of trustworthiness. He's audaciously on track to invest in over a thousand startups by 2031, each contributing positively to a sustainable wellbeing economy. He lives on the Gold Coast with his better half, daughter, two furry friends and a growing fruit and veggie garden. In a previous life he was an athlete.

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