Photo: D. Sharon Pruitt via Flickr
A few Saturdays ago, I had the chance to attend a conference hosted by the Pipeline Fund Fellowship (PFF), which trains women philanthropists to become angel investors.It was fascinating — I got an inside look at the other side of the table, at the people who fund entrepreneurs like us.
How Angels Help Startups
An angel investor is an individual who invests his or her own money—anywhere from $25,000 to $250 K—in a startup or entrepreneurial company, typically in exchange for a piece of the equity (ownership) in that venture. For a fledgling company, this money can be critical in helping get the business off the ground.
The game is risky, but the rewards are potentially huge: remember Peter Thiel, who gave Facebook an early angel investment? He’s seen that money grow to astronomical proportions. To help investors get smart, most investments are proceeded by a surprisingly intense “due diligence” process, during which the potential investors examine every aspect of the startup and its business plan.
Most Angels are Men
Given women’s wealth, education, and experience—and rising entrepreneurship—we would expect to see plenty of female angels. But unfortunately, by most counts, 90% of angel investors are male. So why the disparity?
A variety of studies have attempted to answer this question: Women have different social networks, lack awareness of angel investing, or are less likely to be cashed-out entrepreneurs. Women tend to have social networks that encourage separating friends and money. Women are less comfortable with risk.
Deborah Schultz, a partner at the Altimeter Group, put it well: “Men are a lot better at letting ‘perceived failure’ roll off their backs… There’s a great quote: If women fail, we blame ourselves, if men fail they blame the situation.”
And This is a Problem
Fewer female angels means fewer investors in general, which means less available capital to start companies. But to get more specific, the gender disparity in angel investing also creates a threefold problem for female entrepreneurs seeking money:
- Investors often look for entrepreneurs who remind them of themselves (or their younger selves), a well-established phenomenon called homophily.
- Investors seek to invest in markets they understand. So fewer female angels means fewer investors with an understanding of the female consumer.
- The majority of angel investing tends to occur within fairly closed networks, where women may not have preexisting connections. Once again, there’s an old boys’ club.
The data support these conclusions; for example, venture capital firms with women investment partners are 70 per cent more likely to lead an investment in a woman entrepreneur than those with only male partners.
A more gender-balanced angel investing field would also provide benefits across the board. Studies consistently show that female-friendly groups of angel investors are more collaborative, more likely to encourage newcomers, and more interested in a broad range of investment opportunities.
How PFF is Changing Things
Launched last year by Natalia Oberti Noguera, PFF is determined to bring more female angels into the arena. PFF organizes conferences, like Saturday’s, sponsored by groups like 85Broads, Goodwin Proctor, and In Good Company, to promote angel investing among women.
PFF also offers a three component training process to aspiring female angels:1. Education: PFF teaches courses on company valuation, due diligence, term sheets, board governance—everything you need to know to go from successful businesswoman to successful business investor.
2. Mentoring: Participants are matched with an experienced angel investor to serve as a role model.
3. Practice: PFF offers guidance all the way through the actual selection of for-profit, women-led social ventures to invest in.
So what’s all this mean? More female angels, we hope! And more investments in promising startups.
- startups: An “Alpha Male Pissing Contest?”
- Increasing the Pipeline of Women Angel Investors
Business Insider Emails & Alerts
Site highlights each day to your inbox.