Freelance writer Justine Lee talks to female angels and founders about how to get more women to invest in startups.
By Justine Lee (Contributing Writer, Women 2.0)
In a room full of 100 angel investors, 85 of them are men, and 15 are women.
While this proportion is already shifting, there is work to be done to get that number closer to 50. I spoke with three women entrepreneurs and three women angel investors about their ideas on how we can get there.
Explore the Why
Before we can effectively solve the disproportion, we need to first understand why it exists. That means digging deep into understanding the psyches, insecurities, expectations, and life stages of women today. It also means honestly answering broader questions about how men and women communicate, work together, and learn from each other in finance, and questions like: Why are there so few women in leadership roles overall? Why are there more women who give to philanthropic causes versus making investments? Who controls the purse strings in a household? Once we understand what may be behind a woman’s hesitance to become an angel investor, we can begin to create the structures and initiate the conversations that lower hurdles.
Showcase More Examples
Women 2.0 has made this a priority by profiling successful women angel investors in its “This Is What An Angel Investor Looks Like” series, over the past year. In addition to profiles, media and conference organizers should tap into the pool of women investors for their opinions in larger trend stories and for speaker line-ups, respectively. To the same end, existing angel investors need to continue to identify themselves, seeking these media and speaking opportunities, and being enthusiastic to serve as role models to other women considering investing.
As more women see the faces, read the stories, investment successes, and hear the thoughts behind the existing 15%, the idea of angel investment becomes less foreign, more personable and within reach. This is reassuring, says Aihui Ong, CEO of Love With Food and generates the logic ‘if there are other women doing it, then I can do it, too.’
Build More Teams in More Places
Building more angel groups, in particular ones comprised predominantly of women, is essential to attracting more women investors. This is because women prefer investing as part of an angel group to navigating the space as an independent angel, says Karen Linder, principal at Linseed Capital and member of Nebraska Angels. Linder cites large numbers of women investment clubs and philanthropic communities as evidence that women are attracted to the sense of belonging that a group dynamic offers.
With more women angel groups like the Women’s Capital Connection, and Golden Seeds in more locations, we’ll not only see an increase in women investors, we’ll also see larger investments being made, according to a 2011 study from University of New Hampshire Center for Venture Research. The study found that when an angel investment group had a small percentage of women, it was more cautious about investing; however, when women made up more than 10% of the investment group, their presence was associated with increased investments.
More Education and Matching Programs
By bringing potential investors more information and access to startups based on their backgrounds and preferences, more women will know where and how they can make an impact.
As it is, angel investment is still considered an alternative, “niche” form of investment, and because of this, Elizabeth Yin, CEO of LaunchBit, believes, that for women with wealth, it’s not a natural first thought.
Fellow female entrepreneur Andrea Lo, CEO of Piggybackr, adds that unless a woman has first-hand knowledge of starting a business or had to make investment decisions as their primary job, becoming an angel investor is a big leap of faith.
Women need to be eased into the space. Lee recalls looking at 1,000 deals before she felt like she had her “investing legs,” and said that women hesitate to dive into something they do not feel 100% qualified or prepared to do, according to a study from Harvard Business Review, whereas men only need to feel 50% qualified to apply to a job or opportunity.
“The reality is that when most of us start out, we’re only 25% qualified for angel investing, and that percentage only grows by doing it,” says Lee, who created 37 Angels with an educator’s perspective.
In addition to providing aspiring angels with training programs, 37 Angels makes education available to all parties in the ecosystem including existing angels and entrepreneurs. “It creates a very unique, open and collaborative environment which people have responded well to,” Lee says.
The next step is making these programs and the systems of matching investor to venture, more customized and more readily available beyond New York and the Bay Area.
Change the Conversation
One way to change minds is to change the conversation, and we can start by overturning the prevailing view that angel investing is exclusively an activity that involves extremely wealthy individuals making very sizeable investments in risky ventures. As the diversity in the profiles show, angel investors come from all sorts of backgrounds and can give in amount as small as $5,000.
Joanne Wilson, an angel investor and blogger known as Gotham Gal, has turned a number of hesitant women into avid investors by emphasizing their unique set of skills and resources (aka rolodex) and how these can really impact a business. She also calls out the satisfaction of thinking creatively, being a part of something new and exciting, and seeing entrepreneurs you’ve backed, succeed.
To address the financial hesitation head on, Wilson will ask how much they spent on their last vacation. “That was the aha moment,” says Wilson. “You go on a vacation and spend quite a big amount of cash and you leave with memories and a new attitude, but the cash is gone. For roughly the same amount, you can put that cash to work and help an entrepreneur grow their business. If you do enough of these investments one of them is bound to return your cash and hopefully more.”
From an entrepreneur’s perspective, Lo believes the focus should be on the innovation that is made possible by investing in startups, and suggests asking: “If you’re already thinking about donating 10k to charity, why not consider investing 10k in innovation?”
Create Memorable Campaigns
After teasing out the rhetoric, organizations can reach more people by creating campaigns that are as thoughtful as they are viral.
500 startups’ 500 Challenge is an example of this. It invites women to publicize their commitment to investing at least $5,000 in at least three startups over the course of the year. By getting a group of high-profile women behind the campaign, Lo believes we’ll see even more traction, citing Marissa Mayer’s successful crusade to change perceptions and policies around pregnant working women.
Support Women Entrepreneurs
The woman entrepreneurs I spoke to believe very strongly that if there are more of them, there will naturally be more women investors. Successful former entrepreneurs become investors because they have what it takes: wealth, the knowledge to evaluate startups, and the desire to give back to the community that raised them.
“I personally want to be an angel investor after having gone through what I have [as an entrepreneur],” Lo says. Yin and Ong agree, and Yin thinks we’ll see a significant increase in the number of female investors within the next five years, especially as all the female-led businesses begin to exit.
Lee told me that two-thirds of the 37 Angels Network is comprised of former and current entrepreneurs and that it happened naturally as entrepreneurs have really resonated with their founder-friendly ethos.
Before these women entrepreneurs can become investors, they must first be funded, and in the meantime, today’s women entrepreneurs have found it difficult to attract women investors. Out of the 100 or so investors Yin spoke to, only a handful were women, and none ended up investing. Lo and Ong experienced similar situations. All attributed this to the generally risk-averse nature of women and the fact that many they met were new to the game.
Investors like Lee emphasize that while 37 Angels is made up predominantly of women, they invest in both male and female-led startups. She says the misconception that they only invest in female-led startups is common.
Though Wilson, too, invests in both male and female-led startups, she told me: “There is no question that many of the businesses that women start are easier to grasp if you are a woman.”
This leads to a little chicken or egg conundrum: do we need more women entrepreneurs first or more women investors to invest in women entrepreneurs before we see change? The answer, I’ve found, is we need both.
About the guest blogger: Justine Lee is a freelance writer interested in telling the stories behind innovation and great ideas — from breakfast burritos to deep sea exploration, she wants to know about it. Previously, Justine spent a year and a half in Taipei, where she learned Mandarin and led a mobile app project from concept to launch. Before that, Justine drove media relations and crafted messages for high tech companies and startups at Edelman. She is a proud bay area native.
Image credit: Justine Lee